Slovenian Trade Promotion Department
Foreign direct investment (FDI) in SloveniaSlovenia 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 inflowsThe 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:
Major investing countries and FDI recipient industriesMost 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:
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 vehiclesAccording to the Foreign Investment Act, foreign investors may engage in the following activities:
Liberal foreign investment regulationThe legal framework for FDI in Slovenia provides for the following major features: