Maximum financial recovery and the future of the company both need to be considered
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In Slovenia, there is a lot of talk about increasing the amount of foreign direct investments for which we need certain conditions to be fulfilled such as a stable, predictable and competitive business environment. What actions is your ministry taking to improve the competitiveness of our business environment?
When we talk about the investment climate in Slovenia, we look to our ministry to create favorable conditions for either domestic or foreign investors. We believe that reform is necessary in three areas: reducing administrative barriers, which are problematic in general, not just for investment; secondly we have a problem with the cost of labour, particularly in higher salary grades; and lastly, the rigidity of the labour legislation. At this point it is important to point out that, in the last two years, we have managed to stabilise the economic and political situation in the country and the state budget, which is within the Maastricht criteria, so this enables us to tackle the abovementioned reforms.
In terms of administration we cooperate with the Ministry of Public Administration. The team from our ministry collected the most pressing administrative problems and now our ministries are working together on improvements. The second is tax reform which is the responsibility of the Ministry of Finance. We cooperate with them in terms of the cost of labour where we need to increase our competitiveness, especially in the higher salary grades by paying highly-skilled workers and those that are the most productive. Thirdly, we are dealing with changing the currently rigid labour-legal legislation so it will have greater flexibility so that more contracts for an indefinite period of time can be implemented, which also means lower unemployment. Based on these, the economy must then be given the possibility to breathe with the market so as to react more easily and faster to the changes.
Slovenia has, in comparison with other European countries, one of the greatest tax burdens on labour. You've already mentioned solutions for transferring the tax burden, can you be more precise?
To reduce the tax burden for the higher salary grades, we are thinking about an instrument which would allow a part of the profit that would be used for bonuses for employee performance. This would be a voluntary principle of profitable enterprises in the form of the so-called thirteenth or fourteenth salary, which would be completely relieved of duties, only the personal income tax would have to be paid.
Which Slovenian sectors and / or companies do you consider as strategically important in terms of attracting foreign direct investors and how can Slovenia be successful in this?
First of all we have to realise that Slovenia is an export-oriented economy. Specifically, the automotive industry in terms of supplying spare parts, the pharmaceutical industry, technical industry and there is potential in the metalwork industry. Additionally, for the future, it is important to support research and development, particularly in terms of the green economy, such as the forestry-wood chain and tourism. From these fields, our ministry has been organising several delegations, especially to markets outside the EU. We recently visited Vietnam and Iran. With us there have been many Slovenian entrepreneurs who have successfully performed and networked.
Slovenian tourism has faced many challenges. It seems that Slovenia was lacking the right strategy in this area for a long time. Last year you reestablished the independent Slovenian Tourist Board (STB). What are your expectations?
Slovenia has more or less always had a good tourism strategy, the problem however was that it was not fully implemented. Tourism is an industry which exports VAT and annually collects approximately EUR 250m in VAT, which is almost 13% of GDP. The potential however is much greater, in 2016 the goal is EUR 3bn in turnover. The strategy was set in 2012 but, unfortunately, nothing was done to implement it. For tourism development, as in other areas, it is important that effective promotion is carried out in foreign markets. For this reason we decided to rebuild the STB. Tourism for Slovenia is an extremely important segment and needs special attention. Accordingly, we have doubled the promotion budget which is exclusively for foreign markets, from EUR 6m to EUR 12m in 2016.
EUR 276m of EU funds is intended for so-called "Smart Specialisation", that is measures in research, development and innovation. As you have said, the ministry wants to increase the share of innovation active enterprises, accelerate the transfer of knowledge in the economy and the commercialisation of research. Slovenia is challenged by commercialisation and the international breakthrough of its innovations. What are the measures you are planning?
The new EU financial perspective leads to important changes and therefore our ministry manages two relatively large financial sources; EUR 276m as you mentioned and an additional EUR 520m intended for small and medium-sized companies. Here, it is important to emphasise that this money is not meant to be spent on grants alone. By funding so-called "Smart Specialisation", it is the first time that several ministries are cooperating. In addition to our ministry, there is also the Ministry of Education, Science and Sport that funds research from development to prototype manufacturing and then our ministry funds the project further, from prototype to the market. We have, at our ministry, six years and EUR 90m for this.
Although Slovenia has spent billions to rehabilitate state companies, some have been sold at a lower price than could be actually achieved and realised. You have accepted the proposal that key companies (Triglav, Krka, Luka Koper, Pošta Slovenije, Modra Zavarovalnica, DARS, Slovenian Railways and Energy) have been earmarked as strategic investments and will therefore remain in state hands. How does the country retain the majority ownership in these companies?
Significant progress has been made with the State Assets Management Strategy. It is necessary to point out that we have, in the state ownership portfolio , more than 100 companies managed by the Slovenian Sovereign Holding (SDH). There is not one most important classification of companies as strategic, where the state must preserve 50% plus one share. The important area is the strategy where the state share consists of 25% plus one share and of course the portfolio companies that are for sale. The most important measure is that the profitability of state-owned enterprises must be at least 8%, which is coincidentally the same as the profitability achieved by the French state-owned companies. The task of SDH is to ensure this 8% across industries. In the future I believe this will be the basis for assessing the performance of management teams in state-owned companies - the level of planned results achieved.
Additionally I want to emphasise that the country strives to continue the privatisation process, where it is necessary that both SDH and the Bank Asset Management Company (DUTB) take into account two aspects in terms of sales: maximum financial recovery on sale and the future of the company that is being sold. We want that the companies are sold for the good of the Slovenian state and the benefit of the company which is sold.
What kind of changes are you considering for the Act Governing the Remuneration of Managers of Companies with Majority Ownership held by the Republic of Slovenia or Self-Governing Local Communities?
The fact is that the law was passed in a time when we had different managers of state assets, but today they are all have concentrated in SDH and the bad debts in DUTB. We are not going to abolish the law, we will only transfer the responsibility of the owner, SDH, which is required to monitor through the set of results of which I spoke earlier, to make the correlation between achieving profitability and reward.