OECD Observer No 276-277- Slovenia Supplement - December 2009-January 2010

Special FocusSlovenia

Sponsored statements

Time to capitalise on the downturn VI

Executive education in Slovenia - building a bridge between east and west XI

Slovenian financial markets XIV

Legal framework XVII

Entrepreneurship in Slovenia XX

This special extra on Slovenia was prepared by Pressgroup Holdings Europe especially for the OECD Observer.The opinions expressed in the articles, including the sponsored statements, are those of the authors only and donot necessarily represent the opinion of the OECD. Their publication is for information and discussion only andshould not be taken as endorsement by the OECD or any of its member countries.

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Interview with Slovenian Finance Minister, Franc Krizanic II©

Matej Vranic

© K

lemen K

unaver

© J. Skok

© Bobo

© Bobo

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SLOVENIA SPECIAL FOCUS

Slovenia is in its worst economic crisis since independence,with the OECD seeing growth contracting by nearly 6% thisyear before recovering slightly in 2010. Being a small andopen economy, how difficult has it been for Slovenia to battlethe financial crisis?

The direct impact of the financial crisis has been minor inSlovenia. The main reason for this has been our ratherconservative banking sector that held a very small percentage ofrisky assets. What affected Slovenia the most was the creditshortage that resulted from the crisis. The European market wasfrozen for almost three months from October 2008 to January2009. This required government intervention to ease tightliquidity conditions which was done successfully but exportmarkets contracted substantially. Exports contribute a largepercentage of GDP for Slovenia, and being a rather small and openeconomy we were hit hard in this area. To offset the impact of thecrisis, given our relative low debt-to-GDP ratio, the governmentresorted to economic stabilisers which is reflected in the increasein debt, but still the debt-to-GDP ratio is one of the lowest in theeuro area. We are now seeing the beginning of a recovery, withgrowth again, and progress on our ‘exit strategy’.

Stimulus measures were introduced in 2008, which mainlyfocused on building highways and modernising the railways.How are these developing? Have there been further initiatives?

There are three main stimulus initiatives that are beingimplemented. One is in the field of infrastructure, labour marketand increasing potential output.

We are also in the process of modernising our trains and railwaysalong with a high tech signalling system. We do not see this as justa stimulus measure, but rather as a long-term investment.

Interviewwith Slovenian Finance Minister,

Franc KrizanicBy Jonathan Andrews


OECD Observer No 276-277 - December 2009-January 2010


Secondly, we introduced subsidies tokeep individuals connected with thelabour market. The subsidies toenterprises supported the shortening ofworking hours and provided fortemporary unemployment as againstdefinitive layoffs of workers. These areparticularly important for themanufacturing sector, as it is stronglylinked to export markets.

Thirdly, there are measures aimed at theLisbon strategy goals, includingenhancing the technological capability oflarge enterprises and export-orientedenterprises. Under the Lisbon strategysome of those are regarded as centres ofexcellence. Government expenditure ofhalf a percent of GDP is being targetedfor this type of enterprise while a littlemore than half a percent of GDP will bespent on enhancing the resilience andcompetitiveness of small and mediumsized enterprises. The support measuresare in compliance with European Union(EU) standards.

Is business confidence returning?

Confidence levels have been steadilyincreasing since the second quarter of theyear, not just in Slovenia, but in Europeas a whole. Exports are still lower thanpre-crisis levels but the growth in exportorders has increased since the secondquarter and total orders in manufacturingare up. GDP has turned around in thesecond quarter and is signalling the endof the recession.

Slovenia is now in the euro area. Howhas this shaped your policy responseto the crisis?

We cannot complain, because EUmonetary policy was very effective withthe size and speed of the response beingcorrect. In particular, access to EuropeanCentral Bank refinancing is an importantinsurance in times of crisis.

If we were not in the EU, then the mostlikely course for monetary policy wouldhave been devaluation, and stemmingfrom that inflation with falling demand-the stagflation nightmare of the 1970s.

After the crisis we will see economiesthat depreciated their currenciessharply, mainly in eastern Europe, thatmay be more competitive in the shortterm, in certain industries like textiles.It could represent a problem for us inthe future, but now there is no doubtthat being in the European monetaryunion is a blessing.

A recent OECD survey of Sloveniadescribes the country as having ‘anoverall business-friendly economy’,but nonetheless sees room forimprovement, in areas such aspensions and the labour market.How will you address thesechallenges?

We are addressing these with concretemeasures and through social dialogue. In the case of pensions the average agefor retirement for women at the end of2008 was 57 years and 7 months and for men 61 years and 11 months. Thechallenge is to further increase workingage before retirement. The governmenthas just tabled a comprehensive proposal to make people work longerand increase retirement age (seehttp://www.mddsz.gov.si/si/zakonodaja_in_dokumenti/predpisi_v_pripravi/ )

University leavers today will belooking at a working life of 40 yearsand women a little shorter, meaning aretirement age of 65.

With regard to the labour market weare putting emphasis on the quality ofthe workforce, updating theirknowledge and providing continuouseducation and re-training.

The survey also called for morecompetition, greater foreign directinvestment in financial services andincreasing privatisation.

We are interested in anyone cominghere to compete and set up a business,not only in the main export market-oriented businesses, but also in thelocal domestic markets.

Most enterprises that have set uphere say that it is a welcomingenvironment. We are offering themdomestic conditions, and treatingthem as our own. If somebody doescome and buy up industries andthen cuts jobs, of course it is notsomething we would welcome or likebut the investor still has the freedomto do it.

Further labour market reforms will improve the already business-friendly environment

© J. Skok

© J. Skok

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The state still holds stakes in networkindustries and we are committed toinvestment following best practices.Investors are welcome to invest and becomepartners in the companies where the statestill maintains or is reducing its presence.

Why is the state still involved in theseindustries? It is a question of transitionand the size of the economy; as a small,young country it is difficult to build upthe economy without the state playingsome role and so we are being careful inimplementing changes.

Turning to trade now, which Sloveniarelies on the EU for, particularlyGermany, what initiatives is Sloveniataking to diversify and expand itsexport market?

We have export diversification, and donot only rely on Germany, but also tradeextensively with France, Italy, Austria, theformer Yugoslav republics, our traditionalmarkets, and eastern Europe. The easternEuropean markets, including Poland, the

Czech Republic, the Slovak Republic andthe city of Moscow, were furtherdeveloped during our transition in the1990s. What happened in this crisis wasthat our new eastern markets were hithardest, and fell considerably.

It depends on the actions of IMF whethereastern Europe will recover fast. Theiractions have been strong and rapid so theeast should recover shortly after the west.Ukraine, will recover much faster than inprevious crises, while the economies ofPoland and Turkey have performedrelatively well during the crisis.

We are not too dependent on the carindustry. It is an important sector, but weare strong in other sectors too, includingpharmaceuticals, especially in genericproduction, which have not faced adecline in demand. Other large sectorsinclude the furniture industry, tourism,the chemical industry,telecommunications and electric applianceproduction. The direction we are taking istowards developing sectors that add value.

Are you concerned about protectionistpressures growing within Slovenia oramong your trading partners duringthis economic crisis?

There are some signs in the beer and wineindustry of demands for assistance but inthe end, protection is senseless. In the firstthree months of the crisis we were a littlebit worried about some attitudes but wehave not seen violations of free trade rulesor a build-up of protectionist measures.The EU framework has been instrumentalin this regard.

Our trade is also connected to investmentand I do not sense a protectionist mood.Nor are we withdrawing our investmentsor losing our foothold in markets wherewe are present.

At a recent Non-Aligned Movementmeeting, Serbia’s president called forcompanies from the former Yugoslavrepublics to join forces to bid onprojects or contracts, as they are toosmall to compete by themselves.

The strong Slovene beer and wine industry has resisted ‘senseless’ protectionist measures

SLOVENIA SPECIAL FOCUS©

B. Bajzelj


Croatia’s president showed someinterest in this. Is that the case forSlovenia?

We are involved in a completely differentenvironment to the other former Yugoslavrepublics, namely the EU, so we do notreally need it. We maintain good businessrelations with these countries and privateenterprises decide how they co-operate ona case-by-case basis. Slovenia has relativelylarge companies that can bid forinternational contracts. It is in the interestof Slovenia and the EU that the formerYugoslav republics become EU membersand mutually benefit from the largeintegrated market and the opportunitiesthis presents.

How would you sum up Slovenia’sstrengths to investors and tradingpartners?

