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Country Commercial Guides for FY 2000: Slovenia Report prepared by U.S. Embassy Ljubljana, Released July, 1999 Note*

Chapter V Leading Sectors for U.S. Exports and Investment

Slovenia's legacy of worker self-management continues to be felt in the economy. The high degree of decentralization of this model and its tendency to discourage flow of resources out of declining firms and into growing ones has led to a high degree of diversity in all sectors. These performance disparities are likely to disappear as the privatization process reaches its conclusion and resources are allocated more efficiently among sectors. For the time being, however, it is difficult to identify specific sectors where growth is likely to be concentrated. Given the cost of factors, the characteristics of viable businesses of the future will probably include: moderate to low reliance on manual labor input; moderate to low use of real estate; and "environmentally friendly" undertakings.

The following are the non-agricultural sectors where the American Embassy Ljubljana estimates there are prospects for significant sales growth:

Automobiles/Light Trucks/Vans (AUT): In Slovenia approximately 80,000 new cars will be sold (a new sales record). The French manufacturer Renault holds the largest market share; its Revoz factory in Novo Mesto has given it the status of a domestic producer with a very diversified sales and service network. German Volkswagens and Italian Fiats are also popular. In the last few years Korean producers such as Hyundai and Daewoo have established themselves in the Slovenian market, mainly due to the favorable prices. The leading company in sales of vans is Mitsubishi, followed by Volkswagen and Renault. In Slovenia approximately 600,000 tires are sold each year. The largest market share is held by the trademark Sava, followed by Michelin, Semperit, and Goodyear.

Defense Industry Equipment (DFN): The Slovenian armed forces must transform from a conscripted, territorial defense-based force into a professional force with regional responsibilities. In June 1996 the arms embargo against Slovenia was lifted, and the Slovenian military has plans for an ambitious program of defense procurement. An equipment fund of about $1.2 billion is available for procurement over the next ten years.

Electrical Power Systems (ELP): The government's vision for the energy sector is outlined in its "Strategy of Efficient Use and Supply of Slovenia" which was approved in 1995. Based on high and low demand forecasts, four supply scenarios to 2010 have been prepared. They have been produced using three sets of basic assumptions: high and low rates of economic growth, larger and smaller investments in energy conservation and efficiency, and different supply options.

Increased hydro-electric power generation is one of the strategic objectives of the government's energy policy. The capacity to generate an additional 1.5 TWh of electricity by 2010 is planned, but this requires that 70 percent of the potential sites for development are exploited. Further upgrading on the upper stations of the Sava river are planned along with new plants on the lower course. Five additional new plants are projected for the Sava river to be commissioned every 2 years from 1998 onwards. Feasibility studies are underway for small additional run-of-river and storage plants in several places and for exploitation of other renewable energy sources. These renovations would increase the capacity by 151 MW, and together with new plants, 358 MW of hydro capacity will be added to the system by 2010.

Plans for conventional thermal power generation are based on maintaining production at existing plant locations and building facilities at new sites, primarily for combined heat and power generation. Investments will be required to improve pollution control to meet environmental standards, to increase rapid response and peaking capacity, and for renovation of control systems at existing plants. The government also foresees the construction of new oil-fired capacity. One 68 MW oil-fired plant at Brestanica should be commissioned before 2005. A second plant with a capacity of 143 MW is scheduled for completion at 2010.

For the transmission and distribution system, investment plans up to 2010 include the modernization of the national dispatching and local distribution control centers, renovation of the transmission grid, better control of reactive power in the system and the completion and renovation of the east-west 400 kV transmission lines with a connection to Hungary and a 400 kV substation.

Realization of all these projects depends on implementation of the government's goal to increase electricity tariffs to levels that cover costs. Lack of financial resources has postponed these priority investment projects for a number of years.

The main change in this sector in 1999 will be the implementation of the new Energy Law which passed the first hearing in the Parliament and was submitted for second reading in July. This law will break the monopoly which has lasted for more than 50 years and allow companies to buy electricity in the European market.

Financial Services (FNS): Banking licenses are confirmed by the Bank of Slovenia (BS). By the end of April 1998, 30 banks held such a license, of which 28 were operating. The BS issues licenses in four categories. The broadest license for performing all business and investment banking services is held by seven banks: Banka Koper, Banka Vipa, Gorenjska Banka, Nova Ljubljanska Banka, Probanka, SKB Banka, and Slovenska Zadruzna Kmetijska Banka. Some banks have merged recently, and new mergers have been announced. Banks in Slovenia with a major foreign ownership are Bank Austria & Creditanstalt, Volskbank, and Bank Societe Generale. The largest banks in Slovenia are: Nova Ljubljanska Banka, SKB Banka, Nova Kreditna Banka Maribor, Banka Koper, and Banka Celje.

