The Slovenia Times

Global internationalisation of Slovenian Exports is Imperative



Companies that understand digital transformation are consistently increasing their profits. You have highlighted the prominence of digital transformation at the very top of the Slovenian economy. In what ways is the Ministry contributing to such developments?

As far as the future is concerned, the Ministry considers digitalisation to be one of the most pressing topics. On the one hand, our economy certainly will not be able to satisfy the consumer without it and on the other, consumers from developed countries are somehow "forcing" us to embrace digitalisation, which explains why companies in Slovenia are fairly digitalised, especially the large ones. The segment that is still lagging are the small and medium-sized enterprises, which the Ministry is paying special attention to with its incentives. By means of digitalisation, we want to boost our competitiveness and adaptability in international markets, increase the number of companies that are successful in digital transformation and robotisation, and at the same time, improve the digital competencies of their employees. This way, we can increase the added value in companies. In 2018, it amounted to EUR 42,000; by 2025, we want it to reach EUR 60,000. The added value in Austria is already EUR 70,000, and we want to halve the Slovenian setback in five years' time. For this reason, we are implementing a number of measures. The first is a program to promote the digitalisation of companies through grants of non-repayable funds until 2023 in the following forms: activities organised by the Digital Innovation Hub Slovenia (DIHS) which offers free services for companies to a total value of EUR 2.6m; and through SPIRIT Slovenia, where we grant subsidies for electronic commerce in small and medium-sized enterprises - so-called digital vouchers, which enable fast access up to EUR 9.45m. We also promote digital transformation in small and medium-sized enterprises by implementing digital strategies worth a total of EUR 12.4m, that is EUR 3.1m annually. In cooperation with DIHS, the Slovene Enterprise Fund in Maribor is also offering digital vouchers for digital marketing and online stores, and we are also providing cyber security and assistance in drawing up digital strategies, amounting to a total of EUR 8.5m. There is also the possibility to obtain repayable funds from SID Bank for research, development and innovation, and we have also established a strategic, research and innovative partnership (SRIP) in the field of smart factories and smart cities. As far as investments in digital transformation are concerned, we are thinking about providing support in the form of favourable loans and guarantees. In addition to this, it is also our mission to create a supportive entrepreneurial environment by adequately amending the legislation and establishing a digital link between the state with the economy. We must bring our state to a point where it can communicate with companies the same way companies communicate with their customers - through digital media. This is why we are also cooperating with the Chamber of Commerce and Industry of Slovenia.

The Ministry of Economic Development and Technology has allocated EUR 887m for the implementation of measures for promoting economic development. Can you explain the key measures planned and the anticipated outcomes ?

These are cohesion funds granted by the EU. In Slovenia, these funds amount to EUR 3bn and have been granted for the entire period 2014-2020. During this period, we have published various calls for tenders and collect applications. The payment is only made once a project has been fully implemented. So far, we have supported over 1,000 small and medium-sized enterprises annually, by means of which we have preserved 20,000 jobs and generated 2,000 new ones according to our estimates. The companies that we supported have increased their added value by 4% annually, prompting EUR 200m of new investments. Out of EUR 887m, 51% is allocated to accelerating the growth of small and medium-sized enterprises, 37% to incentivising research, development and innovation, 4% to digitalisation, 5% to material and energy efficiency and 4% for local development managed by communities. In the area of research, development and innovation, we have allocated more than EUR 313m to repayable and non-repayable incentives, and launched over 400 projects in 2014. As far as investments in research, development and innovation are concerned, it is important for both domestic and foreign companies to highlight the 100% tax relief which is being used by 550-700 companies. The net value of the relief amounts to approximately EUR 50m.

To promote entrepreneurship we are trying to come up with a friendly legislation and supportive environment. For this reason, the Slovene Enterprise Fund grants subsidies for start-ups, EUR 10,000 vouchers, seed capital, microcredits, guarantees, subsidies, competitive interest rates, as well as loans from SID Bank and the Slovenian Regional Development Fund. We encourage partnerships between companies and the strengthening of brands - especially the "I feel Slovenia" brand, which we would like to be used consistently and increasingly throughout our economy. We are also supporting the creation of new business models, integration with foreign markets and direct foreign investments (FDI's), aimed primarily at increasing the scope of internationalisation among small and medium-sized enterprises.

Standard & Poor's, a US financial services company, is forecasting low interest rates and a low 1.1% economic growth for the eurozone, which is also due to the drop in external demand. How will Slovenia respond? We know certain companies in Slovenia are already reducing their production volumes and as a result, the number of employees.

I should emphasise that it was not until 2017 that Slovenia surpassed the GDP of 2008, even though the economic growth in the period from 2014 to 2018 exceeded 4%, which was the EU average. This means it took us nine years to reach our starting point. In addition to this, my view of the future is quite positive - a cool down does not mean a crisis. What it means is that it is harder to keep up with the high tempo once you reach a certain stage. That being said, it is also important to highlight that Slovenian companies are in a much better place and less indebted than they were before the last crisis. The majority of our GDP is created through export, with 85% of all products and services made in Slovenia being exported. It is a fact that economic growth is slowing, which is also due to the state of the global markets. Thus, I believe that our economy has two things to be cautious about in the future: one is external, meaning we have no impact whatsoever on it - I am talking about the trade war; and the other one is internal, meaning we can still turn it for the better - I am referring to the lack of labour force. We have four solutions for the latter: a pool of unemployed individuals, which is steadily being emptied due to the higher-than-ever employment rate; a pool of retirees; an accelerated integration of young generations In the labour market - Slovenia has one of the longest duration of higher education in the world; and the fourth pool involves the import of labour force from culturally similar regions. The economic growth in Slovenia currently 2.7%, which is still above the EU average. However, this is also on account of various investments. I am an optimist primarily due to the various large-scale public infrastructure projects which are set to be implemented in the future - these include the second track and the third development axis. The economic cooldown does not mean a crisis is imminent. We are ready for it. Companies have been rehabilitated, banks have increased their solvency and we have largely eliminated our administrative barriers. We are also now more competitive, with lower wages and we have been successful in attracting foreign direct investments, which we have proven with Magna, Yaskawa and Lonstroff.

Considering the economic forecasts for 2020, would it be good for Slovenian companies to take a more globally-oriented stance in the process of internationalisation, and pay more attention to distant markets? Are there any long-term prospects for us and why?

I want to start my answer with a definition of the term export. What is export? In future, we will start measuring export in two ways, namely first-stage and second-stage exports. This is because sales within the EU, where we sell 80% of the total 85%, are not export per se. Thus, we think that we should focus on the global internationalisation of the Slovenian economy. This does not mean that we will sell more to distant markets than we do in our surrounding regions, but there are markets in the world where we can do more than we do here. It is up to the Ministry to incentivise companies and teach them how to enter these markets. For this reason, we have devised a concrete action plan called International Challenges 2019-2020 and we have divided markets according to different criteria. The priority markets are all located within a 2,000 kilometre radius, but some distant countries have also made the list for instance, the USA, China, Russia, Ukraine and the United Arab Emirates. This is important if we are to reduce the dependence of the Slovenian economy on the direct economic trends that are affecting us now. We should also not forget about Africa, the "continent of the future", where, if you ask me, Slovenia is lagging well behind. But it is up to our politics to make the first move. After all, Slovenia currently only has one consular post in Africa, in Egypt.

According to a report by the Bank of Slovenia (October 2019), the amount of direct investments at the end of 2018 was EUR 15.2bn, which is 8.6% more than the previous year. In 2018, there was EUR 535m of equity inflows. Companies owned by foreign owners recorded the highest profits (EUR 1.3bn) and consequently, the highest payments of profits (EUR 739m). What is your view on this? What would you highlight in relation to 2019? What can we expect from direct investments in 2020?

If we focus on the last few years, Slovenia has recorded an 8%-10% growth in FDI. This trend continued throughout 2019 and we are expecting the same in 2020. This is vital for Slovenia for four reasons: there is a direct benefit for the economy - we gain knowledge, technology, higher salaries, pay our taxes, etc.; we increase our international recognition; we get the opportunity to integrate with the supply chains; and these investments increase the added value of the Slovenian economy. On the one hand, we have found that companies with foreign capital grow faster while, on the other, although FDI's only account for 1.6% of all Slovenian companies, they represent 33% of our GDP, 41% of all exports and 24% of all employees in Slovenia - approximately 120,000 people are employed by these companies. The fact that Slovenia remains attractive for foreign investors is proven by the stories of success from the said companies. In addition to this, we have many foreign logistics companies operating in Slovenia due to our country's favourable geographic position, we are one of the 30 most innovative countries, and we provide high-tech solutions from Industry 4.0. According to my estimation, the key reasons why foreign companies decide for FDI in Slovenia are: the prevalence of a highly skilled labour force; good state infrastructure; and our business environment, which remains motivating, predictable and competitive despite all the problems we are currently encountering. In addition, we have a new Investment Promotion Act which no longer differentiates between domestic and foreign investors. We are doing our best to disperse both domestic and foreign investments equally across Slovenia, and make sure they end up where there is a shortage of jobs. My optimistic estimation for future investment is based on the fact that the Slovenian Environment Agency (ARSO) is currently reviewing over 400 applications for environmental approvals from both domestic and foreign investors.


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