Location, location, location is thecatchphrase, not just geographically fortrade, being at the crossroads of Europe,but also because of a great lifestyle. As oursaying here goes, ‘In Slovenia you can skiin the morning and go to the beach in theafternoon’.

The Slovenian workforce is modern,professional and well-educated. Thecountry is located in safe surroundings,with a low level of crime and corruption.The workforce is quite mobile, being supported by good levels ofinfrastructure, transportation andcommunication.

English is taught from kindergartenupwards, and most students andprofessionals, from taxi drivers and waitersto CEOs have a very good level of English.

Research and development is strong insocial sciences and technical sciences andeach year we attract researchers fromother countries, particularly Croatia andHungary. Education is at a high level andmost young people go on to university.We have campuses and technical collegesspread around the country.

Within the EU framework we are alsoallowed to provide subsidies to new

foreign investments of up to 10% of theinvestment and to provide support tobusinesses. We have used these measuresin the crisis and will do so in the future,especially to attract investment to theeastern part of Slovenia.

Slovenia is a candidate for entry to the30-strong OECD. What contribution doyou think Slovenia can make to theOECD and its member countries?

We are small, but with strong institutionsand values which have propelled us to bethe first new EU member in joining theeuro area and to hold the presidency of theEU in 2008. We have one of the best setsof indicators of social cohesion amongdeveloped countries. We have gainedexperience in consensus building policies,which helped sustain growth in the past,before the present crisis, and withoutmajor shocks. This has resulted in asustained increase in the standard of livingof our population. Our experience andviews can enrich the OECD with regard todevelopment and reform agendas.

What would OECD membership meanfor your economy?

It would mean being able to accessinformation and learning from the mostadvanced countries in the world,including beyond the EU. We would beable to benefit from OECD input in allour projects. It would enable us toidentify best practices and implementthem here. There are countries such asFinland that we see as examples to follow,that have used these tools very well. Weaim to follow such successes, inmodernising further and becoming avalue-added export economy. We alsowant the best for our public procurementprojects, based on price, efficiency andquality, particularly in the areas ofconstruction, and information andcommunications infrastructure. We arealready changing our laws to make theseareas more efficient. And newdevelopment measures to stimulate thesesectors are being introduced such asindustrial zones. We want to be a high-tech economy. l

VOECD Observer No 276-277 - December 2009-January 2010

Location and lifestyle are strengths to attract foreign investors

SLOVENIA SPECIAL FOCUS©

J. Skok©

Klem

en Kunaver


Slovenia takes pride in 18 years ofindependence, five years of EU andNATO membership, over two years of

membership of the euro zone and the factthat it is part of the Schengen area of some400 million inhabitants. It is classified as ahigh-income non-OECD country withOECD membership as the milestone to bereached in 2010.

Since the 2008 credit crunch in the US andits far-reaching effects across Europe andthe rest of the world, the downward spiralin big and small economies has erodedconfidence in an economic recovery. OECDshort-term forecasting models point to anearlier recovery than envisaged a fewmonths ago as G7 countries are expectedto grow by 1.4% in the final quarter of2009. In light of the global reach of thiscrisis and the fact that economies heavilyreliant on exports have been hit hard,Slovenia’s government took the first stepsto avoid the meltdown back in Octoberwith the concerted efforts of the EuropeanUnion to weather the crisis in acoordinated fashion. The second packageof measures aimed at limiting the damagecaused by the financial and economicdownturn to the real economy was

launched in February. Since the economicrecovery is likely to be protracted,restructurings may be necessary as thefunctions of financial markets change inpursuit of lower levels of leverage, reducedfunding mismatches, improved riskmanagement and less arcane financialinstruments than was the case before thecrisis. Strong cross-border dependencieswithin the single market and the singlecurrency zone make it essential thatnational authorities work together to findbetter regulatory solutions that benefit allmember countries.

It was the best of times; it was the worstof times Analysts agree that the Slovenian economywas driven by exports, with investments incivil engineering and construction leadingthe way, and household spending. Thenumber of delinquent residentialmortgages was low as the unemploymentrate fell to 4.2% in August 2008. Sincethen, the figure climbed to around 9% inthe first half of 2009 with a peak of 10%expected to be reached in 2010. Therewere upward pressures on inflationattributable to high commodity prices(largely food and energy), but as the

economic activity slowed down in Autumn2008, headline and core inflationindicators followed suit.

The financial woes of Slovenia’s maintrading partners became evident in a slumpin demand accompanied by the cooling ofthe national economy and a fall inindustrial prices. Steel products, machineryand equipment have been affected morethan other manufacturers, and prices paidin the domestic market have outpacedexport prices as suppliers faced fiercecompetition. Cash-strapped creditinstitutions started to tighten lending termsand the number of companies forced toscale down their operations turned to theiremployee base to cut costs.

Good deals in a downturnDespite the scale of the current crisis,Slovenian people have coped with gloomypatches on many occasions in their longand turbulent history. The existing foreigninvestors in Slovenia and the buyers ofSlovenian products will not be surprised bythe country’s commitment to go forward.There are no plans to wait until the globaleconomy is back in shape – slashingspending and investment and tellingconsumers to keep their spendingdomestically oriented is not what anexport-oriented country trying to attractforeign investors is going to do. Themessage the Slovenian government and thepeople in Slovenia have is that this is notnecessarily the worst of times if we useexisting strengths, find additionalcustomers in sectors that are new to us and

Sponsored statement

Time to capitalise onthe downturnBy the investment promotion agency JAPTI (www.japti.si)


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show foreign investors that Slovenia is apremier location for investors seeking astable income potential with great growthpotential.

Investment landscape Since gaining independence in 1991,Slovenia has completed its transition to afunctioning market economy and hassigned the OECD Declaration onInternational Investment and MultinationalEnterprises in recognition of its success inestablishing a stable and non-discriminatory business environment witha set of voluntary standards of appropriatebusiness conduct. It has an open and non-discriminatory regime for foreign directinvestment (FDI) and since FDI is sensitiveto cyclical movements, Slovenia’s FDI stockhas not reached its record high from 2002.

A tool to gauge Slovenia’s ability tocompete with other locations for foreigndirect investment is, among others, itscorporate and financial legislation. Havingtransposed the relevant EU legislation intolocal law, there is always some fine-tuningto be done. To this end, many laws havebeen amended and modified recently toreflect the changes made to EU regulationsand directives including the CompaniesAct, the Banking Act, the Market andFinancial Instrument Act, the InvestmentTrusts and Management Companies Act,and a new package of tax legislation. Otherimportant recent changes to relevantlegislation include newly adopted orsubstantially amended regulationsgoverning import procedures, economiczones, mergers and acquisitions, publicprocurements and public-privatepartnerships (PPP), the employment ofaliens, etc. Slovenia is also a significantinvestor in its own right, particularly insoutheastern Europe.

Homing in on SloveniaMarket forces are putting pressure onbusinesses inside and outside Slovenia, butthe country’s advantages outweigh the risksto investors of political leaders lettingshort-term domestic political expediencytake precedence over the economicrequirements associated with FDI locationsin a liquidity squeeze. The country’s banksdo not need to be bailed-out, non-

performing loans are well-provisioned for,higher unemployment is a chance foremployers, and supply clusters haveunderused capacities for new production.Known for their flexibility and versatility,Slovenia’s large manufacturers andboutique firms alike can switch from car-parts to other sectors outside theirtraditional expertise in short time. A highlyqualified and skilled labour force gives acutting edge to Slovenia’s industrialproduction, which today is a balancedcomposition between services andmanufacturing. Suppliers of automotiveand electronic components can switch tologistics where their expertise hasdeveloped in response to the complex just-in-time delivery schedules imposed bymanufacturers of vehicles and electronicappliances.

The industries tipped to survive thecurrent downturn are those with highervalue- added and innovative products, andthis offers Slovenia an opportunity.Alongside investors’ favourites such as thechemical and pharmaceutical industry,information technology andcommunications, energy supply anddistribution, tourism, shared servicescentres, and environmental technologies,transport and logistics also deserve to beshortlisted by foreign investors.

