ࡱ> Y|bjbj[[ 49 \9 \ N%"p%%%%%%%8%\4&t%ի&&&&&'W)|)@$ͮZު%*''**ު%%&&111*%&%&1*11ğ&@z. L`0իݱ1ݱݱ%**1*****ުު1***ի****ݱ*********> $:51st Congress of the European Regional Science Association Barcelona, August 30th - September 3rd 2011 Croatian regulatory framework and actors in national regional policy Zlatan Frhlich Zagreb Chamber of Economy, Zagreb, Croatia E-mail: HYPERLINK "mailto:zfrohlich@hgk.hr"zfrohlich@hgk.hr Abstract Croatian regional policy is closely tied into the EU accession strategy. A major objective will be to prepare for the introduction of EU cohesion policy and the Structural Funds. The pre-accession funds will contribute to that effort. This will require a significant effort on the part of the government to strengthen the institutional base for the management of the Funds from the centre of government to regions across the country. The National Strategy for Regional Development will be a major part of that effort. While many regional actors in Croatia perceive preparations for participation in Cohesion policy only from the standpoint of the new funding possibilities, the actual value of the policy transformation is somehow not yet fully perceived. One of the key reasons for this is that most of the policy transformation involves exclusively central-level institutions. Also, the full introduction of the new policy instruments such as programming, monitoring and evaluation, the payment system and other into the daily policy practice requires many substantial changes in the organisation of the involved institutions and this is a slow ongoing process. Regional actors are feeling the new policy trends mostly through the participation in the Instrument for Pre-accession (IPA) and other available EU programmes, but also through the changes in the national regional policy which has become much more open and inclusive for actors on sub-national levels than before. The strategy sets the context for balanced regional development both at national and sub-national level as well as draws attention to development needs of the assisted areas as well as counties highlighting their different development profiles. It brings together the main analytical parts: policy framework, institutional context and finally an assessment of the existing development interventions on county, NUTS 2 and assisted areas level. As Croatia actively prepares for accession to the EU, it is crucial that it is well prepared for the implementation of EU regional policy issues. It means that national documents and new adopted legislation should be in line with EU legal framework and procedures. In the paper will be analyzed complementarities between Croatian and EU legislation, with emphasize on Croatian regional development strategy issues and role of actors in national regional development policy. Croatian regional strategy during EU accession process The purpose of this analysis is to create the basis for the elaboration of a national strategy for regional development which is in line with EU principles and practice. The goal of national regional development policy is: to contribute to overall national growth and development by enabling those regions and counties which are lagging behind the more prosperous to compete, to reduce the social and economic disparities between the regions/counties and to provide a national framework for coordinated local initiative for economic and social development across the country. As Croatia actively prepares for accession to the EU, it is crucial that it is well prepared for the introduction of EU Structural Funds and pre-accession funds. This will require a significant effort on the part of the government to strengthen the institutional base for the management of the Funds from the centre of government to local areas across the country. The national strategy for regional development will be a major part of that effort. It will address the internal disparities which are damaging the overall development prospects of the country. In a separate but related exercise, the National Development Plan, and the work associated with it, will provide a framework for dealing with the deep structural obstacles which block Croatias path towards convergence with the richer member states of the EU. The National Development Plan will eventually incorporate, as a core priority, within a single framework, the National Strategy for Regional Development and Action Plan for Regional Development. Some elements of the new regional policy The central government institutions in Croatia, even though with a substantial delay and more or less success, have undertaken very concrete steps in designing a new regional policy as well as the necessary institutional framework for its implementation. This process, even though initiated as early as the very beginning of the decade, with the first draft Strategy of Regional Development (SRR) drafted 5 years ago, resulted finally with the passing of the Law on Regional Development (LRD) in December 2009, and with the long awaited finalized Strategy expected to be adopted by the Government by summer, along with all the by laws respective rules and procedures. In such circumstances, the so far implemented approach in regard to regional development is radically changed. This very change of approach and the new regional policy is to a great extent the result of the accession process and Croatias central government institutions readiness to adjust our own regional policy in line with the principles and practice of the Cohesion policy. From this point of view, it can be stressed that the designing of the new regional policy was to a great extent both initiated as well as influenced by the standards and approach used in the framework of Cohesion policy. The new course is also the reflection of some of the changes in the perception and approaches, as well as instruments of both national regional policies in old, as well as new EU member states, which have also partly influenced the current new approach and instruments of our own regional policy. It remains to be seen however, how efficient our policy makers and stakeholders on all levels will be with the implementation of the ambitiously set new goals and adopted main course. The designing and adoption of the Strategy (SRR), i.e. new regional policy presumes the creation of the necessary environment for a different and new role of local and regional actors in initiating local and regional development, in line with the currently applied approach to regional development. The new regional policy is based, among other, on the following new elements, to which we can also refer to in the sense of the basic pillars for its further implementation. Establishment of a coherent approach of supporting development. The process of defining development priorities on different territorial levels from county to the level of the statistical regions, to national level are for the first time clearly formalized and harmonized. The county development strategies have thus gained their institutional backing, and regional (county) stakeholders are being given clear guidelines regarding the elaboration of these strategic documents which are harmonized and linked to the nationally defined development priorities. Further, the development priorities are for the first time being defined on the level of the statistical NUTS 2 regions a very relevant fact from point of view of reaching a wider inter-county consensus on main development objectives and priorities of a wider territory. Institutionalization of regional (above county level) bodies for considering development. The establishment of partnership councils on the level of the NUTS 2 regions presents a major breakthrough for supporting regional development. According to the new Law on regional development, these Councils are to have an important role in the defining of development priorities on the level of NUTS 2 regions and proposing lists of development projects. The creation of such regional bodies, in line with similar bodies established in EU member states, as mentioned in the previous chapter, is expected to have positive effects on raising responsibility and ownership of local and county bodies for the development of the wider regions. Support to the culture of partnership. The introducing of the Partnership Councils on the NUTS 2 level and the obligation to draw county development strategies as main strategic programming documents on the regional level, in line with the principle of partnership, is expected to have long term positive effects on the development of dialogue and effective cooperation among different local and regional stakeholders and actors in segments of key importance for the development of their regions. Along with the mentioned practice in EU member states, the representatives of these Councils will also encompass local and regional self-governments, economic chambers, the private, research as well as non-governmental sector and other. This approach will strengthen the democratization of the overall system of managing regional development and provide opportunities o the relevant actors to have a proactive role in designing their development policy. This will simultaneously contribute to the ownership of the partners in regard to key strategic development documents as well as development projects, which is very important from point of view of their implementation. Such a strengthened role of partners on the local, regional and central level contributes to social cohesion as well as further strengthening of mutual cooperation of local and regional self-government units. Introducing of evaluation of development impact of development programmes and projects. The introducing of this principle in line with a very well elaborated system of criteria is of strategic importance for the further and continuous upgrading of the regional policy. One of the tasks of the Ministry in charge Ministry of Regional Development, Forestry and Water Management is to raise the awareness as well as capacity related to the importance of the mentioned evaluation not only on central government level, but by all means on the regional level also where a relevant role can be played from the part of regional actors. The successful implementation of the new regional policy will to a large extent depend on the success of effective implementation of the above mentioned new elements of the Strategy of regional development. This effectiveness of this process will, on the other hand, depend on the degree in which the local and regional actors (basically in the framework of regional development agencies), but also local and regional self-governments, are capacitated not only for managing local and regional development, i.e. good governance, but also on their expertise related to strategic development programming i.e. conceptualisation and preparation of project proposals, their successful application as well as effective implementation of projects with major impact on socio-economic development of their respective local/regional units. Strategic Development Framework 2006-2013 (SDF) Strategic Development Framework 2006-2013 was approved by the Croatian Government in August 2006. The formal adoption of SDF followed after two rounds of public consultations with trade unions, non-governmental organizations, different associations of entrepreneurial sector and general public who had the opportunity to give their comments and suggestions. SDF defines national economic goals and instruments for their implementation in the period between 2006 and 2013, with the overall aim to achieve economic growth through competitiveness and employment embedded in the modern state of social cohesion. Goals and instruments defined in the document are drafted in accordance with the determination of Croatia to become a full member of the EU and its obligations arising from this process. The starting point of the Strategic Development Framework is that government driven growth is not sustainable in the long run; what is required is the strengthening of private sector, its competitiveness and its overall ability to become the main driver of the future economic growth. Since the economic growth should ultimately result in improved living standard for all the citizens, the elements of social inclusion and social justice are equally important for this process. These two pillars are integrated into the main strategic goal of Croatia achievement of prosperity through the development of a competitive economy in a modern