Lockdown Economy Croatia

The ongoing pandemic has been detrimental to Micro, Small, and Medium Enterprises (MSME). Travel and tourism are among the most affected sectors in the global COVID-19 pandemic. Lockdowns all around the world put millions of small businesses, especially in travel and tourism to the test. The UN World Tourism Organisation estimated that in the immediate future, tourism growth could be down by 20-30%, and loss to the industry could be $30-50 billion [1].

The Croatian economy was hit hard by the pandemic. The European Commission Autumn Economic Forecast estimated a recession of around 9.6% GDP in 2020 (vs. 2.9% in 2019), driven mainly by a fall in the tourism sector, domestic consumption, and difficulties in exports [2].

With its nearly 1100 miles of Adriatic coastline, Croatia is one of the most popular tourist destinations in Europe. The tourism sector is an important economic driver of the country’s economy. To provide context, in 2019 the number of foreign tourist arrivals in Croatia reached 17 million and the number of foreign-tourist overnight stays was 84 million. According to the Croatian National Bank, the tourism sector constitutes nearly 40% of the country’s export revenues and contributes to 11% of the country’s overall GDP [3].

In the Lockdown Economy inititative, Think Tank AlterContacts interviewed an owner of Unique Collections Ltd., a small travel business in Dubrovnik. The business caters to tourists from around the world and specializes in guided walks, organized bus and boat tours [4].

Finding Customers

Dubrovnik has been a key place of attraction in Croatia with over a million tourists flocking the city every year before the pandemic, some even mentioning that the place used to be ‘overcrowded’. The city solely depends on the tourism industry but owing to the pandemic, the number of tourists traveling to the country has dropped significantly. For small businesses like  Unique Collections Ltd., it has been a big struggle to bring in customers. The owner mentioned that in 2020, they had only 8 tours as opposed to 2-3 tours per day in 2019 [1].

In fact, Dubrovnik has been the worst affected city in terms of tourism in Croatia because of access through only flights and cruise ships.

Call to action

One way to revive the tourism is to encourage domestic travel, ensuring that adequate safety and hygiene measures are in place. 

Financial difficulties

One of the key concerns of the owner of Unique Collections Ltd. was the lack of financial resources [1]. With a steep decline in business, it has been difficult for such a small businesses to sustain and manage their costs. Just before the lockdown in March 2020 was announced, the owner signed a contract for a new bus fleet and took a substantial loan to cover it. Absence of customers and a full stop in tourism pushed the business on the verge of bancruptcy. At the time of the interview (February 2021), the business had to return their assets to pay off the debt, which in effect would suffocate their operations: with no busses, there cannot be bus tours. 

Call to action

The COVID-19 pandemic has provided an opportunity to rethink the traditional approach to tourism and turn it into a long-term driver of economic growth and prosperity. According to the United Nations World Tourism Organization, this would include aligning tourism industry stimulus and recovery packages with environmental sustainability requirements, as well as emphasizing the importance of sustainable tourism within the country's national agenda.

Lack of governmental support and targeted initiatives

While Croatia does offer help in the forms of loans, small businesses such as Unique Collections struggle to be financially viable. The owner mentioned high tax rates, which in turn implies high costs of their services and makes it hard to justify their prices [1]. Lack of financial help from the government is one of the key challenges faced by the small businesses in Croatia.

Call to action

Most tourism activities are in the purview of state-specific governments. Each state must set up a revival plan to help and support MSMEs, in accordance with national plans. Subsidies, and financial assistance must be provided to help these small businesses survive the pandemic. Local governments could also promote small businesses by partnering with them. In this way, travel agencies could remain operational and will be paid directly by the governments.

Entrepreneurial Solutions

With minimal help from around, small business entrepreneurs found their own way to tackle these problems. The owner of Unique Collections Ltd. addressed their problems of finances by diversifying into virtual tours for travelers. This was not only a creative solution but also displayed the passion with which such small businesses run their ventures. Along with virtual tours in the city of Dubrovnik, the owner started a tour blog in French, helping tourists connect with the city during the pandemic.

CONCLUSION

It is important to actively support MSMEs in tourism and other industries to recover from the COVID-19 crisis. While individual efforts of small businesses allow them to get by, the government must provide financial support to restore the economy. 

Written by Rashi Mathur

Edited by  Shruti Kumari

Editor-in-Chief - Julia Skupchenko

REFERENCES

[1] UNWTO report on Tourism and COVID-19 – UNPRECEDENTED ECONOMIC IMPACTS. Available at: https://www.unwto.org/impact-assessment-of-the-covid-19-outbreak-on-international-tourism 

[2] European Economic Forecast, Autumn 2020 https://ec.europa.eu/info/sites/default/files/economy-finance/ip136_en_2.pdf 

[3] Croatian Bureau of Statistics https://www.dzs.hr/default_e.htm 

[4] Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy Croatia in a Travel Agency with Vesna Lukić https://youtu.be/OpVAmtMlvpk 

https://www.unwto.org/tourism-and-covid-19-unprecedented-economic-impacts