To attract inward investment in general andto facilitate greenfield projects in particular,Slovenia has provided electronic access topractically all public administrationservices and has made a number oflocations available for propertydevelopment and redevelopment totechnological parks and economic zones.Incentive schemes are in place as tangibleproof of government commitment to boostFDI and new jobs and manufacturingorders will nudge the Slovenian economyforward. Foreign investors with existingoperations in Slovenia can also benefitwhen wishing to expand or upgrade theirfacilities. The government FDI Cost-Sharing Grant Scheme is designed to raisethe profile of Slovenia as a prime locationfor FDI by lowering selected start-up costsfor projects which promise to create newjobs, to apply high-tech solutions, tocontribute to balanced regional

development or to hone alliances betweenforeign investors and Slovenian companies.Investors can apply for funding when theyintend to invest in manufacturing, instrategic services (customer contact centres,shared services centres, logistics anddistribution centres, regional HQs) or inresearch and development. Incentives canbe granted for up to 30% (up to 40% formedium-sized and up to 50% for smallcompanies) of the eligible costs ofinfrastructure and utility connections, thecost of construction or purchase ofbuildings as well as the purchase of newmachinery and equipment. l

SLOVENIA SPECIAL FOCUSSponsored statem

ent

Foreign investors and buyersappreciate that Slovenia boasts ahigh percentage of companiesthat:

3 generate significant revenuesoutside their home market

3 use material inputs and/orsupplies of foreign origin

3 have internationally-recognisedquality certification

3 have their annual financialstatements reviewed by anindependent auditor

3 have women in senior positionsand female participation inownership

3 have their own website

Foreign investors agree thatSlovenia has:

3 good customs and traderegulations,

3 efficient labour regulations,

3 business licensing and permits

3 low levels of crime, theft anddisorder with no impact onrunning of operations

3 public officials do not expectinformal payments to ‘get thingsdone’

3 no losses due to theft, robbery,vandalism, or arson

VIIOECD Observer No 276-277 - December 2009-January 2010


After a dozen or so years ofaccelerating pace and managing tobeat the twelve-strong field in the

race to the European Union, NATO andthe euro area, the tumbling economies ofSlovenia’s main trading partners have leftit without the gear to sustain this speed.

It is not easy to deliver a high standardwhen you are just one piece of the mosaicthat was hit by the “perfect storm”, asEurope’s worst recession in half a centuryrightly deserves to be called, and yourbuyers are in the doldrums. Analystsgenerally agree that Europe hasresponded promptly to the crisis and theoptimists lead us to believe that the EUmember countries will emerge from therecession earlier than the pessimistsexpect. Governments across the OECDarea have adopted emergency policies tostabilise financial markets and supportthe economy, with Slovenia being noexception. But these lifelines will have to

be taken away once the economyweathers the storm. Right now, the sideeffects of decisive fiscal actions acrossnearly all member countries - cuts toshort-term interest rates, quantitative andcredit easing policies and actions tostabilise financial markets - haveremained in the rear until the EuropeanCommission opens its Excessive DeficitProcedure against the countries withbudget deficit soaring above the 3%ceiling allowed by EU regulations.

As the gusts of wind slowly subside,analysts and politicians are catchingbreath to discuss the width and breadthof structural reforms needed to helpprevent similar financial crises andimprove economic performance.Improving financial regulation andsupervision, raising the long-termsustainability of public finances, andfurther increasing foreign access toEuropean markets, are undoubtedly the

steps in the right direction mentioned inthe same breath with strengtheninginnovation, deepening the single market,and moving to a low-carbon economy, iflong-term growth in the European Unionis to regain momentum.

Way outWhen the going gets rough and acountry’s economy starts to suffer,numerous analyses are produced to showwhat has gone wrong and possibly whatshould be done to overcome thechallenges. Hardly anyone will object tothe need to raise the level of innovationin order to increase value-addedindustries. On the other hand, evenSlovenia’s Commissioner for Science andResearch, Mr. Janez Potocnik, may agreethat despite numerous policy initiatives,Europe still lags behind the United Statesand Japan in research and innovationwith the funding of innovation, andencouraging research co-operation, beingwidely regarded as critical.

Slovenia boasts many innovativecompanies whose ground-breakingsolutions are often better known abroadthan at home thanks to a long industrialtradition, the special place it held in theformer Yugoslavia and the role the formercommon state had in the world,especially in the 1970s and the early1980s when Slovenian production andengineering enterprises sold plantequipment and provided turn-keysolutions for large international projects.The fact that Slovenia managed to findnew buyers in the early 1990s ratherquickly after the collapse of the Yugoslavmarket speaks highly of the flexibilityand professional level of its businesscommunity capable of withstandingcompetitive pressures in nearby and far-flung markets. The prospering industriesinclude electrical engineering, electronic,automotive, pharmaceuticals andchemical, with the service sectorconstantly on the rise and plenty of


Sponsored statement

Slovenia’s performance may seem a winding road these days but it is coming into the straight and heading home

1st Package

3 Partially subsidising Full-time Work Act along with ensuring part-time work

3 Raising the tax break for investments in plant and equipment and intangible assets

3 Co-financing the purchase of new technological equipment

3 Guarantees for collateralising bank loans at a subsidised interest rate

3 Co-financing development investment projects

3 Venture Capital Company for investments in start-ups and businesses with theidentified potential for fast growth

3 Increasing funding for the promotion of technology development and R&Dprojects

2nd Package

3 Guarantee scheme provided to banks for general granting of loans to companies

3 Individual government-backed guarantees for corporate borrowers

3 Low-value aid (new ‘DE MINIMIS’ scheme 500,000)

3 Support to the strategic projects in the field of clean and technologically advancedindustry

3 Shortening of payment period (Act Amending the Value Added Tax Act)

Outline of measures adopted by the Slovenian government to combat thefinancial and economic crisis

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development potential in tourism. It goeswithout speaking that ecological, socialor other Slovenian policy objectives arefully aligned with the EU and in turnwith global ones, as Slovenia continues tobuild sustainable progress for its people.

The restructuring of Slovenia’s economystarted almost twenty years ago fromsmoke-stack industries to a low-carboneconomy with policies aiming atreducing greenhouse gases bychampioning low-emission technologies

and low energy consumption. Inhindsight, by letting market failuresdrown and by being flexible to letchanges in without major disruption tothe functioning systems, Slovenia hasavoided potholes of drasticenvironmental and social changeswithout compromising the rules ofcompetition. Its energy security is at ahigh level, with water power still to befully realised, and the emergency stocksof petroleum products maintained in linewith EU requirements.

Trade and foreign investmentAt the time of writing, the red ink ofSlovenia’s export and import figures for2009 (-13.4% exports Q1 09/Q4 08 and -15.2% imports) is beginning to fade as itstrading partners are doing better. The timeis right to put worries behind and startcompeting for a pole position before others do.

Slovenia’s 53rd place in the Doing Business2010 ranking compiled under the WorldBank’s Doing Business project, illustrateswell the country’s openness and prowesswhen it comes to trade, outsourcing andforeign direct investment. The organisationoperating within the framework of theSlovenian Ministry of the Economy iscommonly known as JAPTI. It has amandate to provide services to investors,help local companies do business acrossborders, bring foreign buyers in to meet potential suppliers, enhanceentrepreneurship and do the homeworkfor businesses from foreign countries bysupplying intelligence, analyses andtailored solutions, and by putting buyersand investors in touch with governmentbodies and other institutions.

JAPTI’s mission can be divided into short-term and long-term objectives. Buildingbusiness contacts with companies withforeign and mixed capital, with the aim toencourage growth and development in thesource and the recipient country is one ofits short-term objectives, while efforts toincrease the number of new (greenfield)investment projects and create new jobsare long-term objectives.

The role of Slovenian investors in othercountries is particularly important for theCentral and Eastern European (CEE)countries such as Croatia where outwardinvestments put Slovenia in fourth placeafter Austrian, Dutch and Luxembourginvestors.

The commitment of Slovenia and itsgovernment to democracy and the marketeconomy stands to benefit further fromfuture membership of the OECD. Itprovides a setting for discussion andstrategic direction where Slovenia canmake its voice heard l


ent

Slovenia in a bid to be recognised as a location of choiceFour pillars of business excellence

WorkforceA pool of highly qualified and dedicated workers with strong technical, language andcustomer service capabilities with skills in high value manufacturing, businessservices and RTD and with a reputation for creativity and innovation. An excellenteducation system at all levels and for all qualifications. 70% of young people enrol inhigher education institutions.

InfrastructureInvestments in the transport and information and communications technologyinfrastructure serve to bank on Slovenia’s central position at the intersection of twopan-European transport corridors. The motorway and the railroad networks stretchalong the two strategic directions and complement three airports, several airstrips andthe deep-sea port in Koper that provides the shortest maritime route between CentralEurope and Asia. The development of Koper’s port and logistics services is coupledwith the construction of modern facilities and transport infrastructure - an ideal placefor logistics and distribution companies with international reach in more than oneindustry.

Regional hubIf we are to illustrate the importance of Slovenia’s role as a hub for accessing marketsin east Europe and the western Balkans, then its two million people should be put ina larger perspective of over 450 million potential consumers in its immediate vicinity.Traditionally strong trade flows with west Europe and EFTA countries make it crucialto foreign companies wishing to serve the EU single market plus the emergingmarkets in the region and save money on transport and business services incomparison with other locations.

LifestyleThe great outdoors offer opportunities for skiing, mountaineering, hiking, cycling andgolfing, as well as for more energetic pursuits like paragliding, ski-jumping andwhite-water canoeing and rafting. Facilities for indoor sports are scattered around thecountry: basketball, volleyball, ice-hockey, etc. There is a culture of delicious, home-prepared food, village festivities, local handicrafts such as lace and embroidery, bee-keeping and wine-growing. Expats appreciate the unpolluted nature, excellenteducational institutions for their children, language skills of local people and lowbusiness risk and crime rates. In a nutshell: great opportunities to invest in Slovenia.

IXOECD Observer No 276-277 - December 2009-January 2010


Sponsored statement



ent

Slovenia was the most developed republic of the formerYugoslavia and today it is often hailed as a Balkan success story.Emerging relatively unscathed from the Balkan Wars of the

1990s, it quickly gained independence, prospered and then joinedthe EU and NATO by 2004. It is now a candidate for membership ofthe OECD. These days Slovenia enjoys widespread economic andpolitical stability. As soon as Slovenia declared its independence, itimmediately turned to the west. Its geographical location alongEurope's virtual centreline, sees the country linking east and west,and that is what makes it so strategically well-positioned.

The development and quality of both the country and itseconomy largely depend on its education system. The countryis well aware of this fact and therefore strives to ensure thatthere is constant development and improvement of theeducation system, including executive education inthe management and business field. In these daysof globalisation, the rise of information andinternationalisation, coupled withcontinuously changing businessenvironments and the need formanagement education, isbecoming ever more important.

In the last decade,Slovenia's education

system has been

thoroughly modernised. The principles and values underpinning thisare accessibility and transparency of the public education system, therule of law at all levels, democracy, autonomy and equalopportunities. Specific parts of the system include managementeducation and executive education. Executive education in Sloveniais provided by a wide range of organisations. Some of them offer adegree, while other post-secondary vocational education institutionsoffer a two-year course in management/business, although they arenot part of higher education. A small amount of non-degreeexecutive education, such as open courses, in-company courses andconsultancy, is provided by state universities. The Faculty ofEconomics at the University of Ljubljana (FELU) has the longesttradition of executive education among all education and traininginstitutions in Slovenia. FELU's core competence in executiveeducation stems from its ability to connect and combine the research,teaching and consultancy competencies of its faculty members.

The Faculty of Economics, University of Ljubljana - a bridgebetween east and westFELU is both a national leader and an internationally recognisededucation and research institution in the area of business andeconomics. Now, and in the future, the Faculty is endeavouring tobecome even better known internationally for its quality andachievements in education and research. FELU offers degrees at theundergraduate, graduate and doctoral levels. In the 2009/2010academic year the Faculty is offering two different Bologna studyprogrammes at undergraduate level (Business and Economics and aBusiness programme). It also offers 16 graduate programmes. In the2008/09 academic year the Faculty began its Bologna doctoralprogramme. English streams are established in all three Bolognacycles and each year FELU offers at least 68 courses in English.

In its strategy the Faculty has positioned itself as a centre ofexcellence in south-east Europe. As such, it acts as a bridge betweeneast and west, relying on its ability to source knowledge globally andtransfer it to the southeastern European region and vice versa while,by developing its expertise in business and economics in the region,FELU also contributes to the global creation of knowledge. Bygaining the EQUIS Award, the Faculty now ranks among the world’sbest business schools.

Executive education has always been an important element of FELU’sprogramme portfolio and one of the key objectives of the new FELUstrategy. Therefore, in 1972 the Centre for Management Developmentand Training (CISEF) was established and it grew rapidly inimportance after socio-economic changes in Slovenia after 1990. TheCISEF’s mission derives from the Faculty’s, best described as a meansfor facilitating the effective and socially responsible transfer ofknowledge to business practice, thus improving individualmanagerial performance and the overall competitiveness oforganisations in Slovenia and southeastern Europe. Executiveeducation at FELU has been a way of influencing society and creatinga culture of learning and professionalism in management. Every year,the Faculty organises over 40 open courses, 30 customisedprogrammes, two business conferences and five to ten special events.

Executive educationin Slovenia - building a bridge between east andwest

XIOECD Observer No 276-277 - December 2009-January 2010


A wide range of executive educationprogrammes FELU provides a range of open executivetraining programmes, each year amountingto around 60 courses in the fields of generalmanagement, finance, accounting,leadership, marketing, informatics, andorganisation.

In 2008 the high quality programmeCompetitiveness and Strategy aimed at topSlovenian executives was launched. Theprogramme was developed together withthe London School of Economics andPolitical Science (LSE) as FELU’s strategicpartner for top executive programmes andwas delivered partly at the FELU and inLondon at the LSE. A FELU representativeaccompanied the group in London, whileother activities such as a visit to parliamentand social events also formed part of theprogramme.

Customised programmes are tailored tomeet the specific needs of individualorganisations and are offered as in-companyprogrammes or programmes designed forspecial groups. Some examples includeextensive programmes for the directors ofde-mining centres in ex-Yugoslav republics(the programme was delivered in co-operation with Cranfield University), formanagers and advisors in government-sponsored entrepreneurial developmentsupport offices and for court experts ineconomic affairs (in co-operation with theSlovenian Ministry of Justice). In all of theseprogrammes, the Faculty is open tosuggestions, works closely together with itsclients and offers customised programmesincluding short courses, long programmesfor special groups and business academies.In 2007 FELU developed a new product forin-company executive education called theBusiness Academy which is designed as amanagement development tool for topexecutives, middle managers or aspiringyoung managers. The programme combinesknowledge and skills, and offers individualparticipants ample opportunities to matchtheir personal interests with the programmeobjectives.

The International Full Time MasterProgramme in Business Administration(IMB) has become the leading and most

intensive full-time master’s programme inthis part of Europe. It compares favourablywith the best programmes of its kind in theworld. The IMB programme is also part ofthe NIBES network, an internationalnetwork of top business and economicschools from all over the world. In recentyears more and more foreign students havejoined this programme. The ConsortiumMaster’s Programme is a special form of thepart-time Master’s Programme in BusinessAdministration whose students are selectedby the companies which form theconsortium, ensuring that the contents aretailored to the specific consortiummembers. Since 2005 this kind ofprogramme has also been organised inMacedonia. In addition, for a long time, theFELU has organised the InternationalMaster’s in Business Administration in co-operation with the ICPE (the Institute forthe Promotion of Enterprises). The majorityof students on this programme are foreign.

The Faculty’s executive education portfolioalso includes business conferences andspecial events. Its strong research output,expertise, internationalisation andconnections with the corporate worldprovide grounds for building up thementioned bridge between east and westfor spreading knowledge. For example, theinternational Portoroz Business Conferencebrings top executives, researchers andpolicy-makers together to discuss relevantcontemporary issues shaping business,society and the environment in Slovenia,the wider region, Europe and globally. Theparticipants generally come from centraland south-east Europe and other countriesrelevant to the topics discussed. Inaddition, up-to-date research by the Facultyis presented to the participants. Viewedfrom the other side, through discussion andsharing experience, the participants inexecutive education provide valuablefeedback on the relevance of the researchwhile sparking ideas for future researchprojects.

The importance of internationalisingexecutive education The internationalisation of executiveeducation is strongly supported by FELU’snew strategy and specific operational goals.Efforts in the last three years have already

yielded some results such as theprogramme for top executives in co-operation with the LSE and the open-course seminars offered in Macedonia. Theportfolio of short programmes also includesprogrammes on how to conduct business ina foreign language.

The annual programme includes aboutseven to ten open courses that build onexpertise gained through own research, andresearch findings are also regularlyincorporated in customised programmes,whereas each year about one-third of allnew courses are based on research. Theseinclude Slovenian multinationals whichhave mostly developed operations in thesoutheastern European region, foreignmultinationals operating in Slovenia, andlocal companies and organisations from thesoutheastern European region. When welook at international partners with whichexecutive education has been carried out,we find institutions such as IndianaUniversity, the London School ofEconomics and Political Science, CranfieldUniversity, Eindhoven University, ATKearny, the National Banks of Macedoniaand Montenegro, and the Commercial Bankof Skopje.

In the open programmes, lecturers from thebusiness community represent about 60%of all faculty members, foreign lecturersrepresent about 10%, while the rest areFELU’s own full-time faculty. The growth isnot limited by the size and composition ofthe Faculty since it also recruits lecturersfrom elsewhere. This policy is intended toprovide the optimal mix of lecturers withresearch and academic backgrounds andbusiness professionals.

The importance of executive education inSlovenia has changed significantly inrecent years as organisations recognise thecritical importance of their human capitaland even the most successful organisationsare encountering new and unexpectedchallenges. Since the country lies at thevery centre of Europe, it has the ability toconnect and exchange knowledge betweeneast and west and it is here that FELU hasclearly taken the lead among allinstitutions in Slovenia by offeringexecutive education. l


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Sponsored statement


According to International FinanceCorporation (IFC) methodology,emerging markets are those

which fulfill at least one of the followingtwo criteria: the country has been low- ormiddle-income for at least one in the lastthree years, or its investable marketcapitalisation (usually measured only forshares) is low if compared to its GDPfigures (again for at least one in the lastthree years). Although Slovenia isregarded as a developed country, itsfinancial (capital) market is not.

The share of equity market capitalisationof all emerging financial markets in totalworld equity market capitalization rangesfrom 5% to 20% (Emerging Stock MarketFactbook). The share oscillates and islargely dependent on market conditions,among both the developed and theemerging, as well as on the number andsize of new issues of shares, which areagain larger in the developed markets.

The so-called New Europe, that includesthe 12 new EU members, all haveemerging financial markets, have market

capitalisation well below €100 billion,the turnover of capital is lower than itsmarket capitalisation and includes about1,000 listed companies. The markets ofNew Europe therefore account for only2% of the European Economic andMonetary Union (EMU) equity marketcapitalisation and only a good 1% of theEU one. Even lower are its shares inequity volume of trading andcorresponding turnover of capital.

The great unimportance of New Europeis evident not only from the capitalmarket figures but also from other similarstudies done in other areas. If we takeinto consideration the financial area andmake some comparison for bankdeposits, we will get similar results.Poland, the Czech Republic, Hungary,Slovak Republic and Slovenia togetherhave, for instance, slightly less bankdeposits than Austria alone. Thementioned countries of New Europeaccount for approximately a good 3% ofall deposits in the EMU countries and agood 2% of all deposits in the EUcountries. If we were to include other

New Europe countries (three Balticcountries together with Cyprus andMalta) the results would be only slightlybetter. Although banking hasundoubtedly been the most traditionalsector in those countries, thecomparisons with the EMU and EUcountries show similar results.

Capital markets in the emergingEuropean countries began to developwhen privatisation led to mass ownershipin a number of companies. The organisedmarket was necessary in order to assuretransparent, regulated and fair ownershiptransfer among new (instant)shareholders. Other reasons forestablishing the organised markets werepublic debt management, the need toattract foreign investors and in somecases the need for fresh capital. Theemergence and the type of the capitalmarket depended on the method ofprivatisation, regulation, banking sectorstatus, clearing and settlementprocedures, definition of marketsegments, the choice of trading methodsand technology.

Slovenian financial markets


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The biggest problems of the Europeanemerging markets were, and still are,volatility, liquidity, the drain of capitaland companies, fairly unstable (macro)economic situations, efficiency of thelegal system, lack of corporategovernance, accounting and auditorystandards, and integration in theinternational environment. Some of thementioned factors are very typical forthe developed markets as well, especiallyof late.

Compared with the standards in theEMU and EU countries, emerging EUmarkets have low liquidity because ofthe lack of such tradition and the lack ofan adequate base of institutional andsmall investors. Size also matters. Theliquidity of domestic markets incountries with a higher number offoreign investors is in fact lower, becausethe foreign capital acts as a substitute forthe development of the domestic capitalmarket. Studies show that countrieswith better regulation have a largernumber of listed companies. The stockexchanges in New Europe shouldconcentrate their efforts on providingmore rational services to domestic smalland medium sized companies that aretoo small for large European markets.These stock exchanges should alsoexplore possible cooperation with other(possibly the largest) European stockexchanges on the basis of technology (atypical example is NOREX and GermanXETRA) and/or even ownership(EURONEXT). Two factors are crucial:regulation and technology. The fact thatthe most developed markets of NewEurope (Poland, Hungary, the CzechRepublic and Slovenia) are nearly asdeveloped as the smallest or the leastdeveloped markets of the EU and EFTAcountries (Iceland, Luxembourg,Austria, Norway, Ireland, Portugal)should also be noted. Hungary, Sloveniaand the Czech Republic are closetogether but are being taken over by theAustrians. Their alliance is called theCEE Stock Exchange Group. Theirmarket capitalization amounts to morethan €120 billion (Austria alonerepresents more than half of thisamount).

The financial market in SloveniaA wider definition of a financial marketwould mean a capital market, a moneymarket, a foreign exchange market anda market for derivative financialinstruments, and with this breakdownwe can explore the Slovenian market.

Although it may seem that Slovenianmass privatisation was uncontrolled,it was in fact relatively wellcontrolled. The second round ofprivatisation which is taking placenow is actually leading to theconcentration of ownership insideSlovenia and some companiesalready privatised are being woundback in their process. The thirdround of privatisation will comprisemergers, acquisitions and takeovers,where both domestic and foreignowners, with their strategic interests,are and will be present. Yet the realprivatisation of certain importantgovernmental companies (two banks,telecom, energy and railwaycompanies) still has not happened.Different privatisations have in facthelped to develop the Sloveniancapital market and Stock Exchange.

Primary marketBecause of the way ownership istransferred (where many companies wereovervalued), because of the large numberof companies that found themselves onthe market in a relatively short period,and also because of the central bank’smonetary policy (managed floating oftolar, sterilisation, while the interest rateswere residual) a real primary equitymarket (with the exception of the oneoriginating from mass privatisation’spublic offerings) never really developed.Another reason for this is the tax policythat has always favoured untaxed interestrates from bank deposits over taxedinvestments in securities. The debtprimary market has been successful to acertain extent and is being successfullyused by the government and the financialsector, but the primary equity market isstill struggling. Lately the prices on thesecondary market have been so low as torepresent serious obstacles for additionalpublic capital rising through equity.

Market capitalisationMarket capitalisation has been increasingduring the years despite several majortakeovers, which resulted in total

Source: Ljubljana Stock Exchange, Inc

Market capitalisation by type of securities on Ljubljana Stock Exchange from 2000 to 2009 in EUR 000

XVOECD Observer No 276-277 - December 2009-January 2010


delistings of companies from the officialmarket. Because of low levels of activityby foreign investors, the Sloveniancapital market is relatively isolated frominternational happenings, both in ‘good’and ‘bad’ times. Thus the price growthwas slower than the global rate. Theconvergence, as the result of EU andespecially of EMU accession, alsoplayed an important role in Sloveniaand in New Europe countries. Marketcapitalisation corresponds toapproximately 25% of GDP. Includingdifferent funds, this figure isapproximately 30%. The figures havebeen larger in the past, however, owingto the effects of the global crises hittingSlovenia, the figures slowed down.Foreign ownership in marketcapitalisation is less than 10%. Thisshare is among the lowest in the EU,which has positive and negative effects.

Money, forex and derivativesmarketsAll three market segments were quitesmall in the past in Slovenia, owing toits small currency, the Slovenian tolar;however, with the EMU entrance theyall started to develop in the “normal”continental European way. TheEuro–Slovenia’s currency from thebeginning of 2007–put some Slovenianspecifics aside. Slovenian money, forexand derivatives markets have nowbecome part of the larger European one.

The future of the Slovenian financialmarketFactors in the development of any stockmarket are an increase in cross-borderinvestment activities and enhancedcompetition between market places and

providers of financial services; thegrowing involvement of the biggestinstitutional investors in direct trading,which leads to an efficient and cost-effective trading infrastructure; atendency towards a more integratedtrading, clearing, settlement andregistry infrastructure; and theemergence of new technologicalsolutions, which began with theInternet and continued with alternativetrading systems and clearing, settlementand registry services. Although thesefactors derive from 1999, and evenconsidering the current economic crisis,they are still seen as very valid, indeed,even more so for a small country likeSlovenia. The Ljubljana Stock Exchangehas therefore decided to merge with theVienna Stock Exchange to strengthen itsfuture within the region and to becloser to other national and regionalplayers. The idea of the group is to havea local, regional and global focus. Theidea is also to introduce XETRA, theGerman trading software, to allmembers of the CEE group in order toget direct access to the most importantinternational global markets and toreduce their own trading andtechnology costs.

