Executive Summary

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Croatia's energies are currently focused on moving towards EU accession at the earliest possible date. In some areas it is perhaps in a stronger position than other states that are hoping to become members; there are no vocal objectors to an eventual Croatian accession within the bloc and economically speaking Croatia is relatively advanced by comparison with parallel accession candidate Turkey. Croatia is reported to be richer in terms of GDP per capita than Romania and Bulgaria – both of which joined in 2007 – and approximately equal to Latvia, which is already a member of the EU. Whilst Croatia may face difficulties over a number of issues, including state subsidies to ship-building and railway industries, agricultural development and reform of the judiciary, the main reason for a delay in its accession may simply be the Union's reluctance to absorb new members too quickly. Our newly-released Croatia Defence and Security Report concludes that Croatia may just have to patiently wait its turn.

From a regional foreign policy perspective, Croatia is, in one sense, playing its part in reaching dialogue and new levels of mutual respect amongst its Balkan neighbours. However, progress is slow and we do not anticipate any great improvements any time soon. Whilst problems still linger, few suggest that the region could return to the conflict that ended over 10 years ago. The EU and its member states have invested too much in the region to let it slide back into turmoil, and indeed there is little stomach for conflict in the region itself.

Whilst the threat of inter-state conflict in Croatia remains negligible, not least as a result of its strengthening relationships with NATO and the EU, concerns remain regarding organised crime in the country. On this level the EU is seeking to bolster Croatia's security forces to help the prevention of cross border crime spilling into the member states. Reforms in Croatia's defence industry are leading to the modernisation of the armed forces and their transformation from old Soviet equipment towards NATOstandard hardware. This has driven the Croatian defence industry towards privatisation and downsizing, efforts that are promising to yield positive results in a number of years.

All the signs are looking positive for Croatia for the coming years. It is making good progress towards EU accession, it holds good relations across the region, and the future bodes well for its small defence industry if it uses pending offset programmes and co-production deals wisely.

Contents

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Chapter 1 - Croatia Defence & Security: Executive Summary

SWOT Analysis

Croatia Political SWOT

Croatia Security SWOT

Croatia Defence Industry SWOT

Croatia Economic SWOT

Croatia Business Environment SWOT

Chapter 2 - Political Overview

External Political Outlook

Don't Mention the Date

A Matter of Rebranding

Neighbourly Relations

Domestic Political Outlook

Short-Term Political Rankings Encouraging

Some Structural Progress To Be Made

Likely Evolution Of Ratings

Politics And The Judiciary - Unfortunate Accusations

Capture Of Ante Gotovina, December 2005

Chapter 3 - Security Risk Analysis

BMI’s Security Ratings

Risk Ratings

Table: Regional Security Ratings

Table: Regional Terrorism and Composite Ratings

Regional Security: Europe

Overview

Internal Terrorism

International Terrorism

Criminal Activities

Croatia Security Risk Ratings

Croatia Conflict Risk

Croatia Terrorist Risk

Croatia Physical Safety Risk

Chapter 4 - Security Overview

Internal Threats

Refugees

Small Arms And Light Weapons Proliferation

External Security Situation

Chapter 5 - Military Structure & Defence Industry

Armed Forces

Table: Regional Armed Forces (including conscripted) 2006

International Deployments And Joint Exercises

Table: Croatia Deployments

Weapons of Mass Destruction

Market Structure

Recent Changes

Arms Trade Overview

Exports

Imports

Industry Trends & Developments

Procurement Trends And Developments

Chapter 6 - Industry Forecast Scenario

Table: Croatia Defence Sector – Historical Data & Forecasts

Key Risks to BMI’s Forecast Scenario

Chapter 7 - Macroeconomic Forecast

Table: Croatia - Economic Activity

Chapter 8 - Competitive Landscape

Table: Key Players: Croatia Defence Sector

Chapter 9 - Company Profiles

Duro Dakovic

Riz Transmitters

Elmech Razvoj

Kraljevica Shipyard

Raytheon

Chapter 10 - BMI Forecast Modelling

How we generate our industry forecasts

Defence Industry

Sources

Chapter 11 - Appendix A: Security Ratings Methodology

Conflict Risk Methodology

Terrorism Risk Methodology

Physical Safety Risk Methodology

Overall Risk Rating

State Vulnerability Index Methodology

Competitive Landscape for European Defence & Security: Sample of  
Companies Ranked

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Rankings and Competitive Landscapes by production and sales; market share and change on previous year; number of employees, ownership structure and year established. Also includes analysis of company expansion, export and investment strategies.

Network of Defence & Security Sources

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BMI's European Defence & Security Reports are based on an extensive network of multilateral organisations, government departments, automotive industry associations, chambers of commerce and company reports. Information sources include: