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slovenia

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  SLOVENIA

REPUBLICAN REFERENCE

Area (sq.km) 
20,300

Population 
1,930,132

Capital 
Ljubljana 

Currency 
Tolar 

President 
Milan Kucan 

Private sector 
% of GDP 
40% 

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Background:
In 1918 the Slovenes joined the Serbs and Croats in forming a new nation, renamed Yugoslavia in 1929. After World War II, Slovenia became a republic of the renewed Yugoslavia, which though communist, distanced itself from Moscow's rule. Dissatisfied with the exercise of power of the majority Serbs, the Slovenes succeeded in establishing their independence in 1991. Historical ties to Western Europe, a strong economy, and a stable democracy make Slovenia a leading candidate for future membership in the EU and NATO. 

Update No: 066 - (22/10/02)

Looming elections
The Slovenes are having local and presidential elections on November 10th. The incumbent president since independence, Milan Kucan, is standing down, having completed his second and final mandate.
The premier, Liberal Democrat Janez Drnovsek, is clear favourite in opinion polls to succeed him. Having put in a long stint as head of government he clearly feels the time has come for him to have the largely, but not wholly, ceremonial post of the presidency.
Should he win, he may make more of it than Kucan did. Kucan made foreign trips, intermediated with Brussels on Slovenia's behalf and hosted foreign leaders in their visits to Ljubljana. These included Bush and Putin who met for the first time in the Slovene capital in June, 2001.
Yet basic foreign policy remained the prerogative of the government. Drnovsek and Kucan worked well together and both became very popular. It will be well worth noting who is to become premier in November, presumably a Liberal Democrat minister.

Rop in Washington
Slovenia is fortunate in negotiating with the IMF from a position of strength. It has a sounder economy, and a far more prosperous one, than any of the post-communist countries in the region. But that cannot be said of all other international financial institutions (IFI) given extreme difficulties facing the country's capital market.
At the annual meeting of the International Monetary Fund (IMF) and the World Bank (WB) in Washington, Slovenian Finance Minister, Anton Rop, said that in the coming two years, Slovenia will not hire loans abroad. He explained that since the economic situation is not poor, there is no need for fresh loans. In addition, the interest rates are falling and Slovenia is in the position to begin paying off foreign debt with the money received from the sale of a 39 per cent stake in state-owned Nova Ljubljanska banka.
The IMF economic forecast for the country for the coming year is lower than that made in Ljubljana and lower than IMF's initial forecast made in the spring. As a result, Rop said, the government will have to adjust assessments made for macroeconomic movements and the budget.
The minister said that although the government has anticipated economic growth at 4.3 per cent in 2003, while the IMF forecast is at 3.2 per cent, the forecast is nevertheless still favourable.
In Washington, Rop and Central Bank Governor, Mitja Gaspari, met with Willy Kiekens, IMF Executive Director for the Belgium Constituency, and discussed joint projects on property taxes and Slovenia's health reform as well as technical assistance in debt restructuring. Gaspari also met Stanley Fischer, vice chairman of Citigroup, one of the world's biggest finance firms, and explored the possibility of Citigroup entering the Slovenian market.
Gaspari said that the IMF and the WB have introduced a series of new initiatives, along which one provides for writing off debts in the poorest countries. However, according to Gaspari, the results are not satisfactory. In other bilateral meetings during the US visit, discussion centred on the fact that the global economy has reached its lowest point and, as such, it is now time for economic growth. However, a number of calls have been made for investments and a more active fiscal policy
Rop said that interest rates are so low that monetary policy will not be able to boost economic growth. Consequently, fiscal measures, which are rather limited in some countries, will have to be taken

Poor outlook for capital market
Monetary policy is also restricted by the poor condition of the country's financial markets. The Slovenian securities market is dying, according to a leading capital market official. 
Neven Borak, the acting director of the Securities Market Agency, said that the securities market in Slovenia actually never had a chance for long-term existence. In addition, he emphasised that the country's capital market is more than anything a source of financing financial companies. 
Borak explained that there is a misleading image of what the Slovenian capital market amounts to adding that in Slovenia this is not an institute by which funds are converted into productive investments. He predicts that the end of the capital market will come about given that the number of companies with which financial transactions can be realised will continue to decline. In the mean time, Zdenko Polesnik, a member of the supervisory board of the Ljubljana Stock Exchange, noted his belief that Ljubljana-based drug manufacturer, Lek, would be acquired in a takeover. In response to a question about which Slovenian firms could be future takeover targets, Podlesnik pointed to companies which are operating successfully, have more than half of their market outside Slovenia and whose liquidity significantly exceeds book value of their shares.

