M. Sc. Maja Niki Radi University of Rijeka, Faculty of tourism and hospitality management majanr@fthm.

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ANALYSIS OF FDI IN THE TOURISM SECTOR: THE CASE STUDY OF THE REPUBLIC OF CROATIA

ABSTRACT The structure of foreign direct investment worldwide has shifted towards services. In the context of this work it is necessary to emphasize that tourism is major service industry and it is a priority sector in an increasing number of economic strategies in developing countries. Foreign direct investments are one possible source of funding of the tourism sector. FDI in tourism plays a quite important role in tourism sector of many developing countries. Tourism is believed to be the key impetus for the development of Croatian economy. According to EBRD, Croatia would benefit from efforts to increase FDI in particular in sectors, such as tourism, where consumers are willing to pay more for higher quality services and introduction of well known brands. With tourism accounting for more than 14% of Croatian GDP, upgrading and expanding the countrys infrastructure to support its holiday industry is of crucial importance. Due to lack of domestic capital, the Republic of Croatia needs foreign direct investment in tourism industry. Given the above, a central topic which will be addressed in this article is the analysis of FDI in the Croatian tourism sector and what to do to increase their inflows. Key words: FDI, FDI in tourism sector, competitiveness JEL Classification: F 21, F 23, L 83

INTRODUCTION In developing and transition countries tourism sector represents a promising path towards an economic and social development. Further development of tourism sector in such countries is in need of FDI. This is exactly the situation with the Republic of Croatia. The purpose of this research is to analyze FDI in tourism sector of the Republic of Croatia and to draw attention to the role of IPA may have in attracting such investments. The paper is divided into four chapters that comprise one coherent text. Having presented the introductory remarks, the paper continues to demonstrate the general FDI trends in the Republic of Croatia. This is followed by the second section which draws attention to the importance of the tourism sector for the Croatian economy. Section 3 presents the core characteristics of FDI in tourism sectors, their importance for the development of the tourism sector in developing countries and provides a detailed analysis of tourism FDI in the Republic of Croatia. Finally, section 4 indicates the investment opportunities in the Croatian tourism as well as recommendations on how to attract foreign investment in the desired tourist area. Lastly, the conclusions and final remarks will be presented and a complete list of references will be included.

1. FDI IN THE REPUBLIC OF CROATIA In the 1990s, FDI inflows became the primary source of external capital in many developing and transition countries. Developing countries seek to attract FDI in order to promote development. Country after country in the developing world, advised by international organizations, made attracting FDI the heart of its development strategy. But this strategy was risky on three issues: 1. FDI flows might not happen. Of the quarter of global FDI flows which go to developing countries, 80 per cent are concentrated in only 12 middle-to-large countries. 2. There was the risk that FDI would disrupt or destroy existing agricultural and/or industrial production, but not deliver the promised benefits of sustained economic growth and technology transfer. 3. There was the risk that FDI inflows would overcome domestic capacities for environmental and social oversight, generating net costs rather than benefits to local communities and national revenue flows (Zarsky 2005, 4). Simply put, the role of FDI as an elixir, a panacea or a miracle drug for development was to demanding (Yingqi and Balasubramanyam 2004, 66, OECD 2002, 6, Zarsky and Gallagher 2010, 13). But, in spite of that, many developing countries lacking capital and access to international marketing networks, still seek FDI to offset their disadvantages (Endo 2006, 601). The exception is neither the Republic of Croatia. The main indicators of FDI in Croatia are presented in following table. Table 1: Main indicators of FDI in the Republic of Croatia (1999-2009)
Period 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 FDI inflow (USD mil) 1.452 1.051 1.313 1.071 1.989 1.179 1.825 3.468 5.023 6.140 2.605 FDI stock (USD mil) 2.563 2.796 3.896 6.076 8.599 12.414 14.548 27.370 45.063 31.769 36.602 FDI stock per capita 565 621 869 1.360 1.930 2.790 3.274 6.170 10.175 7.183 8.288 FDI stock/GDP ratio 11,11% 13,10% 17,03% 22,97% 25,40% 30,51% 32,74% 55,80% 76,93% 45,82% 58,07%

Source: UNCTAD Statistic Database

By the end of 2009, FDI inflows to the Republic of Croatia have reached to EUR 2.6 billion. In 2009, FDI inflows fell down by 42% compared to 2008. The decrease is the result of the global financial crisis. Most FDI in Croatia, in the period 1999 to 2009, was directed towards existing companies, as a mode of the privatisation process. There was very little greenfield investment which is the main drawback of investment in Croatia. By the end of 2009, FDI stock in Croatia has reached to EUR 36.6 billion. Croatian FDI per capita is similar to that of Slovenia and about three times that of Romania or Bulgaria (Hunya and kundar 2007, 12). In terms of FDI/GDP ratio, Croatia ranks highest among the countries of Western Balkans (Niki Radi 2010, 49).