European welfare state. In order to achieve this goal simultaneous and coordinated actions are required in 10 strategic areas. These strategic areas can be divided into three main groups which reflect their ability to influence growth and competitiveness. The first one refers to the completion of the transition process through comprehensive reform of judiciary and public service, i.e. building new role of government, strengthened entrepreneurial climate and decisive implementation of privatisation and restructuring. The first group of strategic areas focuses those problems that directly obstruct development, as their resolution is a precondition for an efficient use of available resources. These are called the problems of uncompleted transition because the analysis shows that Croatia has a developmental reserve which is currently spent on unproductive subsidies to individual companies and inefficient administrative processes. The second group of priority areas refers to the strengthening of development infrastructure i.e. education and efficient labour market, productive application of science and ICT in economy, further development of transport and energy infrastructure and last but not least social cohesion and justice. These are fundamentals of future growth and their effects on growth could be observed only after a certain period of time. However, the decisive actions toward the implementation of the measures identified in these areas are needed now, exactly because of the time lag needed to fuel the growth. The third group of priority areas includes developmental links i.e. macroeconomic environment, efficient and integrated financial services and sustainable development visible through the constant care about environment, natural resources and regional development. These strategic areas by themselves can not be the sources of long-lasting growth, but sustainable growth is not possible without continued improvements in those strategic areas. Seven of the above-mentioned strategic areas and related measures and instruments envisaged for their resolution are directly relevant for the SCF and more specifically components III and IV of the IPA programme. These areas are the following: new role of the government; entrepreneurial climate; efficient labour and education; science and ICT; transport and energy infrastructure; spatial planning, protection of nature and environment, regional development, and social cohesion and justice. Principles of Regional Development a) Solidarity and Focus Specific incitement for development of aided areas is based on mutual solidarity of all citizens of the Republic of Croatia, and is especially focused on development of areas that are considerably underdeveloped in comparison to the national average. b) Equal opportunities Regional development policy is based on the need of creating life conditions that shall enable everyone to possess equal opportunities for developing their own potentials, regardless of their whereabouts and other associated characteristics. c) Partnership and Cooperation Regional development policy is based on partnership and cooperation between public, private and civil sector, that is, the cooperation between bodies of public administration, bodies of regional home rule units, cities and other units of local home rule, economic operators, scientific community, unions, and associations of citizens. Planning documents that are drafted in accordance with regulations of this law are adopted through the consultation procedure with an adequate partnership council. d) Planning and Programming Planning and programming of regional development is realized by adoption and implementation of perennial planning documents. e) Merging of Financial Resources and Addition Financing of regional development is ensured by merging of resources of different sources intended for preparation, drafting and implementation of planning documents and development projects, which obtain long-term and appreciable effect on regional development. Resources that are procurable from the EU funds for the Republic of Croatia must not diminish the countrys own sufficient financial resources in incitement of regional development. f) Monitoring and Evaluation Policy of regional development shall be monitored and evaluated during the drafting and implementing of planning documents, as well as after these activities, for the realization of increase in efficiency, productivity and influence on development. g) Sustainability Regional development policy contributes to harmonized and balanced development of the Republic of Croatia, which ensures protection and preservation of the environment and diversity of cultural treasure. h) The Public and Transparency Planning documents that are drafted in accordance with the regulations of this law shall be subject to public review. Selection of development projects and funding procedures shall be public. i) Local Autonomy Policy of regional development shall be implemented according with the autonomy of local and regional home rule units warranted by the legal system of the Republic of Croatia. Principles for concentration of assistance The limited volume of financial support available from the IPA programme requires careful consideration of priorities and their concentration on a specific set of areas. All the priorities identified in this SCF represent an intersection between the objectives identified in the national and Community strategic documents (please refer to Sections 1 and 2) and they were selected on the basis of their compliance with national and Community policies. Within that framework, the following concentration principles were observed: The fact that IPA will primarily serve an important goal of building operational capacity for the management of Cohesion policy post-accession, and that maximum resources need to be allocated to reinforcing institutional capacity of the management structures and the preparation of project pipeline for the future; The fact that IPA serves as an instrument through which candidate countries are assisted in the implementation of the acquis communautaire and that the interventions need to be closely aligned with the priorities from the Accession Partnership; The urgency of the measures to be implemented, based on the socio-economic analysis in a given sector areas, and their ability to provide a platform for subsequent Structural Funds-type interventions. Regional Development and Competitiveness In administrative terms, Croatia is organised into 21 counties, (the City of Zagreb has the dual status of a county and a city), another 126 cities and 429 municipalities. The current administrative division of the Republic of Croatia fulfils Eurostats criteria regarding the collection of statistics at the NUTS I level (the Republic of Croatia), the NUTS II level (East or Panonian Croatia, Adriatic Croatia, North-Western Croatia), the NUTS III level (counties) and the LAU 2 level (municipalities and towns). Although Croatia is a relatively small economy, there are significant socio-economic differences between counties (NUTS III level) in terms of demographic trends, economic activity and growth rates. Croatia is characterized by a significant concentration of population in a few macro-regional and regional centers. The highest population density is in the City of Zagreb, 7.5 times higher than the county which comes second (Meimurje), and 15.5 times higher than the Croatian average (78.4 inhabitants/km2). With the exception of the City of Zagreb, the ratio of population density between the least populated county (Lika-Senj) and the most populated county (Meimurje) is 1:16.2. Data on the location of registered business entities for 2004 show that economic activity is to a great extent based in major urban centers (Zagreb, Split and Rijeka) and their surrounding areas. Again, the lead is taken by the City of Zagreb whose share in the year 2004 amounted to 34.01%. At the other extreme is Lika-Senj County where this share was slightly higher than 6%. Fairly low presence of registered business activity has been also recorded in Virovitica-Podravina County and Po~ega-Slavonija County. As explained in Section 3.2.1, Croatia is characterized by significant differences in regional administrative unemployment rates, from County of Istria 8.8% to County of Vukovar-Srijem 33.6% (see Annex 2, Table 6). In 2003 the two most developed counties had a 2.6 times higher GDP per capita than the two least developed counties. The three most developed locations in terms of GDP per capita are the City of Zagreb, the County of Istria and the County of Primorje-Gorski kotar (see Annex 2, Table 6). Beyond these, only the County of Lika-Senj has reached the GDP per capita level above the Croatian average. The least developed counties are Vukovar-Srijem and Slavonski Brod-Posavina, where the GDP per capita levels are less than 60% of the national average. Compared to the average EU-25 average GDP per capita Croatian levels range from 81% in the City of Zagreb to 26% in the Counties of Vukovar-Srijem and Brod-Posavina. According to Central Bureau of Statistics, in 2003 Croatian levels of GDP per capita (in PPP) compared to the average GDP per capita in EU 25 ranged from 82% in the City of Zagreb to 26% in the counties of Vukovar-Srijem and Brod-Posavina. The above mentioned differences among regions are due, inter alia, to geographic characteristics, the legacy of wide variations in socio-economic development at the time of independence in 1991 and the effects of the homeland war in the form of economic and social devastation of many parts of the country. The war had especially significant impact on the difference of GDP and unemployment levels amongst the counties (see Annex 2 Tables 6 and 8). The areas lagging behind the national development average face the problems of poor basic infrastructure, mine contamination, lack of social and human capital caused by depopulation trends and long-term unemployment. In order to address the above mentioned problems and disparities, it is important to secure increased growth and balanced development of various counties. One of the key preconditions for this is the development of private sector. Nowadays, the majority of private companies in Croatia are small and medium enterprises (SMEs). Out of the total number of registered business entities in Croatia 99% are SMEs, which compares with EU-15 where SMEs account for 99.6% of the enterprises. Most SMEs are micro-enterprises and they have significant potential to contribute to increased competitiveness and employment over the coming years. In the period between 2002 and 2004, the number of entrepreneurs in Croatia has increased by almost 8%, while, in the same period, the number of employees in the entrepreneurial sector has increased by 6%, i.e. from 771.135 to 820.219 employees. The sectors contribution to the GDP has been continuously increasing, up to some 44% by the end of 2005, while its contribution to export reached 60% of total exports. Despite those positive trends, SMEs in Croatia face many challenges. Some of the internal problems of the SME sector include insufficient entrepreneurship (especially in sectors with considerable growth potential, including technologically based entrepreneurship) and low levels of education among entrepreneurs. External problems faced by the SMEs include administrative barriers and underdevelopment of financial products specifically for the SMEs. The SME sector in general suffers from insufficient cooperation and networking, both with business and other institutions (for example the research and tertiary educational sectors). SMEs located in disadvantaged areas face additional problems such as lack of adequate communal and business support infrastructure, and insufficient number of programmes encouraging investments into the productive sector. Croatian Government started a series of incentives with a view to tackling some of these challenges. Business-related services are currently provided by MELE and Croatian Agency for SMEs (HAMAG). Building entrepreneurial infrastructure also stays as one of the top Government priorities in the SME sector. Currently, the entrepreneurial infrastructure comprises 27 business centres, 16 business incubators and 6 regional development agencies. In addition, there are 15 economic free zones and 235 entrepreneurial zones, of which 140 are fully functioning. Furthermore, in 2005 MELE continued to support new and existing clusters. Essential