In 1997, the Government of Slovenia completed the restructuring needed to privatize the two remaining state-owned banks: Nova Ljubljanska Banka -- the largest in the country -- and Nova Kreditna Banka Maribor -- Slovenia's number three bank. The process for privatization of these two state-owned banks now appears to favor a series of transactions whereby state shares in both NLB and NKBM will be reduced to 65 percent by the end of 1999. An ownership stake of approximately 10 percent will go to filling the "privatization gap" (i.e., the excess value of privatization vouchers issued over capital available to purchase with them), while the rest would be sold in floatations on both domestic and foreign markets. The next phase of privatization, which will involve strategic (and possibly foreign) investors, will await general elections in the fall of 2000.

A number of recent law and regulation changes are directing Slovenian financial service in a more globalized direction. Foreign credit deposit requirements have been reduced to zero, charges for custodial accounts for foreign portfolio investors have been eased even as the holding period has been radically reduced to one year. New legislation also eases the range of stockbroking activities and further opens that activity to foreign enterprises.

Telecommunications Equipment (TEL), Telecommunications Services (TES): Modernization and expansion of local telecommunications facilities is an ongoing activity of the state-controlled national telecommunications provider, Telekom Slovenije (TS). According to the Association Agreement between Slovenia and the European Union, the telecommunications sector has to be fully open by the end of 2000. The TS now holds a monopoly over fixed voice telephony. All other telecommunications fields are open to competition according to the Law on Telecommunications adopted in May 1997. Because supporting legislation to comply with the new law still need to be passed, real competition may come slowly.

In April 1999, a second GSM operator began operations in Slovenia. (The other license permitted under the Telecommunications Law was allocated to the current GSM operator, Mobitel.) The government is expected to announce a tender for two licenses for GSM 1800 Mhz in the year 2000 and is also considering expanding other telecommunications services, including advanced satellite services.

Telekom Slovenije is 73 percent owned by the state, which intends to sell around 20 percent of its share to a strategic partner end 1999/ early 2000 and another 20-30 percent by 2003. The government is likely to select its partner on the basis of its ability to help TS maintain its leading position in the market.

Computer Hardware (CPT): There are no reliable statistics on market data for Information Technology sector in Slovenia. Information is based on permanent work on IT sector and estimates of IT businessmen. All hardware market in Slovenia is estimated at USD 190 million. The PC share in the last five years was high, because of increasing performance of pcs and increasing number of new companies in Slovenia. Mini computers share is small, while big companies build their information systems on mainframes. All major American IT companies have been present in Slovenia since the 1960's. Approximately 60,000 PC units are sold annually. Fifty percent is local production, i.e. assembling of generic PCs. Among imported computers, the vast majority is of American origin. Only a small market share goes to European (mainly PCs) or Japanese producers (mainly printers). There is no local production of printers.

The Slovenian hardware market is very competitive and comparable to the one in Western Europe. The only difference is that it is slightly differently composed, i.e. many small IT companies have managed to keep control of small business segments. Imports and exports of hardware are very liberal. No customs duties are imposed to imports. Distribution follows the usual model of distribution in the developed world and fully depends on particular vendors.

Top vendors have strong subsidiaries in Slovenia or have built firm relations with existing domestic computer companies. Because of strong American presence, all major IT contests usually attract and are won by American companies or their distributors.

Computer Software (CSF): There are no reliable statistics on market data for Information Technology sector in Slovenia. Information is based on permanent work on IT sector and estimates of IT businessmen. The entire software market in Slovenia is estimated at USD 70 million. The vast majority represents legal sales of major world software vendors. One fifth of the sum goes for applications software.

There are some considerations about copyright legislation, which tends to be good; the critical issue is, however, its (slow) enforcement. Illegal use of software is similar to the situation in the rest of Eastern Europe. The so-called gray imports of top PC software vendors give some problems to official players in the market. Trends are the same as in the developed countries. Imports and exports of hardware are very liberal. No customs duties are imposed to imports.

A principle of distribution follows the usual model of distribution in developed world and fully depends on particular vendors. Top vendors have strong subsidiaries in Slovenia or have built firm relations with existing domestic computer companies. Because of strong American presence, all major IT contests usually attract and are won by American companies or their distributors.