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Country Commercial Guides for FY 2000: SloveniaReport prepared by Slovenia, Released July, 1999 Note* |
Chapter VII Investment Climate
A.1 Openness to Foreign Investment
The Slovenian view of foreign investment has been evolving in recent years. Once widely considered a threat to Slovenian culture and the national interest, foreign investment is increasingly seen as a means to import not only needed savings, but modern technology and "best practices" as well. 1999 has been in particular an important year in improving the climate for foreign investors.
In February 1999, several key changes to the company law came into effect. The new law abolishes the earlier requirement that general managers be Slovenian citizens, and the requirement that a majority of the board of directors of Slovenian companies be Slovenian citizens.
The new law also lowers the threshold at which foreign investment is considered FDI from 50 percent to 10 percent ownership. Consequently foreign investors above the 10 percent threshold avoid the government's custody account regime which applies to certain portfolio investments. This regime has also been reformed (see A.6).
Despite these improvements, a number of practical impediments to increased flows exist. These include relatively restrictive takeover legislation, Slovenia's protracted post-privatization structural reform program, a lack of attractive sites and difficulty in procurement of land, and a business culture in which personal relationships (typically among Slovenians) continue to predominate. While the above-mentioned policies geared to stemming disruptive capital flows, including foreign loan deposit requirements and restrictions on foreign portfolio investment, have been eased, they still tend to complicate investment decisions.
In the 1993-97 period, cumulative inflows (stock) of foreign direct investment grew from $954 million to almost $2.1 billion. However, in 1998 the annual inflow of FDI dropped considerably, from $321 million in 1997 to $165 million, half of which represents a single investment agreed in 1997. It is clear that in addition to their indirect effects on the Slovenian trade balance, the Asian and Russian financial crises damaged investor confidence and played a role in this negative trend. However, this role was less important than the role played by the structural problems described above, which were the government's primary stimulus in carrying out significant reform in 1998 and early 1999.
Most observers expect this trend to reverse, as the process set in motion by Slovenia's privatization program matures and legislation required for EU harmonization improves competition, eases restrictions on capital flows, and simplifies the tax code. We also expect the increase of foreign investors in Slovenia to encourage a business culture that demands better regulation, more transparency, improved accounting standards, and enhanced government accountability. This, combined with Slovenia's consistently high labor productivity, should make Slovenia a more attractive locus for foreign investment.
Slovenia offers national treatment, has attractive tax features, and allows for free profit repatriation. In terms of legislation, all business activities within Slovenia are open to foreign investors, although some limitations on share ownership exist in certain sectors, such as broadcasting, communications, insurance, and rail or air transport.
A.2 Conversion and Transfer Policies
Slovenia has been an adherent of Art. VIII of the IMF Article of Agreement since September 1, 1995, committing it to full current account convertibility, thus allowing, among other things, full repatriation of dividends. In practice, to repatriate profits, joint stock companies must provide: evidence of settlement of tax liabilities; notarized evidence on distribution of profits to shareholders; and proof of joint stock company membership. All other companies need to provide: evidence of settlement of tax liabilities and the company's act of establishment.
For the repatriation of shares in a domestic company, a company must submit to the authorized bank the company's act of establishment, a contract on share withdrawal, and evidence of settlement of tax liabilities.
A.3 Expropriation and Compensation
According to Article 69 of the constitution of the Republic of Slovenia, the right of possession of immobile property can be taken away or limited, with compensation in kind or with financial compensation under conditions determined by law on the basis of public interest.
There are no current investment disputes in Slovenia. National law gives adequate protection to all investment. Under Article 5 of Slovenia's Foreign Investment Law, a foreign investor has the right to have his investment, other than money, returned to him on his demand, and if it is so provided in the contract of investment, to have his money invested in a company returned to him on demand.
There is an ongoing dispute with those whose property was expropriated by the communist Yugoslav government after World War II. Slovenian denationalization law allowed for claims to be submitted in 1991. Around 200 U.S. citizens filed claims, while the total number of claimants exceeded 46,000. None of the claimants was a U.S. citizen at the time of the expropriation. After about one-third of the total property had been returned, legal complications slowed implementation of the law. New legislation to balance the rights of the original owners with those of individuals and firms that have made improvements with the property was passed in 1998 and reaffirmed by the Constitutional Court that year.
Its two key provisions 1) would allow some cases already settled to be reopened under certain conditions and 2) would factor property value at the time of expropriation into the claim process. If a property has increased in value, then the original owner would have to pay the difference to reclaim the property. Conversely, if the property value has declined, then the state would have to pay the owner the difference.
A.4 Dispute Settlement
Slovenia is a signatory to the 1958 New York Convention on Recognition of Foreign Arbitral Awards and the 1961 European Convention on International Commercial Arbitration.
Legal System
Slovenia has a well-developed, structured legal system. It is based on a five-tier court system: district court, regional court, appeals court, supreme court, and administrative court. These courts deal with the vast array of legal cases in Slovenia including criminal, domestic relations, land disputes, contracts, and other business-related issues and probate. A separate social and labor court also has a regional court, appeals court, and supreme court. These courts deal strictly with labor disputes, pensions, and other social welfare claims.
Similar to most European countries, Slovenia also has a Constitutional Court which deals with complaints alleging violations of human rights and personal freedoms, expresses the court's opinions over conformity of international agreements and state statutes with the constitution, and deals with other high profile political issues. Also in keeping with European legal standards, in 1997 the Slovene parliament created an administrative court to handle disputes between local authorities, between state and local authorities, and between local authorities and executors of public authority.
The Parliament passed a new Law on Legal Proceedings in July 1999 to speed up the court proceedings process. The new Law stipulates a stricter and more efficient procedure for serving court documents and providing evidence. For commercial cases, defendants are now required to file their defense within 15 days of receiving notice of a claim.
Arbitration
Unless the parties have agreed to binding arbitration for disputes, the regional court specialized in economic issues has jurisdiction over business disputes. However, the parties may agree in writing to settle disputes in another court of jurisdiction.
The parties may also exclude the court as the adjudicator of the dispute if they agree in writing that contractual disputes be solved by arbitration, whether ad hoc or institutional. In the former case, the applicable procedure and law must be determined. In the case of institutional arbitration, the type of arbitration must be clearly defined. The Permanent Court of Arbitration within the Chamber of Economy is an independent institution that solves domestic and international disputes arising out of business transactions among companies.
The procedure before the Permanent Court of Arbitration at the Chamber of Economy of Slovenia is governed by the Regulations on the Procedure before the Permanent Court of Arbitration at the Chamber of Economy of Slovenia. Arbitration rulings are final and subject to execution.
Bankruptcy
In Slovenia, the law provides for three procedural methods in the handling of bankrupt debtors. The first method, Forced Settlements, allows the insolvent debtor to submit a plan for financial reorganization with the Court. The Forced Settlement Plan is then voted upon by the creditors and must be accepted by creditors whose claims represent more than sixty percent of the creditors claim. If the forced settlement is accepted, the debtor is excused from the obligation to pay the creditor the amount which exceeds the percentage of payment set forth in the confirmed settlement. The payment terms are then extended in accordance with the conditions of forced settlement. Confirmed forced settlement affects creditors who have voted against forced settlement and creditors who have not reported their claims in the forced settlement procedure.
The second method, bankruptcy, may be initiated by either the creditor or debtor. The court names a bankruptcy administrator who sells the debtor's property according to the instructions and supervision of the president of the bankruptcy senate. The debtor's property, as a rule, is sold by public auction. Otherwise, the creditors' committee may proscribe a different mode of sale such as collecting offers or placing conditions for potential buyers. The legal effect of completed bankruptcy is the ending of the debtor as a legal person, and the funds created from the sale of assets are distributed among the creditors according to the extent of their claims, i.e. the ratio of each claim to the total debt.
The third method, bankruptcy as forced liquidation, is distinguished from voluntary liquidation (without court intervention) as set forth in the Law on Commercial Companies. Forced liquidation is performed on a debtor, for whom the law determines his liquidation procedure, and the legal conditions for ending his existence. For example, if the management does not operate for more than twelve months, if the court finds the registration void, or by court order.
Competition is keen in Slovenia, and bankruptcies are an established and reliable means of working out firms' financial difficulties.
A.5 Performance Requirements/Incentives
No performance requirements are imposed as a condition for establishing, maintaining or expanding an investment.
However, one impediment for foreign investors is the difficulty in obtaining business and working visas. Business visas are required for management positions and working visas are required for general staff positions. Typically, visa applications are processed in three weeks, but in some instances may take up to six months.
A.6 Right to Private Ownership and Establishment
Private enterprise and ownership are promoted and protected in Slovenia, both by statue and the constitution. As provided for in the Law on Commercial Companies, all business activities within Slovenia are open to domestic and foreign natural and legal persons. The Foreign Investment Act permits foreign investors to establish wholly or partially owned companies in any legal form provided by the Commercial Companies Act (Limited, General, and Silent Partnerships; Joint Stock Companies, Limited Liability Companies, and Partnerships Limited by Shares; and Economic Interest Groups). The Foreign Investment Act provides foreign investors with the right to enter contractual joint ventures, which allow the investor to participate in the management of the company and to share in the profits. Foreign investors may freely invest into Slovenian companies, but to complete a 100 percent takeover of a Slovenian company, the foreign company first must register with the Slovenian courts. Foreign investors are permitted to obtain concessions for the exploitation of renewable and non-renewable natural and public goods.
There are some restrictions on foreign investment in certain business operations. Wholly-owned foreign companies are not permitted to operate businesses in the fields of military supply and insurance. Majority foreign-owned insurance companies may not engage in re-insurance. Some business endeavors are restricted by maximum foreign investment limits: 49 percent in auditing companies, 33 percent in publishing and broadcasting, and 20 percent in investment companies that deal with the management of investment funds. In all other fields, however, foreign investors enjoy national treatment.
Another important improvement in the new Banking Law is the removal of the requirement for foreign investors to receive approval for any investment in a Slovenian bank. Previously local citizens were required to report any investment which would acquire a stake greater than 15 percent while foreign investors were required to report all investments. Now foreign and domestic investors face the same reporting requirements.
Any company registered in Slovenia is granted the status of a Slovenian legal entity under which they enjoy national treatment. This provides for equal treatment between foreign and domestic companies; foreign investors are treated legally the same way as domestic companies and enjoy the same rights and obligations as domestic Slovenian companies. The registration process is rather simple and usually takes between three weeks and one month to complete. Foreign-owned companies are entitled to own property in Slovenia (non-EU natural persons are at this point prohibited from owning land). While the law provides for this right, some foreign companies have experienced unexplainable delays in obtaining land even though all the necessary paper work has been in order. Registered foreign-owned companies may even be members of the Ljubljana Stock Exchange.
Foreign shareholders are entitled to free and unrestricted transfer of their profits abroad in foreign currency, providing they meet their tax obligations. The 25 percent corporate tax rate in Slovenia applies to domestic and foreign companies and is among the lowest rates in Europe.
Credits, guarantees between residents and non-residents are regulated by the Foreign Exchange Act. The law differs between commercial and financial credits.
Commercial credits are considered credits relating to trade and rendering international services which involve a resident as one of the contracting parties. Commercial credits also include contractual trade credits (deferred payments and/or advances) and their financing by banks. Commercial credits also include factoring operations, on the condition that the underlying operations from which the claims arise have the nature of commercial credits.
All others are financial credits, including mortgage-backed and consumer loans as well as financial leasing operations.
All credit transactions, except commercial credits with payment delay or prepayments less than 12 months, have to be in written form and contain all obligatory parts of the credit business.
Authorized banks undertake credit operations with non-residents for their own account and in their own name or in their own name and for someone else's account. Residents other than banks undertake credit operations with non-residents for their own account and in their own name. Residents must make a report on all credit operations with non-residents to the Bank of Slovenia.
In February 1999 the Bank of Slovenia changed its regulations regarding foreign borrowing. Previously local borrowers had been required to deposit 10 percent of the worth of a loan from abroad in a non-interest bearing account at the Bank of Slovenia if the term of the loan was greater than 7 years, and to deposit 40 percent of the loan if the term was less than 7 years. The Bank of Slovenia has effectively reduced the percentage required for set-aside to zero. The Bank of Slovenia currently maintains the authority to reimpose the deposit requirement in special cases for up to 30 percent of the loan and a term of up to two years, but this authority will expire on September 1, 1999.
The Law on Banking passed in January also allows foreign banks for the first time to establish branch offices on Slovenian soil.
On September 1, 1999 regulations will take effect which reduce from four years to one year the period during which foreigners who make portfolio investments may not sell those securities. At the same time, the new regulations lower the cost of fiduciary accounts which foreign portfolio investors are required to maintain. Previously banks charged 2.5 percent of total invested capital for portfolio investments (any investment resulting in less than 10 percent ownership), while the new regulation will reduce that charge to 0.7 percent. Plans are also in place to further liberalize purchase of foreign equities by Slovenes.
A.7 Protection of Property Rights
Mortgages
In the Republic of Slovenia, there is no law, statute or regulation that specifically deals with mortgage banking services. However, the government has committed itself to creating a mortgage banking system, including property assessments and deeds, rather than the current Land Registry system. Currently there are no special mortgage banks in Slovenia. Accordingly, Slovenian banks do not grant mortgage loans per se, but provide loans which are secured by mortgages. Loans secured by mortgages are very often used for loans, granted most often to corporate clients and entrepreneurs and less often to private individuals.
In order for mortgages to be effective against any owner of real estate, the mortgage on a particular real estate must be registered in the Land Registry Book at the Land Registry Office. The Land Registry Book was introduced within the present territory of Slovenia in the 19th century and serves to put the general public on notice of the owner of land, buildings and parts of buildings. Within the legal system, the Land Registry Book is connected in part with substantive civil law which regulates default procedures on real estate.
Generally, the financing of real estate developments by mortgages is uncommon in Slovenia. Mortgages are used strictly as collateral for corporate financing of development projects. The creditor requires the debtor to own, in equity, three times the amount of the loan. Once the mortgage is consummated between the creditor and debtor, it is then registered in the Land Registry Book. If the mortgagor defaults on the loan, the law provides for a foreclosure procedure on the mortgaged property.
Intellectual Property
Slovenia has enacted highly advanced, comprehensive legislation for the protection of intellectual property which fully reflects the most recent intellectual developments such as the TRIPS Agreement (Trade Related Aspects of Intellectual Property) and various EU directives. Slovenia negotiated its TRIPS commitments as a developing country and is implementing its commitments as of January 1, 1996. Slovenia is a full member of the TRIPs Council of the World Trade Organization and the World Intellectual Property Organization.
The 1995 Copyright and Related Rights Act deals with all fields of modern copyright and related rights law, including traditional works and their authors, computer programs and audiovisual works, as well as rental and lending rights. The act also takes into account new technologies such as storage and electronic memory, original databases, satellite broadcasting and cable re-transmission.
Slovenian intellectual property law is compatible with European Union standards, with only a few exceptions. According to its EU accession strategy, Slovenia still must harmonize the duration of the protection of audio-visual productions and introduce Supplementary Production Certificates.
The 1994 Law on Courts gives the District Court of Ljubljana exclusive subject matter jurisdiction over intellectual property disputes. The aim of the law is to ensure specialization of the judges and the speed of relevant proceedings. There have been minor complaints, though, by foreign investors regarding the speed of the court system.
Considering the TRIPS Agreement's enforcement provision, Slovenian law provides for a number of civil legal sanctions including injunctive relief and the removal of the infringement, the seizure, and the destruction of illegal copies and devices, the publication of the judgment in the media, compensatory and punitive damages, border (customs) measures, and the securing of evidence and other provisional measures without the prior notification and hearing of the other party.
Furthermore, these infringements also constitute a misdemeanor with a minimum fine of 400,000 SIT (approx. $2,500) for legal persons and a minimum fine of 80,000 SIT (approx. $500) for natural persons, provided that the reported offenses are not criminal in nature. In such a case, the Slovenian Criminal Code would apply, which may result in fines or imprisonment in extreme cases.
Since the enactment of the Law on Copyright and Related Rights Act, there have been relatively few reported prosecutions for infringement violations. Most notably are cases of computer software piracy. In 1997, 25 cases were prosecuted for intellectual property related criminal offenses, including audio, video, and software piracy. Since piracy prosecution is still in the early stages of implementation, Slovenia has dedicated resources to the training of prosecutors and public authorities. As part of its strategy for accession to the European Union, Slovenia also intends to address the preservation of evidence in infringement procedures and border measures by amending existing legislation. Moreover, the Ministry of Culture recently established the Intellectual Property Fund, the Slovene Copyright Agency, and the Anti-Piracy Association of Software Dealers (BSA) to combat the problem of piracy in a collective manner.
Patents and Trademarks/Licensing
The Law on Industrial Property grants and protects patents, model and design rights, trademark and service marks, and appellations of origin. The holder of a patent, model, or design right is entitled to: exclusively work the protected invention, shape, picture, or drawing; exclusively market any products manufactured in accordance with the protected invention, shape, picture, or drawing; dispose of the patent, model, or design right; prohibit working of the protected invention, model, or design and legal transactions in respect of them, by any person not having his consent.
The holder of a mark has the exclusive right to use the mark in the course of trade to designate his products or services. The authorized user of a protected appellation of origin has the right to use the appellation in the course of trade for marking products to which the appellation refers.
The patent and trademark rights granted by the Law on Industrial Property take effect from the date of filing the appropriate applications. Patents are granted for twenty years from the date of filing and model and design rights are granted for ten years. Trademarks are granted for ten years, but may be renewed an unlimited number of times. The term of an appellation of origin is unlimited. All patents and trademarks are registered through the Slovenian Intellectual Property Office with all registers open to the public. Patent and trademark applications filed in member countries of the International Union for the Protection of Industrial Property are afforded priority rights in Slovenia. The priority period is twelve months for patents and six months for model and design rights.
Any person who infringes upon a patent or trademark right may be held liable for damages and prohibited from carrying on the infringing acts.
The Law on Industrial Property also provides for the contractual licensing of patents, model and design rights, and marks. All license agreements must be in writing and specify the duration of the license, the scope of the license, whether the license is exclusive or non-exclusive, and the amount of remuneration for the use if compensation is agreed upon.
Compulsory licenses may be granted to another person when the invention is in the public interest or the patentee misuses his rights granted under the patent. A misuse of a patent will occur when the patentee does not work or insufficiently works a patented invention and refuses to license other persons to work the protected invention or imposes unjustified conditions on the licensee. If a compulsory license is granted, the patentee is entitled to compensation.
Although Slovenian industrial property legislation complies with EU standards, Slovenia's accession strategy focuses on aspects of its implementation. In particular, Slovenia must address the exhaustion of trademarks, particularly in the pharmaceutical sector.
A.8 Transparency of the Regulatory System
In conducting business in the Republic of Slovenia, foreign companies have the same rights, obligations and responsibilities as domestic companies. The principles of commercial enterprise, free operation, and national treatment apply to the operations of foreign companies as well. Their basic rights are guaranteed by the Law on Commercial Companies and the Law on Foreign Transactions.
Generally, the bureaucratic procedures and practices are sufficiently streamlined and transparent for the foreign investor wishing to start a business in Slovenia. In order to establish a business in Slovenia, the foreign investor must produce a sufficient minimum amount of capital, 4.1 million SIT (approx. $24,500) for a stock company and 2.1 million SIT approx. $12,000) for a limited liability company; establish a business address; and file appropriate documentation with the court. The entire process may take from three weeks to one month, and may be longer in Ljubljana due to the court's backlog. Previously, the registration process took one year, but Slovenia has made great efforts to reduce the delay.
Slovenia signed a double tax treaty with the U.S. in June 1999. The rate of taxation of profits in Slovenia is lower than in the United States. Slovenia introduced the Value Added Tax in July 1999.
Despite these difficulties, Slovenia continues to improve and update its laws dealing with foreign investors. As Slovenia moves closer to joining the EU, it will have to accept and implement business practices and laws that are "foreign friendly" and abolish any discrimination that may exist against the foreign investor.
Protection of Competition
The Law on the Protection of Competition prohibits acts that restrict competition on the market and acts that conflict with good business practices relating to market access or acts of prohibited speculation. The law is applicable to corporate bodies and natural persons engaged in economic activities regardless of their legal form, organization, or ownership. The law also applies to the actions of public companies.
Restriction of competition through cartel agreements, unfair competition (i.e., false advertising, promises/gifts in exchange for business, trade secrets, etc.), illicit speculation during times of irregular market situations, and dumping and subsidized imports are all prohibited. The government of the Republic of Slovenia may, however, prescribe market restrictions in the following cases: in cases of natural disasters, epidemics, states of emergency; in cases of appreciable market disturbances due to the shortage of goods; when necessary to satisfy requirements concerning the products, raw materials, and semi-finished goods of special or strategic importance to the defense of the Republic.
The legally prescribed tasks of protecting competition are performed by the Bureau for the Protection of Competition. The bureau initiates its own investigations of companies and also at the request of private companies. The bureau will then issue a decree against any company found to have violated the Law on the Protection of Competition, although it lacks the power to issue fines. The power to fine companies rest in the hands of Slovenia's courts. Any injured party trading in goods or services on the market may initiate legal proceedings in cases of unfair competition. Injured parties are entitled to compensation and the injunction of the unfair acts. The court may issue a minimum penalty of 3 million SIT against companies found to have engaged in cartel agreements, for abusing a dominant market position, for committing an act of unfair competition, and for illicit speculation. The managers and directors of the sanctioned company may be liable for a minimum fine of 250,000 SIT. Self-employed persons found to have committed any of the legally prohibited actions are liable for no less than 1 million SIT.
