Slovenia: a place to invest

Matej Kovac
Director of Trade and Promotion Office, Ministry of Economic Relations and Development, Slovenia

This article will not try to convince you to choose Slovenia for your foreign direct investment (FDI). It will only list facts and figures you may not be aware of in connection with the tiny country nestling between the Alps and the Adriatic.

Two million Slovenians find it both difficult and advantageous to share living space with developed neighbours such as Austrians and Italians, and ex-compatriot Croats,- and Hungarians, zealously protecting their homestead totally 20,251 square km. Towering mountain peaks, soft meadows and emerald green rivers in the western part of the country alternate with a breathtaking pattern of land down to a 40km stretch of coast, balanced by fertile vineyards and cornfields in the north.

Owing to its favourable geographical position, well developed infrastructure and the northern Adriatic port of Koper, Slovenia's traditional trade links are coupled with the advantages provided by the association agreement with EU, as well as free-trade agreements with CEE countries - CEFTA, EFTA and others.

After the first stage of transition to a market economy, unavoidably accompanied by a drop in economic growth and living standards due also to growing unemployment, the economy of Slovenia is well on the way to recovery. Restructuring in the real sector has contributed to the economic reforms, but has somewhat slowed down the pace of growth. Nevertheless, the success of Slovenia is extricating it from the debt of former Yugoslav republics and its desire to build an independent presence in the world's capital markets has been widely recognised.

The following data support this statement: GDP growth has been in the range of five per cent since 1994, annual inflation has been successfully curbed to a one-digit figure, unemployment should continue to decline also in the future to below 13 per cent. The government budget is expected to remain balanced. A slight current account surplus is expected to continue thanks to strong inflow from services and tourism, following the trade deficit of around $600 million in 1994.

Competitiveness has been somewhat impaired by the growth in wages and a strong national currency, the 'Tolar', and, in turn, this affected exports and industrial production. Exports of goods in 1995, however, grew in real terms.

Imports of investment goods in 1995 were fuelled by relatively cheap foreign equipment. Investments rose by 16 per cent in real terms, reaching 23 per cent of GDP in 1994. The drop in foreign direct investment level that followed should be considered in the light of the previous record high level of FDI.

Despite a continuing decline in the production affecting mostly firms oriented towards the domestic market, overall business results were positive, thus proving that the measures to improve competitiveness, step up economic growth and hold back inflation, fell on fertile ground. Target figures should be easier to realise this year due to Slovenia's good credit rating - the A rating is the best granted to a country in transition.

As regards the Slovenian legislative framework, it is to be stressed that government attitude is investment-friendly, though the model has not been entirely finalised. Institutional reforms are expected to pick up the pace and the remaining inconsistencies will be resolved.

Measures already carried out include the following: all sectors of the national economy are open to foreign investment, registration of businesses is simple, foreign-owned businesses have full national treatment, free repatriation of profits, favourable tax policy (corporate tax 25 per cent). Incentives are provided at the national and local level, depending on national priorities.

A list of comparative advantages includes: educated labour, language skills, long industrial tradition and good relations with EU and CEE countries. The Slovenian administration believes in business, but is also wary of how to reconcile revolutionary changes in technology and the economy with the enduring human needs for security and environmental protection. That Slovenia has been successful in reconciling opposing interests is best illustrated by listing some of the major investors who benefit from the significant improvement in the local business climate: Renault, Siemens, Henkel, Coca-Cola, Bayer, etc.

Prospects for 1996/97 are based on the completion of the privatisation process by the middle of 1997, so that only telecommunications, transport and some troubled industries will remain in the hands of the state.

In an attempt to encourage foreign investors, the Trade and Investment Promotion Office (TIPO) is playing an ever increasing role by promoting greenfield FDI, by providing information on incentives, legislation, labour, investment locations, etc. TIPO operates within the Ministry of Economic Relations and Development and aims to maximise the contribution of FDI to the economic development of Slovenia.

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