FDI needed
Slovenia can, nevertheless, expect easy access to capital and capital markets aboard. It offers sound investment opportunities for foreign direct investors as well, being an ideal springboard for entry into the whole region. 
Foreign direct investment (FDI) has been somewhat disappointing. FDI at US$2bn accumulatively is below what could be expected of such a well-located and together place, with the most skilled business and professional people in the Balkans. High wages are doubtless one factor. But another is tight laws on foreign ownership, made to keep Italian mafia and southern Balkan gangsters out of town. Slovenia is free from the rampant corruption and crime of, say, Albania or Montenegro.
The Slovenes are moving into Serbia in a big way now that there is a new regime. They know the ropes of course and should soon be a dominant force throughout the Balkans. With EU entry imminent, their laws on foreign ownership of land and property are being relaxed. It could then become a magnet for new investors from all over the place as the natural gateway to the Balkans. With its lovely Alpine scenery it is likely to develop its considerable tourist industry rapidly. 

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AGRICULTURE

Slovenian farmers fear ruin in the EU, official says


President of the Slovenian Agriculture Chamber (KGZ), Peter Vrisk, and Agriculture Minister, Franci But, confronted each other on a television panel on agriculture, Slovenia News reported recently. Vrisk suggested that entering the EU under the given circumstances would bring devastation to Slovenian farmers, while But insisted that certain farmers' demands cannot be fulfilled. 
As Virsk explained on the TV Slovenija show entitled "Aktualno," Slovenian farmers could risk being ruined if Slovenia enters the EU under current circumstances. Replying to Vrisk's claims, Minister But said that he lends his full support to farmers when it comes to direct payments and quotas. He added, however, that some of the farmers' demands could not be fulfilled. According to Vrisk, the Slovenian government still has a lot of work to do in the agricultural sector before entering the EU. The serious situation in the agricultural sector is demonstrated by the massive closing down of farms and disuse of the country's farmland. In addition to adequate direct payments and quotas, farmers also demand increased budget resources for investments and restructuring as well as more reasonable veterinary standards. Minister But on the contrary suggested that Slovenian agriculture would gain a lot by entering the EU. It is true that it will have to face an open liberalised market, where the prices of products will no longer be set by the state, but it will be market-driven. The minister also insisted on the importance that the Slovenian food-processing industry adapt to the European market and for farmers to become more organised and oriented towards quality production. 

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BANKING

Slovenia's largest bank presents plans for expansion, new activities

The Nova Ljubljanska Banka [NLB] management board has held a presentation [of the bank] at an informal meeting with journalists, Radio Slovenia has reported.
According to management board chairman Marko Voljc, with the appointment of the new management and the completion of the first phase of privatisation, a new period of more aggressive activities on the market has begun for the NLB. 
Jure Kranjc reporting for the Radio said: Marko Voljc has described the second phase of privatisation as a challenge and he expects that shares of Sovenia's largest bank will be quoted on the stock exchange at the end of this or at the beginning of next year. Within this period he also expects the bank to undergo recapitalisation which would increase the bank's capital by up to 15 per cent. 
In the first eight months, the bank has achieved pre-tax profits of 9.5bn tolars and profits of 12bn tolars are expected by the end of the year. This year, the NLB group is going to create profits of 17bn tolars but its future cooperation with Banka Celje is still uncertain. Before approving the takeover of a one-third stake in NLB by the Belgian group KBC, the Bank of Slovenia demanded that the NLB withdrew from Banka Celje.
Voljc said that after a meeting with Banka Celje management board, that they decided that they would continue business cooperation but that they would not be increasing their ownership share in Banka Celje.
The NLB management is announcing new takeovers in the Balkans and with regard to their share in Continental Bank [of Novi Sad, Yugoslavia] they said that, after the intervention of the Yugoslav National Bank [Yugoslavia's central bank], things were now clear and that they would continue talks on increasing their share. 
They are planning to increase their market share in all former Yugoslav countries, except in Croatia, where they are going to try to enter the market with their partner KBC. It [KBC] will also own 50 per cent of a company which the NLB is going to set up in the area of life assurance. It will start offering its first products in April...