While the Bureau for the Protection of Competition has issued a number of decrees against companies for unfair practices, the courts have yet to issue a single monetary fine. Some of the cases have been sitting in the court system for two years since the final decree was issued by the bureau.
A.9 Efficient Capital Markets and Portfolio Investment
Slovenia's financial sector remains relatively underdeveloped for a country of Slovenia's prosperity. Enterprises rarely raise capital through the stock market. The shallowness of the sector militates against economies of scale, and despite shortcomings in the banking sector, capital is cheaper to acquire through banks than through more direct equity or debt sales.
Banking: The banking sector in Slovenia is marked by a relatively high level of concentration (three banks account for half of total banking assets and the top seven hold almost 75 percent market share), excessive capacity (24 banks, six savings banks, and 70 savings cooperatives operate in a country of 2 million people), and a low level of services. This means that a number of banks are unable to exploit economies of scale and have a relatively low level of productivity. The consequences can be seen in high margins and low return on equity.
The balance sheets of Slovenian banks are relatively strong, reflecting an early and aggressive program of bank rehabilitation the government launched in 1992. However the gaping differences between the balance sheets of the largest and the smallest banks seems to indicate that consolidation of the banking sector will soon become inevitable. One of the consequences of Slovenia's banking sector rehabilitation is that two of the country's three largest banks today are government-owned, although their privatization appears increasingly likely. The government has encouraged bank mergers as a means of dealing with the sector's excess capacity, so far to little effect.
New banking legislation authorizes banks, savings banks, and stockbroking firms unlimited purchase of securities abroad, on condition they operate on their own account. Investment funds may also purchase securities abroad provided certain diversification requirements are met.
Securities Markets: The Ljubljana Stock Exchange (LSE) was established in 1990 and underwent its most rapid growth in the 1994-1997 period, aided by the listing of new companies as part of the first phase of privatization in Slovenia. (A Commodity Exchange (CE), established in 1994, ceased operation in 1998.) Indeed, the LSE's role as a vehicle to achieve the transformation of enterprises is greater than its role of raising capital for listed companies. The LSE's function in transforming enterprises is likely to increase once privatization investment funds enter the market. For the time being, the assets of privatization investment funds are tied up in privatization vouchers for which corresponding capital is not presently available.
of Stock Exchanges (FIBV). In spite of recent growth, however, securities markets remain relatively underdeveloped in Slovenia. Total LSE market capitalization (excluding shares of investment funds) at the end of 1998 amounted to 628 billion SIT ($3.3 billion), which represents an increase of 57 percent over the previous year. However, as a percentage of GDP this figure fell from 17 percent in 1997 to 15 percent in 1998. This is also a relatively illiquid market, with total annual turnover only about one-fourth of total market capitalization.
The LSE has two official listings -- A and B -- depending on the amount of a listing's capital, audited financial statements, size of the class of securities and securities distribution. The over-the-counter (C) market has less stringent requirements. The total turnover of A and B listings, as of the end of 1998, was 135 billion SIT ($711 million); that of market C was 20.5 billion SIT ($108 million).
In 1995, the Central Securities Clearing Corporation (KDD) was established. Its main activities are running the central registry of dematerialized securities and performing clearing of trades that are concluded on the LSE electronic trading system and transferred to KDD automatically. A Securities Market Agency (SMA), established in 1994, has powers similar to the SEC in the United States. It supervises investment firms, the LSE, the KDD, investment funds, and management companies and shares responsibility with the Bank of Slovenia for supervision of banking investment services.
The LSE uses different dissemination systems, including real time on-line trading information via REUTERS or using the BDS System. The LSE has also started publishing information on the Internet (http://www.ljse.si).
Slovenia's excellent credit rating, the launch of a series of international bond issues, the quality of traded Slovenian firms and Slovenia's excellent macroeconomic outlook have combined to attract considerable attention among foreign investors. Regulations of portfolio investment have been eased as well, shortening the minimum holding period for portfolio investment (less than 10 percent ownership) from seven to four years.
