Will a sunny forecast attract more foreign investments?
With the Fourth Industrial Revolution (4IR), humanity has entered a new phase. The 4IR has become the lived reality for millions of people around the world, and is creating new opportunities for businesses, governments and individuals. Where on this map of new opportunities is Slovenia? Virtually every country on the planet is striving to lure foreign investments. International rankings conducted by the World Bank, the World Economic Forum and others are in this regard an important factor, which can weigh in favour of or against an investment. The business environment, taxes and state incentives also play a crucial role. According to the World Competitiveness Report, which measures business regulations and their enforcement across 190 economies and selected cities at the subnational and regional levels, Slovenia ranks 40th in 2019. The projections of economic growth for Slovenia remain favourable. Real GDP growth is expected to be 3.4 % this year and around 3 % in 2020 and 2021, according to the Bank of Slovenia.
Fierce regional competition
Slovenia, a natural jewel, has quite a fierce competition for FDI. Last year, American high-tech company EON Reality, which develops virtual reality software and could employ around 250 high-tech personnel in Maribor, moved to Hungary due to refusal of state subsidies for the investment. Two years ago, we also fell short on the IBM's centre for technological support. IBM chose Croatia, which was major publicity for our southern neighbour as an investment destination, according to Večernji list. Slovenia experienced first-hand that foreign investment is like trade and that if we could not attract it, investors would go elsewhere.
"Even if the current geopolitical climate might seem less welcoming to international investment, Slovenia has made an effort to be more attractive in the past few years. There were a few instances a couple of years ago where Slovenia clearly left sight to international competition to attract major foreign investment. However, this was taken as a warning sign by most stakeholders in the country," says Jure Stojan, an economist and the Director of Research and Development at the Institute for Strategic Solutions. Therefore, Stojan thinks there is currently a great consensus in the broader political spectrum that Slovenia would be well advised to make itself more attractive to foreign capital. And to some extent is already has.
The majority of foreign investments on the sunny side of the Alps are in sectors where Slovenia is traditionally strong or shows some competitive advantages in. For example, in automotive, electrical and machine-processing industries. Recently, there has been an increased interest in wood-processing and tourist industry investments. One of the most visible and highly anticipated investments was by the Canadian-Austrian automotive multinational Magna Steyr, which at the end of 2017 began building a paint shop in Hoče. The launch of experimental production was planned in early 2019, and regular production is expected in spring. Due to the favourable economy as well as highly educated workers, Slovenia also gained an important investment in the field of robotics. Namely, the Japanese company Yaskawa is setting up the first factory of industrial robots outside the Japanese and Chinese borders. In Kočevje, about 500 workers will be producing seven different types of robots.
The big four
Foreign investors are mostly interested in three industries: manufacture, the financial and insurance industry as well as wholesale and retail. The largest absolute increase in inward FDI in 2017 was recorded in manufacture (32.9 % of the total), with an increase of EUR 274.4 million or 6.5 %. In the financial and insurance industry, FDI increased by EUR 128.2 million or 4.4 %. For the second consecutive year, a relatively large increase was also recorded in construction, where FDI increased by EUR 62.6 million or 40.7 %, largely as a result of an increase in liabilities from debt capital and revaluations of equity.
The largest investor in the country is Austria. According to a survey by Advantage Austria Ljubljana, the official representative office of the Austrian economy in Slovenia, Austrian companies are the largest foreign investor in Slovenia with approximately EUR 3.5 billion in investments, which represents as much as 25.6 % of all FDI. Companies are active in virtually all sectors of the economy. Currently, there are more than 1,000 branches with majority Austrian capital in Slovenia, employing approximately 20,000 people. Economic cooperation between the two countries has traditionally been very successful, dynamic and has been increasing steadily to this year. About 60 % of respondents believe that the economic situation has improved in the previous year and will remain unchanged in 2019.
The second largest investor country in terms of FDI value was Luxembourg, investing predominantly in the financial and insurance industry, but also information and communication as well as manufacture. Switzerland is no stranger to Slovenia either. The third largest investor can attribute the increase in the stock of FDI in reinvested earnings in the amount of EUR 83.1 million predominantly to manufacture, where Swiss investors also invested the most (73.5%), according to the Bank of Slovenia report.
Germany holds the majority of its indirect investments in Slovenia via its Austrian subsidiaries (EUR 880 million), while the same also holds true of Mexico. German firms mostly invested in manufacture, wholesale and retail trade, the repair of motor vehicles and motorcycles, transportation and storage, real estate and the environmental sector (water supply, sewerage and waste management). The fifth most important investor country was Italy, whose inward FDI in Slovenia amounted to EUR 1,129.6 million (8.3 % of the total) at the end of 2017, which is EUR 16.6 million on the previous year.
These are not the only investors in Slovenia. Investors from the Russian Federation also act indirectly in Slovenia via their branches in Austria and the Netherlands. The US as the ultimate investing country held EUR 1,812.2 million of inward FDI in Slovenia at the end of 2017, with the majority of the investments held indirectly via affiliates in Luxembourg, Sweden, the Netherlands, Germany and Switzerland.
Foreign capital mostly flows to the region of Central Slovenia, accounting for 61.0 % of the total at the end of 2017, followed by the Drava Region, Coastal-Karst Region and Upper Carniola.
How can Slovenia improve the investment climate? There are two ways to attract FDI, says Jure Stojan. The first, which has been taken many times, is to try offer some type of incentive not only for foreign but for domestic capital as well. "In the past few years, a major shift in thinking occurred based on the realisation that if Slovenia is to be sustainably attractive to foreign investment, it also needs to work on the overall performance of its economy," Stojan concludes.