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ID: 49144

Croatia - Successful creation of an enabling business environment

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Organization(s): Croatia

Country(ies): Sense Consulting

Primary thematic focus: Sub-national capacity development: local solutions, national strengths

In a Nutshell:
Case study describes creation of better business environment through regulatory reform. Based on participation platform, we coordinated public and private sector stakeholders, resulting in elimination of business regulations that impeded progress. Government commitment and transformational leadership lead to shifts in public administration mindset and strengthening of private sector.

The Story:
Context of the reform. In 2006, Croatia faced bleak economic prospects due to unfavorable regulatory framework that impeded entrepreneurship. Too many harmful business-related laws and regulations reduced investment, decreased competition and fuelled corruption. A large-scale regulatory framework reform was inevitable. This is why the government decided to introduce HITROREZ, regulatory reform guillotine.

The regulatory guillotine. The guillotine aims at reviewing a large number of business-related regulations, eliminating those no longer needed without lengthy and costly legal action. It works like this. The government instructs all ministries and agencies to establish inventory lists of their regulations by certain date. As the lists are prepared (involving consultation with the private sector and oversight from a central body), unnecessary, outdated, and illegal rules are eliminated. Adding all the ministries' and agencies' lists together creates a centralized list. On deadline, any regulation off the list is automatically cancelled without further legal action. The list becomes a comprehensive registry of all regulations in force, and serves as the legal database of regulations for purposes of compliance.

Designing the reform. However, designing the reform was a challenge. The first step was finding an institution with sufficient political authority to engage all state institutions in the project. The Central Administrative Office for e-Croatia, a leader in the administrative changes within the government, performed this task. The Office first engaged top experts in regulatory reform who reviewed international best practices. The second step, most critical to the success of the project, was creating an independent Government work group - Special Unit for HITROREZ. Its task was to review and analyze existing regulations, determine those posing normative or administrative barriers, and propose simplification or elimination of those having adverse effects on business. The Unit was headed by Sense Consulting.

Strengthening internal capacities. The Unit’s started by reviewing the institutional arrangements of the participating institutions, focusing on business processes within inert public administration and unmotivated human resources. A number of trainings for officials and government bodies were organized on regulatory guillotine and Regulatory Impact Assessment (a means of assessing the impact of regulations). Motivational trainings were held and a compensation system established recognizing both positively and negatively the input of each employee. Corporate principles were applied immediately yielding results.

Mechanism for participation. At the time, no track record of active cooperation between public and private sector existed. HITROREZ managed to build a bridge and gain trust of the business community by proactively engaging it in the regulatory reform and give it an opportunity to review the regulations in parallel to state administration. This also enabled entrepreneurs, private sector and general public to follow up on reform status, and provide feedback on each regulation through daily updated website, www.hitrorez.hr. Communication is the key The HITROREZ reform developed tailor made communication strategy towards the business people and entrepreneurs to reach highest possible levels of private sector engagement into the regulatory reform. In addition, a far-outreaching advertising and public relations campaign was undertaken to communicate the reform through HITROREZ brand.

Implementing the reform. The implementation lasted 9 months. It started by making a complete list of all citizen and business regulations. Next, was the review of business regulations whereby each public administration authority assessed each business regulation and its associated forms and fees through given criteria and standardized questionnaires. Lastly, the Unit reviewed each business regulation taking into account the feedback from public administration authority and business community as well as comments from consultations with other relevant stakeholders. The Unit developed final recommendations and presented it to the Government.

Results and Critical Factors:
Reform outcomes. The Prime Minister set an objective at the beginning of the regulatory reform: reduce the number of unnecessary and illegal regulations by 40 percent. The Unit recommended the elimination of 425 regulations and the simplification of 374 regulations to the Government, i.e. 55 percent of all Croatian business regulations. Public administration bodies accepted the recommendations. By 2010, over 360 recommendations have been implemented. Estimated administrative cost savings to entrepreneurs i.e. economy through decrease of time spent on obligatory administrative procedures (excluding direct impact to the State budget through taxes) are over US$300 million a year. The Doing Business report 2008 recognized Croatia among top global reformers (second place behind Egypt), largely due to HITROREZ. In addition, this was the first regulatory reform fully managed through a tailor-made e-Government solution developed by the local and international IT and regulatory reform experts e-Guillotine. This web-based regulatory reform portal and database provided document, content and process management functionality improving the staff efficiency rate by 30 percent.

Going South. Today this model is successfully exported on three continents by Sense Consulting. Countries such as Egypt, Vietnam and Syria, as well as some South East European countries, with exceptionally complex regulatory systems, have applied this model and seen tangible benefits: enhanced economic competitiveness, decreased costs for doing business and strong participation of the private sector in designing regulatory frameworks.

Critical factors. Croatia’s experience shows that political support and leadership, as well as independence and empowerment of implementation body are key for success of such a project. Persistence on transparency and accountability of the reform becomes vital to communicating the credibility of new regulatory culture. Hence, communication strategy within the government, private sector and business community, as well as with broader public is very critical. Engaging the private sector and business community by creating trust through honest consultation will maximize economies of scale in finding better solutions for regulatory improvements, by protecting businesses but also labor, environment and safety. Without high level of private sector engagement the regulatory reform would not be as successful.

Name of Primary Contact Person: Miroslav Kosovic

Title of Primary Contact Person: Consultant

City: Zagreb, Croatia

File: Successful_Regulatory_ReforminCroatia.pdf

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