Looking at the FDI according to the country of origin, the biggest investors in the Republic of Croatia in the period from 1995 to 2008 come from Southeast Europe. In that period, Republic of Croatia received 20,842 millions Euros of FDI. The distribution is presented in Table 2. Table 2: FDI in the Republic of Croatia according to the country of origin
Total 1995 -2008 (EUR mil) 5.763,7 AUSTRIA 3.191,8 NETHERLANDS 2.662,5 GERMANY 2.157,2 HUNGARY 1.308,8 FRANCE 1.091,2 LUXEMBURG 973,4 ITALY 949,4 SLOVENIA 2.743,6 Other countries TOTAL 20.841,7 Source: Croatian National Bank, adjusted by the author SHARE 27,7% 15,3% 12,8% 10,4% 6,3% 5,2% 4,7% 4,6% 13,2% 100,0%

Austria was the major investor, with EUR 5.8 mil and a 27.7% share in total investment. It is followed by the Netherlands with EUR 3.2 mil (15.3%), Germany 2.7 (12.8%), Hungary 2.2 (10.4%), France 1.3 (6.3%), Luxemburg 1.1 (5.2%), Italy 0.97 (4.7%) and finally Slovenia with EUR 0.97 mil and a 4.6% share. The eight mentioned countries cover for 86.6% of total FDI. It is also important to consider FDI in the Republic of Croatia regard to the activities. The overview of FDI by activities in period from 1993 to 2009 is given in Table 3. Table 3: Foreign direct investments in Croatia (by activities), in million EUR (1993 2009)
Activity Financial intermediation, except insurance and pension funds Wholesale trade and commission trade Manufacture of chemicals and chemical products Manufacture of coke, refined petroleum products Real estate activities Post and telecommunications Retail trade, except of motor vehicles and motorcycles Extraction of crude petroleum and natural gas Manufacture of other non-metallic mineral products Hotels and restaurants Other activites Total Source: Croatian National Bank, adjusted by the author Total % 35,0% 11,2% 6,7% 6,6% 5,2% 5,7% 4,5% 3,8% 3,4% 2,5% 15,4% 100,0%

The allocation of FDI flows in Croatia shows that the inflows are highly concentrated in three industrial sectors that received more than half of total FDI. The major activities represented by FDI inflows in Croatia were in financial intermediation (35,0%), wholesale trade and commission trade (11,2%) and manufacture of chemicals and chemical products

(6,7%). For the purposes of this paper is important to emphasize that hotels and restaurant in period from 1993 to 2009 received only 2,5% of total FDI. 2. THE IMPORTANCE OF TOURISM FOR THE CROATIAN ECONOMY The Republic of Croatia is located in Southeastern Europe, with a long coastline on the Adriatic Sea to the south, and borders with Slovenia and Hungary to the north, and Yugoslavia and Bosnia and Herzegovina to the east. It has an area of 56,538 square kilometers. The country's coastline stretches for 5,790 kilometers and consists of 1,778 kilometers of mainland coastline and 4,012 kilometers of island coastline. Whereas, geographical position and well-indented and long coastline, no wonder that the Republic of Croatia emerged as an important tourist destination in Europe. The structure of Croatian economy is dominated by the service sector, first and foremost due to great importance of tourism industry. The main indicators of economic importance of tourism sector in the Republic of Croatia shows the next table. Table 4: The economic importance of tourism sector in the Republic of Croatia
Period 1999 2000 12001 2002 2003 2004 2005 2006 2007 2008 2009 GDP (EUR mil) 21.647,0 23.333,0 25.738,0 28.189,0 30.265,0 33.009,0 36.034,0 39.745,0 43.390,0 47.370,0 45.379,0 Tourism revenues (EUR mil) 2.351,9 3.011,8 3.749,3 3.960,8 5.572,7 5.505,6 5.998,9 6.293,3 6.752,6 7.459,4 6.379,7 Tourism share of total GDP 10,9% 12,9% 14,6% 14,1% 18,4% 16,7% 16,6% 15,8% 15,6% 15,7% 14,1% Tourist arrivals (000) 5.127 7.137 7.860 8.320 8.878 9.412 9.995 10.385 11.162 11.261 10.935

