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Slovenia Business Week no. 33/2004: Slovenia Goes on FDI Offensive

With the act on promotion of foreign direct investment and internationalisation of companies, which enters into force on 20 August, Slovenia intends to start pursuing an offensive policy of attracting FDI, particularly greenfield investment, and offer small and mid-sized companies help in foreign markets

With the act on promotion of foreign direct investment and internationalisation of companies, which enters into force on 20 August, Slovenia intends to start pursuing an offensive policy of attracting FDI, particularly greenfield investment, and offer small and mid-sized companies help in foreign markets, Economics Minister Matej Lahovnik has told STA.

According to Lahovnik, the effect of the law will rely primarily on the amount of money available for the promotion of FDI; there is currently SIT 1.24bn (EUR 5.17m) available for grants within the framework of FDI.

The government can chip in up to 10 percent of the entire value of an investment. This is usually about 5,000 euros per job created, Lahovnik stressed, adding that this type of investment pays off very quickly. In the case of Renault - the government contributed EUR 40m for the production of a new Renault model in Novo mesto - the investment will pay off in three years.

The main task of the new act is to set up an internationally comparable institutional framework for the promotion of FDI. Furthermore, it is expected to motivate domestic companies to internationalise and thereby improve their competitiveness.

The promotion of FDI will be in the hands of a public agency, which must be set up by the government within a year; until then, the Trade and Investment Promotion Agency will be in charge of such activities.

The new law includes the option of obtaining additional funding. "While the activity of promoting FDI will be budget financed, the promotion of internationalisation includes the option of a partial coverage of expenses by the users, so the agency will be able to obtain part of the funding on the market," Lahovnik added.

According to Lahovnik, the act "upgrades the current system of promoting FDI. We aim at capital-intensive sectors ... which bring high value-added. Slovenia cannot compete with Eastern European countries with cheap labour, nor does it wish to do that," he explained.

The implementation of the law is of key importance in the light of EU membership. "On 1 May Slovenia lost sovereignty in foreign trade policy; by joining ERM II it also lost independence in monetary and exchange rate policies. To improve economic growth and competitiveness, it only has industrial policy left," the minister said.

The main obstacles that had kept foreign investors away so far included a lack of appropriately equipped and cheap building land, administrative and tax hurdles, slow privatisation and a lack of a broader FDI strategy that would set priorities.

A lot of inter-ministerial coordination will be required, admits Lahovnik. The goal is to create an easy way to set up a company, while the state later makes money with the company's operations.

According to Lahovnik, the most desired investors are those in information and communication industry, transport, logistics, biotech, new artificial materials and well as electronic and metal industries insofar as they meet the strategic guidelines.

"The act is a signal to foreign investors that Slovenia has a positive attitude to FDI. Of course we are talking about greenfield investment; the purpose of the state is by no means to promote the takeovers of Slovenian companies or ownership changes," he said.

Compared to other countries in the region, Slovenia has been quite uninteresting for foreign investors; while Hungary, Poland and the Czech Republic took in the bulk of FDI (which totalled US$ 27bn in 2000 according to the UN Commission for Trade and Development UNCTAD), Slovenia only got a few hundred million euros.

The inflow of FDI improved in 2000. According to the UNCTAD 2003 World Investment report, Slovenia still lagged behind the Czech Republic, Poland and Slovakia, but overtook in terms of FDI inflows Hungary, Romania and Croatia.

2002 was a record year according to data by the Bank of Slovenia, as total FDI topped EUR 3.9bn, with annual inflow at an all-time-high of EUR 966 m. However, this was largely due to the purchase of drug maker Lek and the sale of a one-third share in the country's largest bank, Nova Ljubljanska banka (NLB).

Data for 2003 will not be finalised until September, but provisional data indicate that FDI inflow amounted only EUR 160.4m last year.

Yet 2003 was nevertheless a landmark year, as Slovenia's annual outgoing FDI (totalling EUR 269.4m) outpaced incoming FDI for the first time ever. The overall amount of outgoing FDI stood at EUR 1.417bn last year, with most outgoing investment in countries of the former Yugoslavia and Central Europe.

Source: Slovene Press Agency STA

Author: Branka Murn