Promoting trade and investment

Vinko Supanic
Slovenian Trade Promotion Department

Foreign direct investment (FDI) in Slovenia

Slovenia was the most developed republic of the former Yugoslavia and became independent in 1991. Since then Slovenia has continued to pursue market-oriented reforms and develop totally new markets and now 67 per cent of exports go to the EU out of US$10 billion worth of goods and services exported in 1996. It boasts the highest GDP per capita in Central Europe - $9,700 in 1996, estimated. Some sources, like the EUI Business Report, estimated GDP at purchasing power parity coming closer to $14,000 per capita. GDP amounted to $19.5 billion in 1996 (estimated) and increased by 3.5 per cent over the past year. The inflation rate remained unchanged at 8.8 per cent as well as the unemployment rate staying at 7.2 per cent (standardised).

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

The law on foreign investment of December 1988 which introduced national treatment principle and equity FDI represents the decisive positive turnaround in the legal framework for FDI in Slovenia and its accommodation of international standards. The number and amount of FDI increased accordingly. At the end of 1988, there were only 28 joint ventures with $114.3 million of invested foreign capital; by the end of 1995, according to the Bank of Slovenia, the number of enterprises with foreign equity participation in Slovenia had increased to 1,348 in which foreign investors invested $1,642.8 million (equity plus net liabilities of FIEs to foreign investors). At present the amount of FDI in Slovenia is assessed at approximately $2 billion. In the second half of 1996 the interest on foreign portfolio investors for the shares of newly privatised Slovenian companies also increased and is now assessed at approximately $150 million.

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

Most FDI in Slovenia comes from Austria (25.4 per cent of the total foreign equity stock at the end of 1995), Croatia (22.2 per cent), Germany (19.3 per cent), France (9.4 per cent), Spain (5.2 per cent) and Italy (5.2 per cent). High shares in Croatia (co-ownership of the nuclear power plant Krsko) and France (Renault's investment in car manufacturing) are the results of a particular situation, and do not accurately reflect the picture overall. The proximity of Slovenia to the EU as the nearest pole of the Triade and traditionally strong economic co-operation of Slovenia with Germany, Austria, Italy and France are the reasons for the domination of investors from these countries.

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 SloveniaSaffa Group, ItalyCartonboard 75.4
RevozRenault, FranceCars 54
Paprica VevceBrigl&Bergm;, AustriaPaper 51
Sava KranjSemperit, AustriaTyres 40.3
OMV-IstraOMV, Austriatrade 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

According to the Foreign Investment Act, foreign investors may engage in the following activities:
  • 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

The legal framework for FDI in Slovenia provides for the following major features:
  • 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.

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