part of supporting private sector and improving business climate is the creation of transparent and efficient institutional framework for business activities, where public administration primarily serves the interests of entrepreneurs and citizens. Consequently, in summer 2006 the Croatian Government has launched a project called Regulatory Guillotine (HITROrez) in order to remove unnecessary and obsolete laws and regulations which represent obstacles to entrepreneurship. Furthermore, the Government has also undertaken an initiative (e-Croatia 2007) with the objective of transforming Croatia into a modern information society by simplifying administrative procedures and creating improved access for all citizens to public administration services. This initiative entails a series of activities including the launch of a one-stop-shop programme named HITRO.HR (launched in May 2005). Among electronic HITRO.HR services are the establishment of e-REGOS, e-Pension Registration, e-Cadastre, e-Nautica, e-VAT, e-CUSTOMS e-Judiciary, e-Craft and e-Court Registry, services aimed to facilitate entrepreneurship (e.g. registering companies and conducting business activities) and communication with public administration by cutting red tape and reducing corruption. In order to strengthen entrepreneurial sector and thus contribute to the enhanced growth and balanced development, it is essential to use modern technologies in business. An important part of this process is further development of the R&D sector. According to the Annual Competitiveness Report of Croatia 2002, Croatia came out 43rd (out of 80) in technology index, 50th in innovation sub-index and 52nd in its common research and technology position. Such data point to a significant underdevelopment of the countrys R&D sector. The public sector thus employs 90% of all researchers, allocates almost 90% of total investments into science and research, whereas only 10% of the institutes revenues and 6% of the faculties revenues come from research done for the business sector. At the same time, the public sector invests mostly in isolation from the private sector, meaning that R&D is insufficiently related to market needs. Moreover, World Economic Forum Report ranks technology transfers from universities and research institutions to business particularly low in Croatia. 5 . Introduction to the OP Regional Competitiveness Within the overall aim of ensuring that the relevant institutions of the Republic of Croatia achieve readiness for eventual EU membership and develop institutional capacity and practical experience with the management of ERDF-type interventions, the Regional Competitiveness Operational Programme shall serve as a basis for using the EU pre-accession assistance for the purpose of achieving the strategic priority of promoting social and economic cohesion within Croatia and overall levels of national competitiveness. The OP seeks to do so in accordance with priority areas identified by the EC Regulation that established IPA and the Multi-Annual Indicative Programming Document for Croatia. In order to justify the concentration of EU assistance on specific development projects and measures, the following section of the OP sets out the strategic context and the socio-economic context of the relevant policy areas. With regard to socio-economic cohesion within Croatia, the relevant policy area is that of regional development. With regard to overall national competitiveness, the relevant policy areas eligible for IPA assistance are small and medium enterprises (SMEs), innovation, science and technology, research and development (R&D), and information and communication technologies (ICT). Measures aimed at internal socio-economic cohesion and national competitiveness make up a balanced and mutually coherent set aimed at achieving the strategic priority of this OP. The Accession Partnership offers direction in terms of achieving economic competitiveness and socio-economic cohesion in the short- and medium-run. The economic priority identified in the medium-term is the need to further improve the business environment by improving conditions for the creation and development of private enterprises and direct investment and by simplifying rules of market entry and exit. There are several policy areas underpinning these achievements and, consequently, also the achievement of a territorially cohesive development and of overall economic competitiveness. One element underpinning success in that sense is the need to increase productivity by means of an increased investment into R&D, innovation and new technologies, among other through an enhanced cooperation between the private sector and scientific bodies. Secondly, it is necessary to pursue international standards, specialization, and focus on high value added products and services through more and better entrepreneurship training, assistance and business infrastructure, as well as networking and clusters. 5.1. Policy and socio-economic context with regard to OP Regional Competitiveness The following sections set out the context of policy areas addressed through this OP. These policy areas suggest that the OP is made up of two components, of which one aims to enhance Croatias overall competitiveness while the other targets socio-economic cohesion of areas within Croatia. Under the Structural Funds, the intention is to address these two components through their separate Operational Programmes, as is frequently the practice in the EU Member States. 