Main conclusionsCompared with the EU financial markets,the emerging financial markets of the newEU member countries (the so-called NewEurope) and of some non-EU membercountries are small and mainly notcompetitive with the largest markets.Their common problems are the lack oftradition and economies of scale, liquidityand their competitiveness in the Europeanand wider context. The financial marketsof New Europe and others will have tooffer competitive services (technologicalsolutions, regulation and other) in orderto grow market potential at home and atthe same time be competitive in themedium and small sectors on the globallevel. According to several quantitativemarket figures Slovenia is ranked in fourth place among the markets of NewEurope while the qualitative evaluationplaces it even higher (second place). After entering the EU and EMU, andespecially after merging with the ViennaStock Exchange in 2008, the Slovenianfinancial market is facing rationalisation,cooperation, connection and internationalintegration. l

For OECD work on financial markets,see www.oecd.org/finance


Sponsored statement

Stock exchange index

Source: Ljubljana Stock Exchange, Inc.

Extreme values of SBI 20 in period2000 to 2009

SBI 20value date

Max Value in History 12.242 31.08.07Min Value in History 1.584 25.05.00

Source: Ljubljana Stock Exchange, Inc.

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Since gaining independence in 1991, therepublic of Slovenia has carried outmany legal reforms, predominantly

aimed at completing transition processes,restructuring the economic system andfulfilling the conditions of European Unionmembership. In 2004, Slovenia became a

member of the European Union, and in2007 it adopted the euro. In the WorldBank’s rankings on the ease of doingbusiness, Slovenia held 58th place in 2009,and improved its ranking to 53rd place in2010. According to the Ministry of ForeignAffairs, OECD membership currently

represents one of the major goals ofSlovenian foreign policy.

Corporate governanceSlovenia is a civil law country; its corporatelaw is mostly based on the German andAustrian models. The vast majority ofcommercial companies are established aslimited liability companies or joint stockcompanies. Establishment of a SocietasEuropaea is legally possible, but none has so-far been established in Slovenia. Thecorporate governance system in limitedliability companies may to a large extent befreely selected by the shareholders; mostlimited liability companies select a one-tiermanagement system with one or severalmanagers and a general assembly ofshareholders. The corporate governancesystem in joint stock companies is, on theother hand, set forth by the Companies Actwhich only allows deviations where expresslypermitted by law. It is possible to select aone-tier management system or a two-tiermanagement system, the latter being themost commonly used in Slovenian jointstock companies. Public joint stockcompanies also abide by (or disclose theirdeviations from) the Corporate Governance(CG) Code for joint stock companies whichwas adopted by the Ljubljana StockExchange, the Slovenian Association ofSupervisory Board Members and theManagers’ Association. A public debate aboutthe proposed amendments of the CG Code iscurrently pending.

The vast majority of Slovenian joint stockcompanies issue dematerialised (book-entry)securities that are transferable by entry intothe central registry of dematerialisedsecurities as maintained by the CentralSecurities Clearing Corporation (KDD). Theonly stock exchange in Slovenia is theLjubljana Stock Exchange, whose majorityowner is the Wiener Börse. Less than 80companies have their shares listed on thestock exchange, but most Slovenian jointstock companies are nevertheless subject totakeover legislation, due to the fact that theTakeover Act also applies to any joint stockcompany having at least 250 shareholders ormore than €4 million of total capital.Another distinct feature of the SlovenianTakeover Act is that it contains strictdefinitions of acting in concert.

Legal framework Legal framework

XVIIOECD Observer No 276-277 - December 2009-January 2010


The level of foreign direct investment inSlovenia is rather low. By contrast, stateownership of enterprises is comparativelyhigh. In addition to public sector entities –such as public enterprises, public institutionsand agencies – the state is also present inmany commercial companies, in particular inthe public services sector, financial sector,energy sector, transport sector andtelecommunications. Direct state ownership iscurrently managed by various ministries (thatare also in charge of other state policies in therespective fields), and the state also ownscommercial companies indirectly, mostlythrough Kapitalska druzba, d.d. (KAD: thePension Fund Management company) andSlovenska odskodninska druzba, d.d. (SOD:established for the settlement of liabilitiestowards beneficiaries under various legislationgoverning denationalisation of property andother legislation).

Further to some recent measures in the fieldof corporate governance of state-ownedenterprises – such as the establishment of anindependent Council for Accreditation ofStaff (KAS) and adoption of two Decrees onincompatibility of public function of highofficials with the function of supervisoryboard members – the Slovenian governmentadopted its Policy on Management of State-Owned Enterprises on 23 July 2009. In itspreparation, the government considered theEU recommendations, as well as the OECDPrinciples of Corporate Governance and theOECD Guidelines on Corporate Governanceof State-Owned Enterprises. The purpose isto determine a clear policy of state ownershipin state-owned enterprises, the mechanism ofresponsibilities for carrying out the policyand reporting to the Slovenian NationalAssembly. The two principal aims of thepolicy are to achieve a clear separationbetween the various functions of the state,the ownership function, and the marketregulatory function and state role relating tothe development of activities. Thereby, alevel-playing field should also be achieved inmarkets where state-owned enterprises andprivate sector enterprises compete in order toavoid market distortions.

In the first phase (to be completed by theend of March 2010), the policy foresees thepreparation of a list of state investments –split by strategic investments and portfolio

investments – and the establishment of aspecial agency whose sole purpose shall be tomanage such investments and carry outrelated tasks. The agency should actindependently from the government, but inaccordance with the guidelines adopted bythe government annually; it should besupervised by the Court of Audit of Slovenia,and report annually to the SlovenianNational Assembly. Its tasks should includekeeping a record of direct and indirect stateinvestments; purchasing and selling of stateinvestments; participation in the preparationof corporate policies of state-ownedenterprises; preparation of state proposals forshareholders’ assemblies of state-ownedcommercial companies and exercising ofvoting rights thereon; the formation andupgrading of mechanisms for the selection ofcandidates for management and supervisorypositions in state-owned enterprises, as wellas their remuneration and responsibilities;cooperation with other stakeholders andreporting thereon; and preparation of aspecial Corporate governance code for state-owned enterprises (to be adopted by the endof June 2010). According to the policy, thestate is still deciding upon the exact methodof including KAD and SOD into the abovedescribed system of management of state-owned enterprises.

In addition to the developments describedabove concerning state-owned enterprises,most legal reforms and economicdevelopments in Slovenia are currently aimedat combating the economic crisis which hasaffected Slovenia rather heavily after theeconomic growth it had enjoyed for morethan a decade. Among others, the state issubsidising enterprises for reduced workinghours in order to maintain employment, andthrough various incentives–including stateguarantee schemes, credit lines from thestate-owned SID bank and direct stateguarantees–to attempt to support thebanking system and thereby enhance banklending to businesses and consumers.

The economic crisis has also affected otheraspects of the Slovenian economy. TheSlovene Stock Exchange Index (SBI 20),which registered a 78% annual growth in2007, decreased by 67% in 2008. Theannual change from 30 June 2008 to 30 June2009 was still -45.88%, but the semi-annual

change in 2009 (1 January – 30 June 2009)was already positive, at 15.36%. In thesecond half of 2008 and during 2009, thenumber of M&A transactions in theSlovenian market decreased sharply, and theIPO activity that started emerging in 2007and the first half of 2008 became almostnon-existent in 2009. There were five newequity market listings on the Ljubljana StockExchange in the first half of 2008, two newequity market listings in the second half of2008, and none so-far in 2009. One mayalso expect that privatisation of state-ownedenterprises (in the financial sector, in theenergy sector and others) will fully resumeonly following the improvement of theeconomic crisis.

The bad financial situation has startedresulting in bankruptcy proceedings that aregoing to be particularly challenging tocomplete, due to their size, as well as due tothe fact that a new Financial Operations,Insolvency Proceedings and CompulsoryDissolution Act entered into force in October2008. Although one of the aims of the newinsolvency legislation was also to correctcertain solutions of the previously applicableinsolvency legislation which proved to beineffective or unjust, its new legal solutionswill undoubtedly bring certain newdilemmas which the jurisprudence will needto solve. The open issues in the newinsolvency legislation are evidenced by thefact that it was already subject to twoamendments in 2009. One may expect thatmany new legal solutions of the newlegislation will have to be tested in court,and this will likely further slow downbankruptcy proceedings. This is particularlyimportant considering the fact that courtprocedures in Slovenia in complex casestend to last several years, and that manyissues have to be resolved for the first timein each complex proceeding due to the smallsize of the economy and the consequentrelatively small number of similar cases. Thesame trend could be observed in the past asa result of constant changes to theCompanies Act, which was substantiallyamended (or newly adopted) more than tentimes since its adoption in 1993.

