Foreign direct investment (FDI) in Slovenia

Slovenia has a fully convertible currency and the highest credit rating among the CEE countries, rated A3 by Moody's and single A by Standard and Poor's. Its process of transition stands out as one of the most successful in Central Europe. In June 1996 Slovenia signed an association agreement with the EU and became a candidate for full membership of the European Union. While it struggles to curb wage growth, restrain social security costs and develop its capital markets, the broad reform process is largely complete.

Western executives generally assess Slovenia's prosperity as being around the level of poorer EU members. They have no major worries about its macroeconomic direction in the short run. And find Slovenia a demanding and profitable market. The main advantages of Slovenia are its geographical position, industrial tradition, political stability, good access to future European markets and good infrastructure.

Basic trends and characteristics of FDI inflows

An average foreign investor in Slovenia is a small to medium-sized company from one of the near European Union countries, who are also Slovenia's major foreign trade partners.

The most relevant FDI projects in Slovenia developed from successful previous co-operation between prospective foreign investors and their Slovenian partner/target company. In general, gaining access to or enlarging market share locally has traditionally been the most important motive of foreign investors for coming to Slovenia. But, foreign investors generally have multiple objectives (growth, profitability, expansion of exports, etc) for their ventures in Slovenia. Foreign investors also pointed out motives such as reduction of production costs and having an export base for third countries as being important.

According to a recent survey 46 per cent of foreign investors in Slovenia had fully achieved their objectives and 38 per cent partially. Also, on average, foreign investors consider their business in Slovenia even more successful than their subsidiaries/joint ventures in most other non-EU countries.

The largest FDI projects were structured as foreign acquisitions or joint venture acquisitions. Greenfield FDI types are used predominantly in small projects. As quoted by existing foreign investors in Slovenia, their major reasons for choosing the country from among the alternative investment locations are of a company-specific character; the quality of Slovenian partner/target company in question (reliability, good management and technical staff, good expertise, tradition, export orientation, adequate production programme, etc) and satisfactory experiences in previous co-operation with it. More general location specific advantages of Slovenia have been only of secondary importance:

• relatively high purchasing power (GDP pc higher than in other Central and Easstern Europe (CEE) countries) and growth potential of the small local market;
• established trade links with Ex YU (absolute competitive advantage) and CEE;
• traditional industrial environment with technological capabilities allowing a fast absorption of foreign technology;
• low transport costs; proximity to major investing countries and good transport connections with all of Europe.

Major investing countries and FDI recipient industries

The manufacturing industry is by far the most important recipient of FDI in Slovenia, followed by electricity production, financial, technical and business services and trade. FDI in the Slovenian manufacturing industry is concentrated in the manufacture of transport equipment, electrical machinery and appliances, paper and paper products, tobacco manufacturers and to a lesser extent in industrial chemicals and chemical products. Such distribution is determined by a handful of large (by Slovenian standards) FDI projects such as:

FDI recipient co.	Investor	Activity		Value in US$mil
Sarrio Slovenia	Saffa Group, Italy	Cartonboard		75.4
Revoz	Renault, France	Cars		54
Paprica Vevce	Brigl&Bergm;, Austria	Paper		51
Sava Kranj	Semperit, Austria	Tyres		40.3
OMV-Istra	OMV, Austria	trade with oil		31.8

According to one survey, FDI in the Slovenian economy performs much better than many others, not only in general but also with regards to waste, in the majority of individual manufacturing industries in which investors are involved. Companies with more than ten per cent foreign capital share export 19.1 per cent of total Slovenian exports, create 10.7 per cent of all income and contribute 15.6 per cent of all profit tax paid. These companies hold only 6.6 per cent of all capital and employ 5.3 per cent of the workers. It thus seems that foreign investment enterprises represent a relatively relevant category of the Slovenian economy, especially with regard to exports and net operating profit and profit tax.

The major common feature of the differences in industrial distribution of foreign investment and domestic enterprises in Slovenia is that foreign investors tend to invest more into above average capital-intensive and export-oriented industries.

Foreign investment vehicles

• establishment of wholly or partially owned companies; in any legal form provided by the Companies Act;
• contractual joint ventures by which rights to participate in the management of the company and share in the profits are acquired;
• concessions for the exploitation of renewable and non-renewable natural resources and public utilities;
• build, operate and transfer contracts enabling facilities, installations or plants to be built, managed and exploited for a fixed period of time;
• investments in free zones according to the provisions of the Customs Act.

Liberal foreign investment regulation

• national treatment - all forms of foreign investments enjoy the so-called full national treatment, ie, companies with foreign capital participation and wholly foreign-owned companies registered in Slovenia have the status of Slovenian legal persons and are subject to Slovenian regulations;
• sectors open to foreign investors - all sectors of the national economy are open to foreign investors. Foreign shares have not been capped, but wholly foreign-owned companies are not permitted in the military equipment field, nor in rail and air transport, communications and telecommunications and insurance;
• capital structure - the minimum founding capital for establishing a new company is SIT1.5 million for a limited company at SIT3 million for a joint stock company;
• real estate ownership - legal persons established and duly registered in Slovenia, regardless of the foreign share, are entitled to own real estate;
• business registration procedures - companies established with foreign capital or share acquisitions in existing companies acquire legal status upon registration with the local court of registry;
• transfer of profit/repatriation of capital - foreign shareholders are entitled to free and unrestricted transfer of their profits abroad in foreign currency.