5.2. Bodies and institutions in charge of regional development Because of a strict sectoral approach to the institutions of the central government, several line ministries are competent for preparation of development policy, programming, implementation of programmes and their monitoring. Beside the MSTTD, the central level institutions having a significant role relating to regional development are the following ones: Regional Development Fund, Fund for Development and Employment, Fund for Reconstruction and Development of the City of Vukovar, Ministry of Finance, Central State Administrative Office for Public Administration, Ministry of Agriculture, Forestry and Water Management, Ministry of the Economy, Labour and Entrepreneurship, Ministry of Environmental Protection, Physical Planning and Construction, Ministry of Science, Education and Sports, Ministry of Health and Social Welfare, Croatian Employment Office, Croatian Bank for Reconstruction and Development, Croatian Bureau of Statistics. The Regional Development Fund is involved in direct financing of regional development activities. The Act on the Regional Development Fund established the Fund in 2001, regulating the financial support for encouraging coherent development across Croatia. Assistance is aimed especially at the development of formerly war-torn areas, sparsely populated areas, ASSCs, islands, hilly and mountainous areas, border areas, areas with structural difficulties, and areas whose GDP is below 65% of the national average. To support these areas, the Fund can receive funds from the State Budget, from privatisation income, long-term bonds, loans from financial institutions, bilateral loans, grants and other sources. In practice, however, the State Budget is the only resource for the moment. Funds are primarily earmarked for the implementation of the projects related to infrastructure (as a pre-condition of economic development), and economic projects which need to be cost-effective, environmentally friendly, based on domestic resources and employment of local population. Projects assisted need to have been envisaged in the relevant countys development plan the so-called Regional Operational Programme (ROP). Once the Fund issues a call for proposals, counties conduct the first selection of projects, while the final selection is done by the Fund. If the projects are of equal importance the Fund selects those that envisage a higher percentage of self-financing. The repayable funds available from the Fund are offered under the terms that are more favourable than the terms on the capital market. Projects in infrastructure proposed by areas whose financial power (budget funds per capita) is below 65% of the national average may receive (by decision of the Funds managing board) up to 50% of non-repayable funds for the investment project. Besides central government bodies there are, within the self-government competences of regional and local units, administrative bodies (administrative departments or services) responsible for the issues relevant for regional and local development in the counties and in a number of towns. The legal framework in Croatia does not foresee an obligation of setting up a body in charge of regional development at the regional (county) level. Such bodies are the reflection of the perceived needs and possibilities of counties, town and municipalities. There are, in the majority of counties and in many towns, one or more development institutions founded by the sub-national self-government: county (or local) development agencies, entrepreneurship centres at county and local level (support of SMEs with loans, consultancy services, information, vocational training and entrepreneurship promotion), technology centres etc. These institutions have a more or less developed degree of partnership and cooperation with central government institutions. A great number of institutions working on regional and local development in Croatia, particularly on SME development, have joined a national network, the Association of Croatian Institutions for Support of Entrepreneurs, including regional development agencies, entrepreneur centres, entrepreneur incubators, chambers of commerce, chambers of crafts and trade etc. A great number of them have an active role in the development at county level. The most famous examples of successful agencies are the Istrian Development Agency (IDA) set up as a partnership of local self-government units, and the Meimurje Agency for Regional Development  heir of the Meimurje Entrepreneurship Centre that participated in design and implementation of projects in the county in the past six years. Part of the developmental institutional network at the sub-national level are the county offices of the Croatian Employment Service and councils set up by the National Council for Social Partnership to gather employers and trade unions at the county level in order to deal with local issues of socio-economic development. Counties, however, play the key role and initiative with regards to development at the sub-national level. One of the significant moves in the sense of developing institutional capacities for development at county level is the work on the so-called Regional Operational Programmes (ROP). At first, their development was stimulated by the EC Delegation and the UN Development Programme (UNDP), as a prerequisite for the use of CARDS assistance targeting investments in war-torn counties. With government support, ROPs were designed in eight of these counties. The process of ROP development eventually expanded to other counties, as well. Today almost all counties have a ROP, which serves as a basis for searching for EU, other donor and state budget support to implement development projects. Institutions, procedures and methods set up and used in the ROP context moreover offer significant potential for institutionalizing regional development and aligning it with the principles of partnership, co-financing, and strategic development planning, which are the requirement for Croatias use of the Cohesion Policy funds upon accession to the EU. In order to increase the efficiency and effectiveness of the national regional development policy and to align it with the Structural Funds principles, the draft Act on Regional Development provides regulations for several very significant issues indispensable for development activities management: a practice of partnership as a basic method of work in formation of regional development policy and as a fundamental institutional structure that is to enable such participative method of work . a single assessment and classification model of local and regional self-government units according to the development level as well as a single criteria system for designation of regions with development difficulties. basic planning documents, by means of which a harmonised and standardised basis is set up for conducting a regional development policy in Croatia. the role and responsibility of bodies in charge of the overall