Source: Authors calculations according to Central Bureau of Statistics: Statistical Yearbook 2010; Central Bureau of Statistics: Revision of annual gross domestic product, 1995-2007; National Bank of Croatia: Balance of payments 2010; WIIW Database Services

As clearly seen in Figure, gross domestic product, tourism revenues and tourist arrivals had shown stability during the period 1999-2008. All three selected categories declined in 2009, due to the global financial crisis. Tourism share of total gross domestic product strongly increased during the period 1999-2003 and then began to decline until it in 2009 dropped to the level from the year 2002. Regardless to the drop, with 14,1% of GDP in 2009, tourism revenues are a major driver of Croatias economy and is predicted to remain so. According to the Ministry of Tourism, since visitor arrivals reached almost 10 million in 2005, which is 6.3% of all Southern/Mediterranean arrivals in that year, Croatia has benefited a lot form its tourism industry. According to the projections of the Strategic Marketing Plan of Croatian Tourism (THR & Horwath, 2008), from 2010 to 2014, it is expected that there will be 17.6 million tourists and 80 million overnight stays in Croatia by 2020. The expected economic effects generated by tourism by 2020 are the following: Yield per overnight (in constant prices) in the amount of 221 or 78% growth in comparison to 2008;

Tourism industry revenue (in constant prices) in the amount of 19.8 billion, representing a 179% growth rate relative to 2008 (THR & Horwath 2008). Tourism in a country such as the Republic of Croatia may be linked to future FDI. In other words, tourism is a path for new FDI. Tourism may represent a valuable source of firsthand perceptions about other countries that may be useful to investors (Sanford and Dong 2000, 206). These perceptions can be shared with potential investors through various communication channels and may affect foreign investment location decisions. As a result of this information diffusion process, tourism should associate with new FDI. However, the impact of the information on FDI decisions is likely to have a delayed effect and the industries most influenced should be in the tourism sector (Sanford and Dong 2000, 208). Furthermore, change in tourism may represent additional information to potential investors over and above the level of tourism (Sanford and Dong 2000, 208). In other words, growth in tourism may be the result of the diffusion of positive information about a destination country. By contrast, negative growth in tourism may reflect the diffusion of negative information. In the context of the above, it is necessary to point out that Croatia marks the highest number of foreign tourist arrivals from the countries who are also its major investors, with exception of the Czech Republic, Poland and Slovakia. The overview of tourist arrivals in 2010, concerning the country of origin, is given in the next table. Table 5: Tourist arrivals concerning the country of origin
Country Germany Italy Slovenia Austria Czech Republic Poland France Slovakia Hungary Netherlands Total number from above countries Total number of foreign tourist arrivals Arrivals in 2010 Share 1.525.133 16,74% 1.018.375 11,18% 1.016.572 11,16% 810.340 8,89% 605.732 6,65% 454.445 4,99% 388.320 4,26% 310.031 3,40% 297.667 3,27% 285.257 3,13% 6.711.872 73,67% 9.110.742 100%

Source: Calculated by author according to the Central Bureau of Statistics, 2010

The above mentioned countries make up for almost 74% of total foreign tourist arrivals. The tourism sector may be seen as having a relative superiority over other economic activities in terms of economic, social and environmental development, when it is wellplanned, well-managed and developed in the right manner (Nowak 2010, 11). The problems in Croatian tourism are mainly to be found in insufficient investments in hotels and restaurants, a marked seasonality, insufficient occupancy of capacities, negative business results, overpriced products and services connected to tourism in comparison with the competition (Italy, Austria, Greece, Czech Republic, Hungary, Italy and Switzerland) (Grini and Vitasovi 2007).

