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Update No: 061 - (23/05/02)

Solid economic progress
Slovenia is by far the richest of former communist republics, with a standard of living at US$16,800 per capita, on the level of Portugal or Greece. Its geographical location is the northernmost former Yugoslav republic, bordering Italy, Austria and Hungary, largely accounts for this. Yugolavia was the only communist state really to tolerate free markets and enterprise, at least within certain consumer sectors. Slovenia was the richest and Macedonia the poorest Yugoslav republic.
While not having spectacular growth rates such as some of the poorer former communist countries can have from their much lower bases, Slovenia has recorded solid progress, GDP growing by 5.2% in 2,000, 4.1% in 2001 and a prospective 3.3% in 2002, while inflation is likely to come in for the year at 6.9%.
The rate of unemployment at 12% is far higher than the government would like, but not so much above the EU average. A sound fiscal policy with a deficit in the public budget of only 1.2% of GDP and an external deficit of 0.2% per year are all consonant with EU membership, which is going to take place in the first wave, perhaps in 2004 or 2005. Indeed, the Slovenes are front-runners for EU membership. Their president is Milan Kucan, who is enormously popular, although debarred for standing for a third term in elections this year. As president he wields no formal control over decision-making, but he still has huge influence over Slovenian politics, which he has dominated since becoming chief of the country's Communist Party in socialist Yugoslavia in the mid-1980s.

Sales of banks
President Milan Kucan has raised doubts about selling foreign investors majority stakes in the state-owned banks that dominate the country's banking sector.
Mr Kucan's comments, in an interview with the Financial Times, underline continuing political uncertainty over the sale of stakes in Nova Ljubljanska Banka (NLB) and Nova Kreditna Banka Maribor (NKBM), which account for nearly two-thirds of Slovenia's small banking market.
A fierce debate on the banks' future continues despite the issuing of privatisation tenders last September. Slovenia is one of the last post-communist transition countries still to have a banking sector dominated by the state. In most others, majority stakes have been sold to foreign banking groups, which have brought in fresh banking expertise and capital.
Mr Kucan said that now was not the best time to be selling banks to foreign investors. Supply of banks for sale exceeded demand.
He said: "The question is, 'is it absolutely necessary to sell a bank only to foreign investors in the process of privatisation?'"

EU entry
Janez Drnovsek, the premier, is concerned that the terms on which Slovenia is being offered entry are the same as other candidates For the Slovenes are in a different class from other countries in transition. 
The premier regards ten years as too long a transition period for agriculture. Brussels is offering just 25% subsidies initially. Regional policy funding in prospect is also too low, in his view.
But precisely because Slovenia is such a success story its pleas for earlier subsidies than for the others are not likely to be met. The Slovenian Minister for European Affairs, Janez Potocnic, was met with a polite refusal to intercede on Slovenia's behalf when he went to London in February.

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AUTOMOBILES

Sava Tyres lay foundations for new warehouse

The Kranj-based company, Sava Tyres, a Goodyear subsidiary, laid a foundation stone for a tyre warehouse recently. The warehouse, which construction company Primorje of Ajdovscine is scheduled to complete this November at an estimated cost of about €7m, will cover 17,100 sq.m and will have the capacity of storing 1.1m tyres, Sava Tyres CEO, Richard A Johnson said, New Europe has reported.
Sava Tyres posted an increase of 16 per cent in sales last year compared to 2000, Slovenia Business Weekly reported. Net profit in 2001 went up by 400m tolars to 3.1bn tolars.

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AVIATION

Slovene car seat covers manufacturer buys Maribor airport

Representatives of the bankrupt Maribor airport and of the car seat covers manufacturing company, Prevent, of Slovenj Gradec have signed an agreement of purchase and sale, the Slovene television teletext web site has reported.
After signing the agreement, Prevent paid 50m tolars (about US$203,000) as a deposit to the airport's transactions account. Prevent will have to pay the remainder, 200m tolars (US$813,000), by 10th May, when it will take possession of the airport...

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BANKING

Belgian takeover of one-third of Slovenia's largest bank approved

Slovene Radio has reported that the government unanimously decided that it would sell a 34 per cent stake in Nova Ljubljanska Banka [NLB] to the Belgian [bank] KBC. The transaction will be carried out 120 days after the deal has been concluded. The country is to get 435m euros [about US$387m] for NLB's shares. 
Jure Kranjc reported that before making the payment, which will go towards lowering the public debt, the KBC bank will still have to obtain a Bank of Slovenia's licence for takeover of a qualified stake in the NLB. In the next phase of privatisation, the European Bank for Reconstruction and Development [EBRD] is expected to purchase 5 per cent of shares and then the NLB is expected to undergo recapitalisation in order for all the owners to keep their shares. 
The sale to institutional owners will follow, so that the final ownership structure would be a third to the state, a third to KBC and a third of shares would remain in the hands of portfolio investors.
The KBC bank will not be able to increase its stake in NLB until 2005, after which it will have to announce a bid for takeover. In this way the interests of the other shareholders will be protected.
KBC will have four members in the supervisory board, the state six members and EBRD one member. The management board will comprise of five members, with one member proposed by KBC. 
The government has also presented the warranty which the state is to give as part of the sale which merely says that there is no connection between the old Ljubljanska Banka and NLB. If lawsuits proved the opposite, then the state itself would cover these lawsuits and not NLB. This warranty is valid for one year from the conclusion of succession negotiations with the successors to former Yugoslavia.

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PHARMACEUTICALS

Krka open 65m Euro plant to up production

Slovenian pharmaceuticals producer, Krka, has opened a state-of-the-art manufacturing plant for solid drugs, named Notol, which is expected to bring in some 130m Euros in revenues annually. 
The 14.5bn tolars investment was opened by Krka chairman, Milos Kovacic, and Slovenian President Milan Kucan. The president praised the company for its successes, mentioning the fact that the Novo based concern is one of the country's leading exporters. Kovacic explained that the company had elected to build the new plant, financed mostly from its own funds, on the basis of an analysis of is production capacity, as well as market research on its most strategic markets.
The Krka CEO noted that Krka had realised that production capacities were too low, despite the manufacturing of tablets taking place around the clock. The plant is now expected to produce over 2.5 billion tablets per year, which, combined with the current production of a little over one billion tablets, should ensure that Krka will be able to meet the demands of its markets, Kovacic stressed, quoted by Slovenia Business Weekly.

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