regional development policy at the national level. the role and accountability of local and regional self-government units in designing and conducting a development policy. a mechanism of cooperation between central state and lower levels of public authorities. a monitoring, evaluation and reporting system, in order to follow up on the implementation of the relevant planning documents. the basic principles of regional development policy management, reflecting the basic principles of the Structural Funds management and the Cohesion policy terminology. The regional policy reform should draw from the good practice in the field, and institutionalize the process of regional development planning at the level of counties. The existing ROPs would, for that purpose, have to be upgraded according to common national guidelines and made into quality strategic documents, aligned with the national budget planning and the national development priorities. In order to draw foreign as well as national financial assistance, these county development strategies (CDS) would be elaborated in line with the priorities of the different EU assistance programmes as well. A precondition of an improved development planning process in the regions is continued administrative capacity building in the counties as well as in municipalities and all other relevant actors. Assistance should be extended to the process stakeholders with regards to knowledge and skills related to regional development, EU pre-accession assistance and the Cohesion policy, as well as regarding the practice of planning, coordination, and partnership. A possible boost to the counties technical capacity with regards to development planning, project preparation and project management are county development agencies, to be set up at the level of each county, accredited according to uniform national criteria, and assisted financially by the MSTTD initially. The overall goal of a policy reform should, in other words, be a pro-active, systematic and integrated regional development policy, covering all of Croatias territory and extending assistance to particular areas according to the same set of criteria. In so doing, the policy principles would be aligned with European i.e. Structural Funds standards and practices. In addition to new policy tools and structures which would ensure a more effective, objective and inclusive approach to regional development, the reformed policy should shift the accent of national assistance towards a more pro-active set of development measures which in a more direct manner contribute to socio-economic development. 6. Conclusions Participation in Cohesion policy has created the opportunity for the empowerment of regions in Croatia as well as in the accession countries, both from the financial as well as the institutional capacity perspective. Obliged application of the partnership principle when participating in Cohesion policy, ensures a higher role for the sub-national actors in the overall policy design and implementation. Yet, it remains to be seen how much involvement of the regional and local actors will actually be allowed to take place in practice from the part of the responsible central level institutions. Unlike some new member countries as well as candidate states, where regional level administrative units do not exist, the tradition of the regional self-government units which are part of the Croatian political system from the early 90-ies, are an additional argument and advantage for the Croatian counties to rightly insist on getting more space in the future SF structures and implementation. However, it is important to bear in mind that the mentioned large number of counties is not an appropriate factor for the strengthening of the role of the Croatian regions in managing funds, since our counties are simply too small territorial and administrative units for managing their development Among the positive issues is the fact that Croatias new regional policy is in line with the key principles of the Cohesion policy which should additionally help the regional and local actors in accommodating to the new policy environment. In that respect, the national regional policy plays a particularly important role, acting as a key promoter and coordinator of regions views and interests in respect to the national sectoral bodies. While involvement of the Croatian regions in programming, policy design and implementation is still in its very initial phase, they already play a very active role in project preparation, and some of the more developed regions have the first successful experience with project implementation, particularly in the framework of cross-border projects. As visible from the conducted survey, the capacity of regional actors to participate in EU pre-accession programmes confirm that countylevel institutions are progressing in the last couple of years. County-level institutions remain to be one of the most active actors in this field, acting not only as a beneficiary of the funds, but also as support for other actors in preparing their projects and increasing their skills and capacity. Substantial experience is also to be seen related to cooperation and building of partnerships with other actors. Despite the progress being made so far, there remain several crucial problems. First, there is a highly unbalanced regional distribution of the number of employees and even more unbalanced distribution in terms of the absorbed funds. Even at this stage of the accession process, when accession can be expected in two or three years, some counties do not possess any relevant experience with project management. This is something which deserves attention not only at the county level, but also at the central level institutions in charge for regional policy and preparation for the SF. It should be once again emphasized that the pre-accession funds, with the current level of funding, are indeed only an exercise for the SF. The low level of funding available for the counties and complicated procedures negatively affect the willingness of the county-level politicians to invest more substantially into institutional capacity. Still, the counties have to be patient and have a long-term perspective of their participation in SF in