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CREDIT RATINGS

Slovenia's risk profile best in the region

Slovenia remains the lowest-risk country in the region for foreign companies, the rating firm Dun&Bradstreet (D&B) stated in its September report.
The good outlook for the country's economic risk profile was further boosted by positive data regarding both inflation and external demand. D&B downgraded its inflation forecast figures from 6.5 to 5%, while the predictions for the current account deficit were lowered from 1.5 to 0.8%.
D&B also reported that Slovenia managed to offset lower demand for its products in the EU by exporting to other markets, notably Russia and the countries of the former Yugoslavia.

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FOREIGN ECONOMIC RELATIONS

Slovenia, Poland set to strengthen economic cooperation

Together with the chairman of Slovene pharmaceutical company, Lek management board, Metod Dragonja, the presidents of Poland and Slovenia, Aleksander Kwasniewski and Milan Kucan respectively, have laid a foundation stone for the construction of Lek's new production-distribution centre in Strykow which is 150 km south of Warsaw, Radio Slovenia has said..
Jure Kranjc reporting for the Radio station said: "With an investment worth some 140m euros, Lek is actually setting up production of [Polish pharmaceutical company] Argon which is owned by Lek. Within two years, on the site of the old factory a new one is going to rise which provide jobs for 250 people, the majority of whom will be highly educated pharmacists and chemists."
Dragonja assessed the aim of this investment in this way: "The aim of this project in Strykow is to establish additional production capacities for which we no longer have opportunities in Ljubljana, and to internationalise this production."
In their welcoming speeches, presidents Kwasniewski and Kucan were of the opinion that this was the right route for cooperation between the two countries. President Kucan pointed out that Poland was in the fifth place as regards Slovenia's investments abroad and new opportunities for investments of Polish companies in Slovenia would also open up which was also the objective of bilateral cooperation.
Polish President Kwasniewski talked above all about the importance of Lek's plant for the town of Strykow and the entire area since Lek would be an important employer in this less developed area of Poland. According to him, this was the right path to the EU which could be revived and survive only with cooperation such as the one between Poland and Slovenia. Both Slovene and Polish companies will cooperate in the construction of the production-distribution centre and the project will be finished in 2004.

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FOREIGN INVESTMENT

Most Slovenian FDI goes to SE Europe

Slovenia saw US$3.2bn of foreign investments by the end of 2001, while investments by Slovenian companies in foreign markets amounted to about US$1bn by the end of last year. Most of the latter, namely 59.5%, went to the countries of SE Europe. This was underlined by the vice-president of the Slovenian chamber of Commerce and Industry, Marta Kos, in a debate on foreign direct investments of Slovenian companies, in the countries of former Yugoslavia, staged as part of the 35th international Trade Fair in Celje. Some 18% of Slovenian investments went to Western Europe and around 22% to other countries. The main target markets for Slovenian investments are Croatia, Bosnia, Macedonia, Macedonian, Romania, Bulgaria and Albania.
The fair in Celje, the largest trade fair in Slovenia and one of the largest in Europe, kicked off on September 11th. The extensive fair programme took place on 60,000 sq. metres and hosted some 1.700 exhibitors from 32 countries.

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RETAIL INDUSTRY

Australia's Harvey Norman opens Ljubljana store

Harvey Norman, major Australian furniture and electric goods producer, has opened a store in the BTC shopping centre, Ljubljana's biggest. The company selected Slovenia for its spring board status on the European market, Slovenia Business Week reported, with Harvey Norman Financial Director, John Skippen, saying the company chose the Slovenian market as it is considered promising. 
The firm believes a time period of about six months is needed to help it become established with local customers. Harvey Norman's chain is presently comprised of more than 170 stores in Australia, New Zealand and Singapore. Ljubljana's shop is one of the largest, boasting 12,000 square metres of sales surface and employing 80 individuals, many from Australia.

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