CompetitionCompetition was one of the areas that meritedparticular attention from the OECD in its past

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documents on Slovenia – including theOECD Economic Survey of Slovenia in 2009– and is where the most dynamicdevelopments have recently taken place.While substantive competition law has beencompliant with the European Union rules forsome time, enforcement was not effective andit was acknowledged within the field thateven hard core cartels are sometimes noteffectively deterred and remedied in Slovenia.This situation might change in the future, asthe Competition Protection Office wasgranted new investigative powers in the newcompetition legislation and expressed itswillingness to use them.

Following the first true dawn raid inSlovenia, the Competition Protection Officecompleted two important procedures. InMay 2009, the Office acceptedcommitments proposed by three retailershaving the largest market shares inSlovenia. The purpose of the commitmentswas to eliminate the circumstances in whichthese retailers were allegedly colluding inallowing an increase in the prices ofhousehold products after the suppliers ofhousehold products, had submitted theprice increases to the retailers for approval;and the retailers were allegedly colluding inprohibiting and/or setting requirements onterminating cooperation between suppliersand certain competitive retailers on themarket for purchasing household productsfor resale in Slovenia.

In June 2009, the Competition ProtectionOffice also accepted commitments proposedby the largest Slovenian retailer, the purposeof which was to eliminate its allegeddominant position on the market forpurchasing household products for resale inSlovenia. The retailer was accused of havingabused its dominant position by concludingcontracts with its suppliers of householdproducts subject to the requirements for anumber of unjustified contractual bonusesnot included in calculation of retail prices andhigh rebates not justified with normalbusiness conditions.

Partially as a result of the deficienciesdiscovered during the above mentioneddawn raid, an amendment to the Preventionof the Restriction of Competition Act wasenacted in June 2009.

The core reasons for the amendment were aneed for better defined powers of theCompetition Protection Office in investigativeproceedings in relation to data protection, andintroduction of the leniency programme inSlovenia. The practice of the Office has shownthat the definition of data is needed in orderto define what data the Office may obtain andprocess. In a dispute between the InformationCommissioner (who supervises the protectionof personal data, as well as access to publicinformation) and the Office, the InformationCommissioner has, namely, prohibited theOffice from using certain personal dataacquired during the dawn raid by arguingthat the Prevention of the Restriction ofCompetition Act does not suffice as a legalbasis for interference with communicationprivacy. The clarification in the amendmentnow enables the Office to avoid anymisunderstandings of its powers since dataare defined as any information, includingconfidential data, notwithstanding on whichdata support medium such information iscarried.

The amendment also enabled a true leniencyprogramme, which the Slovenian governmentis currently in the process of adopting. Beforethe amendment, the Prevention of theRestriction of Competition Act regulated onlya possibility to waive sanctions. The amendedPrevention of the Restriction of CompetitionAct now regulates the matter more closelyand allows the Slovenian Government toadopt a leniency procedure. According to theamendment, a sanction in a cartel may bewaived or reduced if strict conditions arefulfilled. If an undertaking participating in thecartel applies for the waiver, it has to discloseits own participation and submit evidencewhich enables the investigation of the Office;moreover, it has to cooperate with the Officeduring the whole proceedings and cease toparticipate in the cartel–unless the Officeopines that such cessation is contrary to theinterests of the investigation–and, finally, the undertaking should not have forced other participants in the cartel to participateor to continue to be participants thereof.Subsequent leniency applicants may apply fora reduction of sanction (30% to 50%).

Importantly, the Supreme Court of Sloveniarecently upheld the Office’s decision taken on6 August 2008 by which five energy

distribution companies having the largestmarket share in Slovenia in the supply ofelectricity were found as being guilty of theconcerted practice of raising electricity priceon the same day by almost the samepercentages. The decision on the fine set bythe Office–approximately €8.5 million forthe legal entities and approximately€20,000 for each responsible person amongthe infringers–which is the highest fineimposed by the Office so-far, is, however,still pending before the court competent formisdemeanour proceedings. These decisionsof the Competition Protection Office andthe Supreme Court were particularlyimportant as they increased the publicawareness of competition issues andsupport for competition policy. Amongothers, the Slovenian Consumers’Association publicly asked the above energydistribution companies to repay theamounts due to consumers, and to publiclydeclare their intentions with respect thereto.At the same time, the case confirmed thatthere are likely to be no effective legalremedies that would allow privateenforcement in cases such as this one,where many individuals are damaged byanticompetitive conduct, but the damagecaused to each of them is small.

Some further competition-relateddevelopments could be expected in thefuture. Among others, the CompetitionProtection Office is administratively stillorganised within the Ministry of Economy,contrary to some other regulatory bodies -such as the Securities Market Agency -which are organised as independentagencies. Some developments are also to beexpected in the public procurement field, asthe Competition Protection Office recentlypublished a Slovenian version of the OECDGuidelines for Fighting Bid Rigging inPublic Procurement (public procurementcurrently represents close to 10% of theSlovenian GDP). It is, however, questionablewhether the Competition Protection Officecan continue effectively performing its taskswith the current staff of 21 employees, andconsidering the fact that the revised nationalbudget has reduced its available financialmeans for 2009. l

Visit www.selih.siSee also www.oecd.org/daf/corporateaffairs

XIXOECD Observer No 276-277 - December 2009-January 2010



Evolution of Slovenian handicrafts In the Roman province of Noricum, which covered parts of modern Austria and Slovenia,mining and smelter workshops had a lasting influence on many of the crafts evolving inthe region at the time. Later on, in the middle ages, following the clergy and feudallandowners from their provinces, numerous craftsmen of German origin arrived in theSlovene-inhabited territory, bringing with them not only new craftsmanship, but a vibrantcommercial culture. Between the 12th and 15th century, at the height of the feudal system,the small Slovenian territory already included about 70 market-based settlements and 27towns. In most of them, craftsmen and traders formed an important part of society andacted as the vital agent in the introduction of a monetary economy. In the 19th century,strict regulations on craftsmanship were liberalised by the advent of Austrian andNapoleonic standards, subordinating industry and commerce directly to the state. In thecountryside, however, the original symbiotic relationship between farming andcraftsmanship survived, and continues to thrive to this day. The positive aspects of olden-day crafts organisations in many cases have been preserved and are reflected incontemporary associations. In the 19th and early 20th century, craftsmanship-

Entrepreneurship in Slovenia

By Igor Pavlin and StefanBogdan Salej, ICPE, Slovenia International Centre for thePromotion of Enterprises(ICPE)

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Dr.Stefan Bogdan Salej,Director General ICPE Ljubljana,Slovenia



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cooperatives and industrial development,gradually evolved into parallel streams ofeconomic activity, paving the way for themodern evolution of Slovenianentrepreneurship.

Family business and growthFamily business has long been animportant source of the country’s economicdevelopment. A model of development thatcan be considered typical for Slovenia isexemplified by a family business, whichemerged from the ruins of pre-socialistcraftsmanship. The case of wood-processing machine producers is instructiveof the way in which Slovenianentrepreneurs were competitiveinternationally decades before the officiallyrecognised transition to a market-driveneconomy came about. This example regardsan enterprise, which developed from asmall carpentry business in the 1970s intoa modern factory producing wood-processing machinery. Skillfully bypassingthe strict socialist regulation of a maximumnumber of five employees, the owner, amechanical engineer, established acooperative of craftsmanship, which soonoutnumbered 200 employees. Split intoseparate cells of provisional craftsmanshipworkshops, the company was able toproduce high-tech machines, each sellingfor over $1 million to buyers fromSwitzerland, Austria, Japan and others. Thecompany needed proper financing andacquired a bank in a neighbouring countrythat could join interested buyers inproviding proper financing of large-scaleproduction. Liberal attitudes of theSlovenian political elite in the years leadingup to the disintegration of the formerYugoslavia helped ease the restrictions ofstraightjacket regulations, which had beenpreventing the effective use of economies ofscale, and strengthened Slovenia as anexport-oriented economy. In this way, theseed was planted for international successof Slovenian enterprises that were to follow,as it ensured a healthy path toentrepreneurial privatisation as opposed towidespread predatory privatisation, whichafflicted many other transitional economies.