mind and the capacity building exercises as well as all investments into training and raising of specific knowledge and experience will by all means make the whole process of adjustment to EC requirements more effective, enabling the regions to reap optimal results in the framework of Structural funds. References Armstrong H W, 1995, Convergence among regions of the European Union, 1950-1990 Papers in Regional Science 74 143-152 Bachtler, J., Wishlade F., Yulli D. 2003, Regional policies after 2006: Complementarity or Conflict?, European Policy Research Policy Paper, No. 51, European Policies Research Centre Capello, Roberta; Caragliu, Andrea; Nijkamp, Peter (2009), Territorial Capital and Regional Growth: Increasing Returns in Cognitive Knowledge Use, Tinbergen Institute Discussion Papers 09-059/3, Tinbergen Institute. Cohesion and the development challenge facing the lagging regions, European Commission, Bruxelless 1995 Environment Protection Operational Programme 2007-2009, Instrument for Pre-Accession Assistance, ver. 27/11/2006, Republic of Croatia European Communities, Eurostat yearbook 2002, The statistical quite to Europe, Data 1990-2000; Eurostat yearbook, 2002 Eurostat (2001), Eurostat yearbook the statistical quite to Europa data 1989-1999, European Commission, Eurostat Fischer, M. and P. Nijkamp (1999) Spatial Dynamics of European Integration, Berlin/New York: Springer-Verlag Frhlich Zlatan, The basic aspects of regional development in Croatia, in Development Strategies in the Alpine-Adriatic Region, Centre for Regional Studies Hungarian Academy of Sciences, Pecs, 1993 Frhlich Zlatan, Malekovi, Sanja, Poli, Mario et al, Koncepcija regionalne razvojne politike Republike Hrvatske (Outline of the Croatian Regional Development Policy), Ekonomski institut Zagreb, IMO, Zagreb, 1999 Hanson, G. H. (1996) Economic integration, intra-industry trade, and frontier regions, European Economic Review, 40, 941-949 Hallet, M. (2000) Regional specialisation and concentration in the EU, Economic Papers No 141, European Communities, Brussels Law on Regional Development for the Republic of Croatia, Narodne novine, 153/09. Zagreb: Narodne novine. Operational Programme for Human Resource Development 20072013, Instrument for Pre-Accession Assistance, ver. 27/11/2006, Republic of Croatia Operational Programme for Transport 2007-2013, Instrument for Pre-Accession Assistance, ver. 27/11/2006, Republic of Croatia Landesmann, M. (1995) The patterns of East-West European integration: catching up or falling behind?, in R. Dobrinsky and M. Landesmann (eds.) Transforming economies and European integration, Aldershot: Edward Elgar, 116-140 Malekovi S., Puljiz J., (2010), Poticanje druatveno-gospodarskog razvoja kao temeljni zadatak regionalne i lokalne samouprave, Savjetovanje: Kakvu lokalnu i regionalnu samoupravu ~elimo, Hrvatska akademija znanosti i umjetnosti, Zagreb, pp. 33. Petrakos, G. (1996)  The regional dimension of transition in Eastern and Central European Countries: An assessment , Eastern European Economics, 34 (5), 5-38 Puljiz J., Malekovi S., (2007) Current Situation and Future Perspectives of Regional Policy in Croatia, 6th International Conference: Economic Integrations, Competition and Cooperation, 2007, (CD-ROM), Opatija, str. 23. Puljiz J., Malekovi S., (2010) New Opportunities for Regional and Local Actors in Croatia in Supporting Socio-Economic Development, LSE and IMO International Conference: Regional Policy and Decentralization in South East Europe, Zagreb, pp. 24. Regional Competitiveness Operational Programme 2007-2013, Instrument for Pre-Accession Assistance, ver. 27/11/2006, Republic of Croatia Rodriguez-Pose, Andres (2010): Do Institutions Matter for Regional Development?, Working Papers Series in Economics and Social Sciences, Madrid, No. 2, str. 48. Rodriguez-Pose, Andres; Ezcurra, Roberto (2009): Does Decentralization matter for Regional;OQS_afgh  & ' 3 4  = > @Ƚددyjد\hhC,OJPJQJ\hh1^OJQJmH sH hh0J*OJPJQJ!jhhOJPJQJUhhOJQJhh1^OJQJhhOJPJQJ\h?OJPJQJ\hh1^H*OJPJQJ\hh1^OJPJQJ\hhOJPJQJhh1^OJPJQJ;gh( ) * 3 4 = >  $h^ha$gdc$a$gdX4p$a$gd1^$a$gd$a$gd#G!" "J"Q%%.(V(ʿձo]L]:]o]o]o#hh2GUOJPJQJ\mH sH  hhOJPJQJmH sH #hhOJPJQJ\mH sH &hh5OJPJQJ\mH sH &hhc5OJPJQJ\mH sH hhOJPJQJhhkOJPJQJhhk5OJPJQJh?5OJPJQJhC$5OJPJQJhhc5OJPJQJhhkOJPJQJ\hhrOJPJQJ\Y$%GHYZIJ- . 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A Cross Country Analysis, Working Papers Series in Economics and Social Sciences, Madrid, No. 4, pp. 48. Socio-Economic, Territorial and Institutional Assessment of ASSCs (World Bank) 2004 Strategic Coherence Framework 2007-2013, Instrument for Pre-Accession Assistance, ver. 27/11/2006, Republic of Croatia Strategy and Capacity Building for Regional Development (CARDS 2002 Programme for Croatia) Analysis Section for Strategy, Zagreb, 2005 Yuill, D.; Ferry, M.; Vironen, H.; McMaster, I.; Mirwaldt, K. (2008), New Policy Frameworks, New Policy Approaches: Recent Regional Policy Developments in the EU and Norway  The division is in accordance with the Regulation (EC) No 1059/2003 of the European Parliament and of the Council of 26 May 2003 on the establishment of a common classification of territorial units for statistics (NUTS).  Source: Croatian Financial Agency. The data cover the business entities which are subject to the profit tax, thus excluding a significant share of crafts and self-employed people.  Source: CBS (see Annex 2 Table 6)  The Accounting Act defines categories of companies belonging to SMEs in Croatia. This definition differs to the EU one in terms of max. revenues and assets values. In addition, whereas EU defines micro companies up to 10 employees, in Croatia the category of micro-enterprises is within small enterprises, providing their sufficient revenue and assets values, and thus increasing the total number of SMEs.  It was done by providing finance and training for cluster managers, specifically in the field of shoe production, ICT, boat building, tourism and catering, and wood processing. In 2005, the programme Common Product resulted in opening 10 clusters, including 186 companies with a total of 7,348 employees. Continuing that kind of support and building on the existing achievements is envisaged for 2007.     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