Weekly Briefing, Vol. 20, No. 2 (Sl), July 2019
FDI in Slovenia
Summary
The importance of foreign direct investment for Slovenian economy is growing and more attention is paid on the national level to stimulate FDI and maximize the positive local impacts of those investments. The development and trends in FDI in Slovenia is being analysed and monitored regularly by institutions such as the SPIRIT (Public Agency for Entrepreneurship, Internationalization, Foreign Investments and Technology) and the Bank of Slovenia. In 2018 a new legal act was passed, Investment Promotion Act, replacing the previous legislation on the promotion of foreign direct investment.
Statistical overview of FDI in Slovenia compared to EU
The stock of inward FDI in Slovenia at the end of 2017 was 13.7 billion euros at the end of 2017, with an inflow of 842.5 million euros of equity in the same year. According to the data analysis of FDI in Slovenia, done by the Bank of Slovenia for 2017 (and published in 2018), the stock of inward FDI represents 32 % of Slovenian GDP. This figure is considerably lower compared to the aggregate figures for European Union, where the stock of inward FDI is 25 percentage points higher. Among EU members the highest inward FDI is present in the Czech Republic (72 %) and Hungary (67 %). The trends of growth of inward FDI stock in Slovenia in the last decade are comparable to other countries, the growth of 9 % puts Slovenia in comparable position as Austria and Hungary, while still surpassed considerably by Czech Republic, where the increase in the last decade was 24 percentage points.
As for the outward Slovenian FDI, the stock amounted to EUR 5.9 billion at the end of 2017, 2.9 % higher than the previous year. Slovenia outward FDI recorded 14 % of GDP, which puts the country considerably lower than the figure for EU (60 %). The figure of 14 % of GDP for Slovenian outward FDI is a 2 % decrease in the last decade, with only Slovakia also experiencing a decrease and all other countries having an increase of outward FDI with the EU aggregate increase of 27 %.
The net FDI position according to the Bank of Slovenia analysis puts Slovenia in the net recipient position with 19 % of GDP (for 2017). The stock of inward FDI increase in the last decade was faster than the (almost no) increase stock of outward FDI for the same period. Compared to Visegrad Group Countries where net recipient position is at 40 %, Slovenia has a much lower net FDI position (Czech Republic records 61 %, Slovakia 51 %).
FDI by origin countries
According to the cumulative data of the Bank of Slovenia for 2017, the great majority of the FDI value in Slovenia came from EU member countries, together representing 84.3 % of inward FDI. Among these, Austria was the most prominent, accounting for 25.6 % of inward FDI. Austrian investors’ stock at the end of 2017 was at 3,504.4 million euros, an almost 10 % increase compared to 2016. The largest investments by Austrian investors were in wholesale and retail trade and repair of motor vehicles and motorcycles (26.2 %), financial and insurance activities (24.2 %), manufacturing (23.3 %), professional, scientific and technical activities (6.9 %), information and communication (6.5 %), real estate activities (5.7 %), and electricity, gas, steam and air conditioning supply (2.2 %). The second investor country according to FDI value was Luxembourg, reaching the total FDI value of 1,558.9 million euros by the end of 2017, exhibiting an increase of 8 % compared to 2016. The great majority of investment was done by financial and insurance companies (53.4 %), followed by information and communication (21.3 %), manufacturing (10.0 %), and real estate activities (5.9 %). The third country among the biggest FDI investors in Slovenia was Switzerland, representing 10.4 % of the total FDI. The stock of inward FDI by Swiss investors was 1,425 million euros by the end of 2017, a 3.2 % increase compared to 2016. Swiss investors mostly invested in manufacturing (73.5 %), followed by wholesale and retail trade and repair of motor vehicles and motorcycles (17.9 %), real estate activities (3.9 %), and construction (1.4 %). The fourth investor country according to the Bank of Slovenia data, was Germany with 8.4 % of total inward FDI value in Slovenia. German investors recorded 1,151.9 million of investments by the end of 2017, a 4 % increase compared to 2016. Largest investments were in manufacturing (47.0 %), wholesale and retail trade and repair of motor vehicles and motorcycles (24.9 %), transportation and storage (16.0 %), real estate activities (2.7 %), water supply; sewerage, waste management and remediation activities (2.1 %), and administrative and support service activities (1.3 %). The fifth most important investor country was Italy, with 8.3 % of the total inward FDI by value. Total FDI of Italian investors amounted to 1.129,6 million euros, a 1.5 % decrease from the values in 2016. Largest investments by Italian investors were in financial and insurance activities (42.3 %), manufacturing (28.7 %), wholesale and retail trade and repair of motor vehicles and motorcycles (10.9 %), and electricity, gas, steam and air conditioning supply (3.1 %).
