Croatia Defence & Security Report Q1 2008

It would probably be fair to say that Croatia's security situation is improving. The Ministry of Defence is around two years into a nine-year Long Term Plan to modernise the Croatian Armed Forces (CAF). As is the case in other Central and Eastern European countries, modernisation includes reduced manning levels, increased professionalism and movement towards NATO norms. Strong existing links with NATO and the EU (which BMI believes that Croatia will join in 2011-12) are also positives.

Notwithstanding that territorial disputes with neighbouring Serbia and Slovenia remain unresolved, most of the security threats are of a non-traditional kind. Croatia's terrain, long borders (relative to area), and convenient location (being a maritime nation which is adjacent to the EU) make it an extremely useful country for smuggling of drugs, arms and people. It is not clear how effective the Croatian law enforcement agencies are in dealing with these problems.

The prospects for Croatian defence industry participants are mixed. The latest signs are that defence spending and procurements, both of which grew quite strongly in 2007, will continue to rise. The decision not to reinstate EU shipbuilding subsidies has been good news for Croatian shipyards. Privatisations could result in a major injection of new capital and technical expertise. There are early signs of greater integration with NATO supply chains and global multi-nationals.

Against this, there are several challenges. It is not yet certain, following a close outcome in the November 2007 elections, that the government will remain committed to reform and privatisation. More crucially, budget constraints are such that defence spending may stagnate even before the end of 2009, which is when we expect it to peak.