Therefore, it is possible to conclude that tourism itself can lead to new FDI. On the other hand, tourism sector needs FDI for the further development, especially in the developing countries lacking capital, like the Republic of Croatia. 3. FDI IN THE TOURISM SECTOR OF THE REPUBLIC OF CROATIA Tourism is a priority sector in the increasing number of economic strategies in developing countries. Neither the Republic of Croatia is any exception. The tourism industrys extreme geographical dispersion makes it an ever more globalized activity, which offers potential tourism growing numbers of options. As tourists become ever better informed, selective and demanding, many developing countries have made it a priority to capture FDI and attract global brands to gain a foothold in international tourism paths (ECLAC 2008, 99). Tourism investment supports tourism development. It is very important both to the individual firm, ensuring its future productive viability, and to the destination, adding strongly to the economys overall capacity to satisfy tourism demand (Dwyer, Forsyth and Dwyer 2010, 459). Foreign tourism companies, beside the injection of fresh capital for new tourism infrastructure, also help to attract foreign tour operators and tourists, and there are many emerging tourism destinations competing for these objectives (Yunis, 2008, 105). But it is always convenient to adopt a two-split approach promote both foreign and domestic investment in the sector to avoid becoming over-dependent on the former (Yunis, 2008, 105). Domestic investments in tourism usually provide a better reflection of the cultural characteristics of the country and this is a key element in emphasizing the unique natural characteristics of any destination and hence in offering tourist a unique selling proposition (Yunis, 2008, 105). Foreign direct investment in tourism (TFDI) is a category of international investment whereby an entity resident in one economy (direct investor) acquires a lasting interest in a tourism specific enterprise engaging in tourism growth fixed capital formation (a direct investment enterprise) resident in an economy other than that of direct investor (UNWTO, 2004, 22). Despite the small global FDI in tourism, many developing countries cannot ignore the potential roles played by tourism TNC (Endo, K., 2006, 613). FDI allows host countries to be integrated into international tourism networks which will lead to increase in the flow of tourists and generating more income from tourism-related activities (Endo, K., 2006, 613). TFDI plays a quite important role in tourism sector of many developing countries. The need for foreign investment in developing countries will depend on a number of factors: political orientation, the level of current foreign investment, general economic and tourism development levels and the type, scale and stage of tourism development required (Kusluvan and Karamustafa 2001, 187). Foreign investment and know-how are seen as essential elements in creating and upgrading tourism-related infrastructure (FDI Editor, 2007). It is also important to note that foreign investment can give rise to more investment in tourism in total (Forsyth, Dwyer, 2003, 72). The amounts of FDI inflows in tourism sector of Republic of Croatia are presented in next table.

Table 6: FDI inflows in tourism sector of Republic of Croatia

Period FDI inflows in hotels and restaurants 9.434 15.139 6.753 28.516 62.013 27.025 92.353 17.640 39.708 91.647 29.612 32.703 137.452 13.198 603.193 Percentage in total FDI inflows 2,47% 3,15% 0,79% 2,09% 5,44% 1,84% 8,12% 1,00% 4,18% 6,24% 1,07% 0,89% 3,28% 0,63% 2,54%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 TOTAL

Source: Calculated by the author according to WIIW database

It is interesting to note that the share of tourism FDI in total FDI remarkably varies from year to year. This was due to inconsistent policies for attracting FDI in the tourism sector. The average share of tourism FDI of 2.5% in total FDI certainly is minor for a country that wants to impose itself as an important tourist destination. FDI in the tourism industry has one very particular feature: control can be separated from ownership of real estate assets (ECLAC 2008, 107). The tourism industry therefore has unique features in comparison with manufacturing, since firms can reap the benefits on internationalization without having to invest directly in physical assets like land, buildings and other facilities (Dunning and McQueen 1993, 268). Cross-border M&A are component of FDI as they involve changes in ownerships through the purchase and/or sale of equity (Endo 2007, 607). Cross-border M&A deals in tourism can be a valuable piece of information because TNCs often use M&A as a speedy and practical mode of entry and the tendency of using M&A (as opposed to new investments) is high (UNCTAD 2004, 111). Major M&A deals in Republic of Croatia in period from 2001 to 2010 are given in the next table.

Table 7: Major M&A Deals in Republic of Croatia (2001-2010)