Insurance: This sector is relatively undercapitalized and marked by a high degree of protection, poor rates of return, and a preponderance of government ownership. Reforms in the insurance sector are on a gradualist path, and legislation is unlikely before the end of 1999.
A.10 Political Violence
But for a brief, 10-day conflict over Slovene independence in 1991, Slovenia has suffered no political violence. The hostilities to the south (Croatia, Bosnia-Herzegovina, Kosovo) had only indirect effects on Slovenian security and economic conditions, mainly related to the influx of refugees. Slovenia has normal diplomatic and commercial relations with all former Yugoslav republics, with the exception of the Federal Republic of Yugoslavia (Serbia-Montenegro).
A.11 Corruption
Similar to many other European countries, Slovenia does not have a bribery statute equal in stature to the U.S. Foreign Corrupt Practices Act. However, Chapter 24 of the Slovene Criminal Code (S.C.C.) provides for statutory provisions for criminal offenses against the economy. Corruption against the economy can be split into two forms: corruption among private firms and corruption among public officials.
The S.C.C. provides for criminal sanctions against officials of private firms for the following crimes: forgery or destruction of business documents, unauthorized use or disclosure of business secrets, insider trading, embezzlement, acceptance of gifts under certain circumstances, money laundering, and tax concealment.
Specifically, Articles 247 and 248 of the S.C.C. make it illegal for a person performing a commercial activity to demand or accept undue rewards, gifts, or other material benefits which will ultimately result in the harm or neglect of his business organization. While Article 247 makes it illegal to accept gifts, Article 248 prohibits the tender of gifts in order to gain an undue advantage at the conclusion of any business dealings.
Public officials are held accountable under Article 267 of the S.C.C. which makes it illegal for a public official to either request or accept a gift in order to perform or omit an official act within the scope of his official duties. The acceptance of a bribe by a public official may result in a fine or imprisonment of no less than one year up to a maximum sentence of five years. The accepted gift/bribe is also seized.
While Article 267 holds public officials accountable, Article 268 holds the offeror of the gift accountable. Article 267 makes it illegal for natural persons or legal entities to bribe public officials with gifts. Violation of this article carries a sentence of up to three years. However, if the offeror of the gift discloses such bribery before it is detected or discovered, punishment may be remitted. Generally, the gift is seized. However, if the offeror of the gift disclosed the violation, the gift may be returned to the offeror.
The state prosecutor's office is responsible for the enforcement of the foregoing anti-bribery provisions. The number of cases of actual bribery are few and are generally limited to instances involving inspection and tax collection. Although the prosecutor's office suspects bribery and related corruption practices in the government procurement offices, the ability to ascertain evidence is difficult, thereby making it equally difficult to prosecute. It is the embassy's view that corruption in Slovenia is on only a very minor scale.
B. Bilateral Investment Agreements
Slovenia has signed Bilateral Investment Agreements (BITs) with Albania, Belgium, Bosnia and Herzegovina, Bulgaria, China, Croatia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Israel, Italy, Lithuania, Macedonia, Malaysia, Netherlands, Poland, Portugal, Romania, Singapore, Slovak Republic, Spain, Sweden, Switzerland, Thailand, Ukraine, the United Kingdom, and Uzbekistan. BITs are under negotiations with Argentina, Canada, Chile, Kuwait, and Russia.
C. OPIC and Other Investment Insurance Programs
In July 1999 the Slovenian Export Corporation (SEC) and US EXIMBank signed a memorandum on cooperation in financing, insuring, and reinsuring exports to Southeast European countries.
The U.S. Overseas Private Investment Corporation and Slovenia signed a bilateral agreement on April 24, 1994. OPIC programs for investment finance and investment insurance currently available in Slovenia include loan guarantees and direct loans, as well as political violence and expropriation insurance. The U.S. Export-Import Bank offers short-, medium-, and long-term private sector programs, and short-term public sector programs in Slovenia. Slovenia is also eligible for U.S. Trade and Development Agency Programs.
D. Labor
A large discrepancy exists between unemployment rates derived from registered unemployment and from ILO methodology (14.5 versus 7.9 percent). The ILO number shows a slightly better situation compared with other OECD country rates. The registration numbers need to be used carefully, as they tend to suffer from some shortcomings (e.g., covering those actually employed). Moreover, since social payments are made to those registered on unemployment rolls, the incentive to register may bias this number upward.