FDI by other criteria
According to the analysis of the Bank of Slovenia, the FDI was more present in three types of economic activities. These were manufacturing (32.9 % of total FDI), financial and insurance activities (22.3 %), and wholesale and retail trade and repair of motor vehicles and motorcycles (17.6 %). According to the absolute increase of FDI for 2017, the most prominent activity was manufacturing with an increase of 6.5 %. A large increase of 41.1 % was also recorded in professional, scientific and technical activities. In financial and insurance activities it increased by 4 %. Picking up after several worse years, for the last two years there was a prominent increase also in construction, where FDI grew by 40.7 % in 2017.
In the analysis of FDI according to the statistical region, there is a great imbalance in favour of the Central Slovenia, which received 61 % of the total FDI, followed by Drava Region (9.6 %), Coastal-Karst region (5.9 %) and Upper Carniola (5.8 %), with all other nine regions together representing the 17.7 % of the total FDI. Regions with lowest FDI are Littoral – Inner Carniola (0.5 %) and Carinthia (0.6 %).
In the analysis according to the institutional sector, the most prominent part is taken by the recipients from non-financial corporations (76.9 %), followed by financial corporations (20.9 %). Firms with FDI only represented 1.5 % of the total number of Slovenian firms. But regardless of the low percentage, their overall role in the Slovenian economy is comparably more important. In 2017 they represented 23.9 % of capital in Slovenian corporate sector and employed 23.6 % of the employees. The net sales revenue generated by their capital and workforces generated of 27,434 million euros, being prominent in merchandise trade with the rest of the world, with 40.3 % of exports and 44.2 % of imports by the Slovenian
corporate sector.
As of 2017, workers in firms with FDI received wages above the average. The average annual gross wage per employee in firms with FDI was 20,868 euros, which is 10.1 % higher than the Slovenian average of 18,952 euros. Differences between the average and FDI firms varies according to the type of activity, being the most prominent in human health and social work activities, where wages in firms with FDI were 78.2 % higher from the activity average.
Investment Promotion Act
On July 1, 2018 a new legal regulation was adopted, aimed at promoting investment, including the stimulations of foreign direct investment, which was previously regulated by a separate Act. The intention behind the new Act was to unify the system of investment incentive measures and policies for foreign and domestic investors alike. It provides the framework for investment incentives in the form of subventions, loans, guarantees and interest rate subsidies. In addition it also provides the possibility of a special-contract purchase of real estate, owned by municipalities, at prices which are lower than market prices. Apart from investment motivations, the new Law also determines the conditions, criteria and the procedure of eligibility for these incentives. The Act also regulates the criteria for an investment to be considered a strategic investment and regulates the expropriation procedures in the case of strategic investments. Further, it regulates the overall activities of investment incentives and established the registry of firms with high added value and a registry of innovative start-up firms to provide an updated list of firms with special national importance.
Conclusion
Inward FDI plays an important role in Slovenian economy. Despite a rather small percentage of companies receiving the inward FDI, the role of these companies is important. The overall distribution of FDI in Slovenia is nevertheless far from balanced, especially when regions or economic sectors are compared. A more comprehensive strategy of managing FDI on the national level was emphasized by the new legal regulation, the Investment Promotion Act of 2018 and the establishment of different institutions to manage these strategies.