Date 23 July, 2010 12 April, 2010 2 October, 2009 9 June, 2009 29 August, 2008 6 March, 2008 18 February, 2008 1 February, 2008 28 December, 2007 16 August, 2007 30 July, 2007 10 February, 2006 31 August, 2005 19 July, 2005 28 June, 2005 1 March, 2005 9 December, 2004 26 November, 2004 22 October, 2004 21 July, 2004 31 July, 2003 30 December, 2002 2 December, 2002 7 November, 2002 24 September, 2002 13 September, 2002 13 December, 2001 30 October, 2001 Target Company Liburnia Riviera Hoteli (LRH) McDonald's Hrvatska, d.o.o. Rovinjturist d.d. Hotel Danica ; Hotel Jadran Hotel Salve Regina Sunce Koncern d.d. GRAND HOTEL IMPERIAL d.d. Jadranka Hotels Puntizela GFG Gustus Arenaturist Kastelanska Rivijera Suncani Hvar Vodicanka Adriatic Hotel Lapad Grand Hotel Park Holiday Hotel Hotel Split Dubrovnik Babin Kuk Jelsa Therapia Lavica Crikvenica Hotel Split Villa Frappart in Lovran Croatia Hotels Cavtat Hotels (Albatros, Cavtat and Epidaurus) Deal Type Privatisation Acquisition Restructuring within one holding Acquisition Acquisition Acquisition Minority stake purchase Minority stake purchase Acquisition Acquisition Acquisition Privatisation SPO Privatisation Privatisation Privatisation Privatisation Acquisition Privatisation Restructuring within one holding Privatisation Acquisition Privatisation Acquisition Privatisation Acquisition Privatisation Privatisation Total: 376.62 Source: ISI Dealwatch Deal Value USD (mn) 0,00 0,00 9,49 4,80 2,14 141,71 0,00 35,73 2,45 2,88 0,00 2,93 33,30 4,96 28,26 4,07 9,59 9,73 14,77 37,40 4,37 5,60 2,10 1,70 3,50 3,00 5,54 6,60 Stake % 54,83 100,00 100,00 100,00 N/A 49,99 13,55 30,00 96,44 N/A 64,50 70,73 46,89 62,15 87,83 80,31 87,51 N/A 68,08 66,30 81,40 100,00 100,00 100,00 60,46 100,00 27,01 71,50

It is important to note that the data source is not the national government but a private company that specializes in the collection of relevant information. That is only a confirmation of the common opinion in FDI statistics that the more advanced a country is, the more detailed the countrys FDI data are (Endo 2006, 605). The main fields in which Croatian tourism is attractive for foreign investors are presented in Figure 1.

Figure 1: Fields in which Croatian tourism is attractive for foreign investors

Note: The questions was rated in a scale from 0=not attractive to 5=very attractive; the percentages given relate to answers 4 and 5 (very important) Source: Roland Berger Strategy Consultants: Croatian tourism reality and perspective, Survey results, Study, Zagreb, July 2007, p. 36

Croatias tourism has the resources and potentials to attract foreign investment but compared to other European countries (especially in South-East Europe) does not offer competitive business environment (avlek 2010, 145). It is well known that corruption and bureaucracy are the greatest barriers to FDI in the Republic of Croatia. Foreign investors were often not selected in the privatisation of tourism assets. 4. WHAT TO DO TO ATTRACT FDI IN CROATIAN TOURISM? The conventional opinion is that the Republic of Croatia needs to invest in four sectors: electricity, agriculture, industry and tourism, which inevitably saves the public finances of the Republic of Croatia (Jakeli, 2010). With tourism accounting for more than 14% of Croatian GDP, upgrading and expanding the countrys infrastructure to support its holiday industry is of crucial importance (Norton 2010). Croatia would benefit from efforts to increase FDI in particular in sectors, such as tourism, where consumers are willing to pay more for higher quality services and introduction of well known brands (EBRD 2005, 22). Analyzed data indicate that FDI in tourism sector of the Republic of Croatia is still quite limited. According to EBRD, the Republic of Croatia needs to increase investments in tourism, its supporting infrastructure, and training to improve the competitiveness in the hospitality sector (EBRD 2010, 8). It is obviously that the Republic of Croatia needs foreign direct investment in tourism industry due to lack of domestic capital and that there is a space for such investments. But some questions remain open: does the Republic of Croatia have effective investment promotion strategy and policy in place in order to increase the FDI in tourism sector? Attracting FDI in tourism sector is often difficult and there is a growing demand for support in this area among IPAs (UNCTAD 2010, 1). Croatian national tourism strategy emphasizes the importance of FDI and only superficially deals with ways to attract foreign investors i.e. only lists the measures needed to attract foreign investors. So the main task for attracting foreign investors should be on the Croatian IPA. IPA will have to select appropriate sectors or subsectors and attract foreign investors in those sectors. IPA should determine various opportunity areas which can be defined in terms of (UNCTAD 2010, 46):