Total employment slightly increased in 1998 (by 0.2 percent). The number of registered unemployed declined at an accelerated pace in the first half of the year as discouraged job-seekers were deleted from the rolls (4 percent more if compared with 1997). In the fall, the number of (registered) unemployed began growing again. There is significant regional variance in this number, with large pockets of unemployed concentrated in areas where heavy industry supplied the Yugoslav and CMEA markets.
Slovenia's wage-setting practice is in the "social partners" mode, which is supposed to contain high wage demands by centralizing wage decisions. In practice, however, high wage expectations have pushed Slovenian wage levels far above those of Slovenia's central European neighbors, to about half the cost of Austrian labor. In Slovenia's favor is the fact that it has a well educated labor force that is the most productive of the transition economies, which allow it to be competitive in niche markets. Although complicated lay-off and redundancy procedures and severance costs have discouraged enterprise restructuring and kept labor costs high, a new labor law is likely to streamline these procedures and may lead to increased hiring and better retention.
Slovenian skills are especially strong in higher value-added activities where they capitalize on their strengths as good technicians and engineers available at a somewhat lower cost than in the developed West. However, Slovenia would benefit from stronger managerial skills, most notably in the banking and insurance sectors.
E. Foreign Trade Zones
Free trade zones (FTZs) are part of Slovenia's customs zones. Slovenia's FTZs are located in Celje, Ljubljana, Maribor, Nova Gorica, Sezana and Koper.
According to the Free Trade Zones Act from May 1998, FTZs may be used by domestic and foreign entities. The applicant for the FTZ shall meet the following requirements: at least 51 percent of the turnover in the FTZ must be generated by the export of goods manufactured and services performed in the FTZ; activities in the FTZ shall be a new line of business for the company; the total number of company's employees must be increased by doing business in the FTZ; persons founding a new company or a new branch office in the FTZ must have paid all taxes and customs duties.
The following activities can be performed in an FTZ: production and service activities; wholesale; banking and other financial services; insurance and reinsurance of persons and property; as well as retail for other users in FTZs. Goods can be moved free of restrictions into FTZs and may be stored there for an unlimited duration. Goods brought into FTZs are duty-free. Goods or products made from these goods can then be exported duty-free. The goods or products made from these goods can also be imported into Slovenia. In such a case, customs or other duties are normally payable on the importation of goods to Slovenia, as are storage costs and costs of other procedures concerned with the goods' processing in the FTZ and which are not part of the customs base.
Equipment intended for carrying out activities in FTZs as well as spare parts, tools and accessories for the equipment are exempt from customs duties for as long as they remain in the FTZ. (This does not hold for office furniture, office equipment and other administrative facilities, and motor vehicles that are not intended for exclusive use in FTZ.) Sales tax is not payable on equipment and raw materials entering FTZs on the condition that the equipment or materials are used for the production of goods for export.
Profit tax amounts to 10 percent. A tax deduction in the amount of 50 percent of the invested sum is offered for investments in tangible assets in the FTZ. The taxable income of companies in the zone shall be reduced by the amount equaling 50 percent of the salaries paid to the trainees and other staff who have been registered as unemployed for at least six months.
F. Foreign Direct Investment Statistics
Inward Foreign Direct Investment by End of 1998 grouped by countries
Country Total Value ($mil) Share of Total Austria 1090 38.07 Croatia 95 3.32 Germany 354.5 12.38 France 373.5 13.05 Italy 192 6.71 Great Britain 141 4.92 Switzerland 95 3.32 Denmark 39.5 1.38 United States 126 4.40 Netherlands 111.5 3.89 Other 245 8.56 Total 2863 100.00 Foreign Direct Investment by End of 1996 grouped by sectors
Sector Total Value ($mil) Share of Total Mfr of pulp, paper & paper products 254 8.87 Mfr. chemicals 220 7.68 Mfr. Of rubber & plastic 159 5.55 Machinery & equipment 150 5.24 Mfr. Of motor vehicles 190.5 6.65 Financial Intermediation 436 15.23 Other Business Activities 304 10.62 Wholesale Trade 243 8.49 Other 906.5 31.66 Total 2863 100.00
Outward Foreign Direct Investment by End of 1996 grouped by Sectors
Outward Foreign Direct Investment by End of 1996 grouped by Sectors Total Value($mil) Share of Total Financial intermediation 214 32.77 Chemical Products 84 12.86 Food 94 14.40 Mfr. of motor vehicles 24 3.68 Wholesale Trade 47 7.20 Other 190 29.10 Total 653 100.00
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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