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Slovenia Economy

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Slovenia's economic success clearly illustrates the benefits of embracing liberal trade, following the rule of law, and rewarding enterprise. This success, however, is not unprecedented for Slovenia. Although it comprised only about one-thirteenth of Yugoslavia's total population, it was the most productive of the Yugoslav republics, accounting for one-fifth of its GDP and one-third of its exports. The country already enjoyed a relatively prosperous economy and strong market ties to the West when it gained independence in 1991. Since independence, Slovenia has pursued diversification of its trade toward the West and integration into Western and transatlantic institutions vigorously. In so doing, it has made substantial progress in its transition to a market economy, particularly becoming party to a number of bilateral and regional free trade agreements. Slovenia is a founding member of the WTO and joined the Central European Free Trade Agreement (CEFTA) in 1996. Slovenia also participates in SECI, as well as in the Central European Initiative, the Royaumont Process, and the Black Sea Economic Council. Slovenia became a new EU member state on May 1, 2004.

Today, Slovenia is one the best economic performers in central and eastern Europe, with a GDP per capita in PPP in 2008 at $23,100. Slovenia benefits from a well-educated and productive work force as well as dynamic and effective political and economic institutions. Although Slovenia has taken a cautious, deliberate approach to economic management and reform, with heavy emphasis on achieving consensus before proceeding, its overall record is one of relative success.

Slovenia's economy is highly dependent on foreign trade. Accordingly, the economy has suffered from the recessions in export markets, primarily Germany. About three-quarters of Slovenia's trade is with the EU. Additionally, the country has penetrated successfully the south and east markets, including the former Soviet Union region. This high level of openness makes Slovenia extremely sensitive to economic conditions in its main trading partners and changes in its international price competitiveness. Keeping labor costs in line with productivity is thus a key challenge for Slovenia's economic well-being. Services contributed the most to the national output in 2007, accounting for 63.5% of GDP. Industry and construction comprised 34.4% of GDP; and, agriculture, forestry, and fishing accounted for 2% of GDP.

Economic management in Slovenia is relatively good. Public finances showed a deficit of 0.9% of GDP in 2009, well within Maastricht parameters. Due to the global financial crisis, however, experts expect the deficit to rise above 3% in 2009.

Due to its macroeconomic stability, favorable foreign debt position, and successful accession to the EU, Slovenia consistently receives the highest credit rating of all transition economies--receiving the top regional honors in a recent Dunn & Bradstreet survey. Slovenia's ability to meet its growth rate objectives will largely depend on the state of the world economy, since exports demand in Slovenia's primary market has stalled. Foreign direct investment (FDI) will take up the slack to some extent, as analysts forecast FDI levels will continue to increase with further privatization of state assets, including portions of the telecommunications, financial, and energy sectors. Slovenia must carefully address fiscal, monetary, and FDI policy, in light of the high deficit in pension accounts, its vulnerable Western export markets, and inflation concerns. Slovenian enterprises have a tradition of market orientation that has served them well in the transition period, as they moved energetically to reorient trade from former Yugoslav markets to those of Central and Eastern Europe. However, in many cases under the Slovenian brand of privatization, managers and workers in formerly "socially owned" enterprises have become the majority shareholders, perpetuating the practices of "worker management" that were the hallmark of the Yugoslav brand of socialism. Difficulties associated with that model are expected to decrease under competitive pressures, as shares in these firms change hands, and as EU reforms introduce more Western-oriented governance practices.

Slovenia has taken some important steps in recent years to free up its financial markets. This sector historically has been one of the most protected, reflecting Slovenian concerns over limited capacity to face global competition and a desire to maintain domestic control over finance. A combination of market forces, changes in Bank of Slovenia regulations, and national legislation are moving this sector increasingly in a more globally oriented direction. In 2003, several measures were introduced to make both portfolio and direct investments easier and more transparent in Slovenia and to conduct many financial operations, including banking, securities brokering, and undertaking various credit transactions. Most remaining barriers were removed by May 1, 2004--for instance, marketing of foreign mutual investment funds is now allowed. While Belgian KBC is the main owner of Nova Ljubljanska Banka (NLB) with 30%, little progress has been made in the privatization of NKBM bank, Slovenia's largest bank, which is still 100% state owned. The government continues to downsize state shares in the insurance sector; however, the government-owned Triglav still controls nearly half of the insurance market. Other insurance companies have been privatized or are foreign-owned.

Government efforts and reforms designed to attract foreign direct investment (FDI) have proven somewhat successful--FDI is continuing to slowly grow. Slovenia's traditional anti-inflation policy in the past relied heavily on capital inflow restrictions. Its slow privatization process favored domestic investors and prescribed long lag time on share trading, complicated by a cultural wariness of being "bought up" by foreigners. As such, Slovenia has had a number of impediments to full foreign participation in its economy. However, a number of these barriers to FDI were fully removed in 2002. As a result, expected foreign takeovers of Slovenian blue chip companies, as well as EU membership, have fueled investors' interest in the country. Acquisitions by multinational companies--KBC of Belgium's takeover of a significant share of Nova Ljubljanska Banka, and Swiss Novartis' takeover of Lek Pharmaceuticals--clearly demonstrate the attractiveness of the Slovenian economy, particularly to European investors seeking a platform to support expansion into southeastern Europe. U.S. investments in Slovenia have been more modest; Goodyear is the largest American investor. Even with these successes, much of the economy remains in state hands and foreign direct investment in Slovenia is one of the lowest in the EU on a per capita basis.

The current government is actively introducing measures to shore up Slovenian businesses in light of the global economic crisis. The biggest influence on the Slovene economy in 2009, however, will be the ability of Slovenia’s export markets, notably Germany, to weather the financial storm.

Information by U.S. Department of State




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