Short, medium and long term; Importance in terms of employment, value added, or other specific impact criteria; The extent to which they address a specific issue, such as restoration of cultural heritage or opening up of a new region as a leader project; Stage of development: emerging, growing, mature or declining; Position in an Ansoff matrix:1 existing products/existing sources (market development strategy); new products/existing sources (product development strategy); existing products/new sources (supplier development strategy); new products/new sources (diversification); Ease of realizing the opportunities; Risk. It can be more useful to look at the selected areas as a portfolio of opportunities that can be represented as a chart (with benefit to the area on one axis and difficulty of realization on the other. Once the targets have been selected, it is useful to present them to a group of practitioners and policymakers as a sense check, to make sure that the analytical work carry out is reasonable (UNCTAD 2010, 47). Investment opportunities for the tourism sector of the Republic of Croatia, as can be seen form Figure 2, do exist. Figure 2: Investment opportunities in Croatian tourism
Investment opportunities Existing operating companies Companies in majority state ownership Inactive state property Investment potential (short to long term) 2-3 billions of euro 400-500 millions of euro 2-2.5 billions of euro 5-6 billions of euro

Greenfield projects

Source: According to Dragievi, M.: Conference A new model of growth of the Croatian economy, Business Diary and the Bank, 2010.

It is possible to conclude that the tourism sector of Republic of Croatia has huge unused investment potential in the amount of 9.5 12 billions of euro. Americans are most interested to invest in Croatian tourism and the establishment of direct flights on the USACroatia that would allow the arrival of a large number of American tourists (Business, 2010).

First described in Ansoff I (1957). Strategies for diversification. Harvard Business Review. Vol. 35. Issue 5. SeptemberOctober: 113124.

It is also necessary to bear in mind the environment in one of the basic resources of the tourism industry of the Republic of Croatia because most forms of tourism are based on natural assets like beaches, sea, forests or rivers. It is obvious that environmental degradation can threaten the viability of the Croatian tourism industry. Protecting the natural environment as well as the historic sites that are the main draw for Europes tourists is an ever-present topic in the Republic of Croatia (FDI Editor, 2007). At the same time foreign direct investment and know-how are seen as crucial elements in creating and upgrading tourismrelated infrastructure. An investment promotion strategy that is focused only at FDI volume will not automatically be successful in attracting responsible foreign investors i.e. investors that respect the natural environment in which they establish their infrastructures and operations. Croatian IPA has to enter into the fourth generation of investment promotion i.e. it must become fully aware of the importance of attracting sustainable FDI in tourism.2 CONCLUSION Developing countries seek to attract FDI in order to promote development and the exception is neither the Republic of Croatia. Also, many developing countries are looking to tourism FDI as a promising avenue for further development of tourism because they lack their own capital. The structure of Croatian economy is dominated by the service sector, first and foremost due to great importance of tourism industry. With 14,1% of GDP in 2009, tourism revenues are a major driver of Croatias economy and is predicted to remain so. In terms of FDI/GDP ratio, Croatia ranks highest among the countries of Western Balkans. But, what is important to note in the context of this paper is to emphasize that hotels and restaurant in period from 1993 to 2009 received only 2,5% of total FDI. It is also interesting to note that the share of tourism FDI in total FDI remarkably varies from year to year. The Republic of Croatia needs to increase investments in tourism, its supporting infrastructure and training to improve the competitiveness in the tourism sector in comparison with the competition. Due to the lack of domestic capital, Croatian tourism sector needs FDI for the further development. Investment opportunities for the tourism sector of the Republic of Croatia exist but they need to attract foreign investors. Attracting FDI in tourism sector is often difficult and IPA will have to play here a major role. According to the author' knowledge this article for the first time analyzes foreign investment in Croatian tourism and provide general guidelines for their attraction.

REFERENCES avlek, N. et al.: Contribution to Croatias new tourism policy framework, Acta Turistica, Vol. 22, Number 2, December 2010, pp. 137-160 Dragievi, M.: Tourism, Conference A new model of growth of the Croatian economy , Business Diary and the Bank, Zagreb, 2010 Dwyer, L., Forsyth, P., Dwyer, W.: Tourism Economics and Policy, Channel View Publications, Cheltenham, UK, 2010 EBRD: Strategy for Croatia, Document of the European Bank for Reconstruction and Development, 3 March 2005,

For more information about sustainable FDI read VCC-WAIPA: Investment Promotion Agencies and Sustainable FDI: Moving toward the fourth generation of investment promotion , Report of the findings of the VCC Waipa Survey on Foreign Direct Investment and Sustainable Development, June 25, 2010

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INTERNET Central Bureau of Statistics: Statistical Yearbook 2010, www.dzs.hr Central Bureau of Statistics: Revision of annual gross domestic product, 1995-2007, www.dzs.hr ISI Internet Securities, Dealwatch, www.securities.com National Bank of Croatia: Balance of payments 2010, www.hnb.hr WIIW Database Services, http://mdb.wiiw.ac.at/