Guy Norton in London -

The European Bank for Reconstruction and Development (EBRD) is proving an important partner for Croatia in the Balkan country's drive to improve its tourist infrastructure and boost its flagging economic fortunes.

In its latest such transaction, the EBRD has coughed up €8m to finance the reconstruction of a new quay at the port of Dubrovnik, arguably Croatia's top tourist attraction and a major cruise destination, accounting for roughly 7% of the country's tourist traffic. The proceeds of the loan will be used to extend the berth area of Dubrovnik port, which will result in increased space for cruise ship docking and additional land area for dockside development. The project will provide much needed physical space for future construction of passenger terminal facilities, which will be funded under a public-private partnership agreement.

The latest loan complements an earlier €26.5m credit facility from the EBRD that was granted in 2005 to finance the expansion of the port's wharf to enable it to increase capacity and accommodate larger ships. "The modernisation of Dubrovnik port is an important project for the Croatian tourism industry. This project will improve the port's capacity and will enable the city of Dubrovnik to build on the commercial benefits resulting from increasing cruise volumes," says Sue Barrett, director for transport at the EBRD.

The EBRD loan is the second for a Croatian port in as many months, with the London-based supranational having earlier provided a €12m loan to finance the expansion of the port at Sibenik, located 80 kilometres north of Croatia's second city of Split on the Dalmatian coast. The expansion project will increase the port's capacity, helping to ease the congestion that plagues the port during the summer months as a result of increased traffic and also allowing for the entry of larger-sized cruise ships into the port area. "The improved infrastructure will help raise the visibility of Sibenik, its surroundings and nearby islands as holiday destinations," says Thomas Maier, managing director for infrastructure at the EBRD.

Mario Babic, state secretary in the Ministry of Sea, Tourism and Infrastructure, says that expanding ports like Sibenik forms part of the Croatian government's EU pre-accession maritime strategy, under which it committed to expand its tourist sector by promoting lesser-known destinations.

Transport to the future

Since the beginning of its operations in Croatia, the EBRD has committed close to €400m for the modernisation of the country's transport infrastructure, much of its geared to helping to boost revenues from tourism, which is one of the most important sectors of the Croatian economy, accounting for 22% of the country's GDP and almost 40% of its foreign-currency earnings.

Croatia saw a sharp drop in GDP last year of 6%, with the contribution of construction and consumption, the drivers of the 4-5% growth in the pre-crisis period, both falling 20% or so. In the meantime, debt/GDP is set to pass the 100% mark this year, putting Croatia into the highly-indebted-country class, while unemployment has soared past the 300,000 mark and now affects more than 10% of the population. Foreign investment, meanwhile, dropped by 55% in 2009 to €1.8bn, from €4.1bn in 2008.

Against that backdrop, the country has struggled to attract funds outside of that from international financial institutions like the EBRD. It did, however, have reason to cheer in May when a new international terminal at Dubrovnik airport was opened, financed by a €19m loan from Austria's Erste Group Bank. Commenting on its financing of the airport terminal at Dubrovnik, Werner Weihs-Raabl, head of the infrastructure finance and public sector team at Erste says: "Tourism in Croatia accounts for roughly one-fifth of its GDP, which makes investing in it a key priority for us. Dubrovnik is especially important, as it is Croatia's holiday hot spot and particularly attractive for foreign tourists."

"As Croatia is best reached by air and tourists come from all over Europe, it is vital that the airport's size and capacity can match its international demand. By helping double the airport size, we have now achieved this," he says.

Roko Tolic, director of Dubrovnik airport, which supplied the balance of the funds for the €23.5m project, says that the new terminal is vital if Dubrovnik is to fully exploit the opportunities for increased passenger numbers that will come with Croatia's EU accession. "Although Dubrovnik airport has been praised by leading European airlines in recent years, it was evident that the high intensity of traffic in the summer months had become very difficult to serve given the airport's existing infrastructure." He adds that Dubrovnik airport is looking to further improve its infrastructure and is hoping to secure EU infrastructure funding for the next phase of construction which is forecast to cost €40m.

Meanwhile, Zagreb airport is hoping to secure funds for a new terminal by year-end. According to director Tonci Peovic, Zagreb is seeking €150m to build the first phase of new 40,000-square-metre facility by 2015. A further two-phase expansion costing €116m will then follow.