Jul 27, 2009. /Lesprom Network/. The workers are reluctant to speak, so fearful are they of being fired as the effects of a European construction slump spreads to their timber factory in Croatia, Agence France-Presse reported. Their Spacva factory, one of the Balkan countries' largest makers of timber products located in vast woodlands near the eastern town of Vinkovci, had taken advantage of a building boom in the past five years. Thirty million euros (42.7 million dollars) was invested in the development and launching new niche products, notably wood pellets, while some 600 people were employed over the period, says Spacva manager Drago Veselcic. But during the past few months, the company is one now commonly referred to by analysts as an example of Croatia's recession with almost 500 of its 1,300 employees having been retrenched. The pattern is the same across the wood industry in Croatia, where the global economic crisis has been blamed for turning the sector from one of the country's best to worst performers. Around 20 percent of its workforce has been axed in the past year due to slumping orders when the US-rooted crisis started impacting on constructors in Spain and other European countries. "The year 2008 was good until June when we started to feel the consequences of the American mortgage crisis that was already affecting certain European markets," Marijan Kavran of the Croatian Chamber of Commerce tells AFP. Almost half of Croatia is covered with forests, so the country does not need to import raw materials, while oak from the eastern Slavonia region is considered among the most sought-after in the world. The former Yugoslav republic's wood industry had achieved a rare feat by generating a surplus unlike other sectors. In 2008, its revenues amounted to 72 million dollars. Exports had risen from 464 million dollars in 2003 to 977 million dollars five years later, official figures show. The sector sells 65 percent of its products abroad and accounts for 7.6 percent of Croatian exports. "No other industrial sector in Croatia doubled its exports during the past five years," says Kavran. Expectations for 2008 had been great after a 30-percent rise in the exports of wooden products like doors, windows and parquetry in the previous 12 months, but the year ended with a disappointing five percent increase. The trend continued this year. In the first quarter, exports sagged 36 percent compared with the same period last year. "February was the worst with a 42-percent fall in exports, with those to European Union countries affected the most," Kavran says, adding: "The wood sector imported the economic crisis into Croatia." At least a dozen wood industry companies have gone bankrupt or stopped their activities, while others idled their employees. The global crisis has also affected other wood-exporting countries, including African nations like the Democratic Republic of Congo which sees wood exports declining 20 percent this year. Unions representing Croatian timber workers estimate that half of the factories in the sector will have to close if the downward spiral continues. "We cannot sell what we produce, stocks are growing and dismissals are necessary," trade union leader Ivan Bozicevic said, stressing government aid was needed urgently. Employers and unions have denounced as derisory the eight million euros that the Croatian government has allocated to wood industry this year. "It is really a symbolic amount if we compare it with the aid given to agriculture or shipbuilding sectors," said Kavran. Shipbuilding is given some 160 million euros of state subsidies every year. "Even if we have an impression that the we have already reached the bottom of the crisis and that export decreases have stabilised, this situation is still a disaster for our companies," estimates Kavran. He admits that in the crisis, the domestic market which in 2008 imported products worth some 905 million dollars should become an advantage. "We will try to compensate losses on the Croatian market," Kavran says. Imports have also decreased by almost 30 percent in the first quarter of the year compared with the same period in 2008. Local factories hope to fill the gap. Spacva factory manager Veselcic tries to put on a brave face, stressing: "We export 70 percent of our production and the crisis in Europe has hardly hit us. "We are following the situation in Europe on a daily basis hoping that the worst is behind us."