Research in entrepreneurshipSince 2002, Slovenia has been included inthe annual Global Entrepreneurship

Monitor (GEM). GEM producescomparative data on the entrepreneurshipenvironment and trends. The survey isfocused both on established entrepreneursas well as those just becoming involved inentrepreneurship. The results areconsidered complementary to statisticaldata and are widely used in economicpolicy formulation.

Moreover, there is a continuous screeningof achievements in the SME and othereconomic sectors through various analyses,leading to prizes for fastest growingenterprise in different geographical regionsof Slovenia, or for the entrepreneur of theyear. Breaking the mould of the socialistmentality of safe employment in apredominantly public sector within thecentral European context, the traditions ofentrepreneurship, innovation and creativitywithin larger industrial companies,combined with the application of scientificbreak-throughs have brought about anumber of high-tech SME companies thatcan be considered world leaders in theirfields.

According to the reports of GEM in the lastyears, about 5% of the adult population inSlovenia have just recently started theirown entrepreneurial activity (i.e. nascententrepreneurs) or have had their ownenterprise for not more than three and ahalf years (i.e. new business owners). Over60,000 individuals have had their owncompany for more than three and a halfyears. A realistic estimate is that there areclose to 110,000, i.e. about 8% ofentrepreneurially active individuals inSlovenia. The majority of individuals inSlovenia start their entrepreneurial activityaged between 25 and 34, while themajority of entrepreneurs who have ownedtheir businesses, for more than three and ahalf years, are aged between 45 and 54.

Slovenian entrepreneurs predominantlycome from the group of people with thehighest household income (the upperthird). This information correlates with thefact that the majority of entrepreneurs inSlovenia decide to become involved inentrepreneurial activity in order to seize abusiness opportunity rather than out ofnecessity. It also correlates with the finding

that the majority of individuals becomeentrepreneurs out of the desire for greaterfreedom. The ratio between the populationengaged in opportunity-drivenentrepreneurship and the populationengaged in necessity-drivenentrepreneurship is 9:1. 70% of Slovenianestablished businesses make products,which are known to nearly all customers.

Evolution of entrepreneurial educationFollowing the concept of teaching pupils toplant and sell their crops in the market inAustro-Hungarian primary schools in the19th century, entrepreneurship became anelective subject in secondary schools inSlovenia in the early 1980s, soon after theconcept was designed by Alan Gibb in theU.K. Later on, it spread to most vocationaland technical secondary schools as acompulsory subject. Among the highereducation institutions, the Faculty ofEconomics and Business, University ofMaribor, was established with a distinctbusiness focus, joining the prestigiousFaculty of Economics, University ofLjubljana. The institutions haveaccreditations from the European Councilof Business Education and the EuropeanFoundation of Management Development.

In the second half of the 1990s, followingan initiative by Slovenian entrepreneursand professors of economics, a highereducation institution devoted solely toentrepreneurship evolved from shortcourses in marketing and businessplanning. Gea College for Entrepreneurshipreceived much support in its developmentfrom Babson College in Boston. Similarhigher education based courses are nowwidespread in Slovenia. In the area ofmanagement and executive development,the International Executive DevelopmentCentre (IEDC) has had an important role.Founded in 1986, IEDC School ofManagement in Bled, Slovenia, was one ofthe first business schools in central andeastern Europe.

These strides in entrepreneurial educationoffered an applied component to thealready highly developed natural andtechnical science research and study.Scientific institutes like Jozef Stefan workhand in hand with other similar R&D

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centres, industry, medical institutions andothers within Slovenia and internationally.Areas of activity include production andcontrol technologies, communication andcomputer technologies, knowledgetechnologies, biotechnologies, newmaterials, environmental technologies,nanotechnologies, and nuclear engineering.A large number of incubators andtechnological parks ensure a more effectiveintegration of the business and scientificaspects of entrepreneurial development.

A UN-sponsored intergovernmentalinstitution with member countries fromLatin America, Africa, Asia and Europe, theInternational Center for Promotion ofEnterprises (ICPE), located in Slovenia’scapital, Ljubljana, contributes to SMEdevelopment in Slovenia with its EUdevelopment programmes. These includeentrepreneurship bank support to SMEs,self-employment, women’sentrepreneurship and franchisingdevelopment in cooperation with the GeaCollege for Entrepreneurship, Chamber ofCommerce of Slovenia and severalinternational institutions.

The ICPE’s contribution to SMEdevelopment has been growing in the last10 years with its involvement in joint EUresearch and development projects withinstitutions in 16 other European countries.Since 1989, ICPE has organised a series ofconferences and seminars on these subjectswith the European Bank for Reconstructionand Development, European FranchiseFederation, National Westminster Bank,ING bank, ILO and several localinstitutions. For the past 21 years, the ICPEhas also conducted an international MBAprogramme, with world-class lecturers andalumni from 45 different countries.

Internationalised Slovenian SMEsSlovenia has been noted for its high-techopportunity-driven entrepreneurshipthrough its local and internationalentrepreneurial traditions of crafts, familybusinesses and strong export industry.

Hundreds of well-targeted niche playershave brought Slovenian business to thepeaks of modern global entrepreneurship,often accredited by international prizes.

Many of them are active in the areas ofmodern electronics, biotechnology,furnished with contemporary IT andmodern marketing tools.

Among these companies one can findthose that have expanded primarily to theemerging markets in Central and EasternEurope with their services in directmarketing, where they act as partnerssharing the risk for market results. Onesuch company purchases over 80 hours ofdaily programming with 320 millionspectators on larger TV stations in thesemarkets. They know the mentality,purchasing habits and the expectations ofthe respective customers. They assistcompanies with the development ofmarketing solutions with direct feedback,ensure brand recognition, keep costs lowand increase efficiency.

Many Slovene high-tech companies arebased on unique technological solutions;one of them, for example, providestechnology that facilitates distantmonitoring, measurement and steering ofdifferent processes. It started with solvingthe problem of distant ultrasoundmonitoring of the fuel in containers as wellas logistics of fuel and transport trucks thatdistribute the fuel. Today varioustechnological solutions have been createdfor different domains that function withinspecialised subsidiaries and profit units indifferent countries. They are originators ofthe system M-Pay for paying via mobilephones, which has been tested in manycountries including Malaysia, Brazil, SaudiArabia and Croatia.

Another company, located in a smallSlovenian town, provides measurementequipment for the NASA telemetric centre,where it is used to monitor space shuttles.They also supply their products to theautomotive and aircraft industry includingAudi, BMW and Mercedes Benz. Theirturnkey data applications provide instantcustomising of user displays, acquiringdata to disk, exporting it and printing it infull colour. They combine several worldsof data processing to calculate all kinds ofmath, formulas, statistics, and state of theart power calculation, FRF, torsionvibration, order tracking, combustion

analysis, acoustics and others. With only13 employees, it has a lot of room forgrowth.

Clusters, business angels and growthOne of the contemporary mechanisms forentrepreneurship development and growthare clusters, which reflect theentrepreneurial tradition of the countryand the high level of mutual trust amongentrepreneurs. In Slovenia, there are about30 clusters, with over 500 memberenterprises, throughout the country. Theseclusters often build on common humanresource development, investment intodevelopment and research projects, as wellas new products. In Slovenia, clusters areespecially focused on automotives,transport, plastics, and wine production.

Among promoters of Slovenian business isthe Slovenian Business Angels Club,bringing together prominent Slovenianentrepreneurs, who are willing to invest inambitious young entrepreneurs in theinitial growth phases. They support start-ups with business plan assessments andsuggestions for improvements. The clubcooperates with other business angelsassociations and investors both in Europeand elsewhere. The Slovenian BusinessAngels Club is in the process of becominga member of the European Business AngelNetwork (EBAN).

The recent developments in global marketshave proven that entrepreneurial policymust shift from ‘general SME policy’ to‘growth-oriented entrepreneurship policy’as businesses which have the willingnessand the objective capacity for growth andmarket expansion are rare. At the sametime, they have requirements and needswhich have to be dealt with quickly,flexibly and effectively. Among otherthings, ‘growth-oriented entrepreneurshippolicy’ must be both highly selective andproactive in the search of thoseentrepreneurs in the environment whohave both motivation and objectivecapacities for growth. l

For OECD work on entrepreneurship andlocal investment initiatives such as clusters,see www.oecd.org/sfe andwww.oecd.org/gov

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OECD Observer No 276-277- Slovenia Supplement - December 2009-January 2010