Slovenia beckons with economic and logistical incentives

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Slovenia’s highly favourable geographical position in Central Europe – bordering Austria, Italy and Hungary – and its membership of the European Union allows potential investors to profit from development of production and services that can benefit from easy and duty-free access to the entire EU. Significant international contacts and an efficient multi-modal land-sea-air transport system make Slovenia a perfect choice for investors wishing to set up at the heart of the European market, counting 500 million consumers. Port of Koper provides logistics services with yearly throughput surpassing 17 million tonnes. Its excellent location ensures Port of Koper’s leading position in servicing central and southeastern Europe, in particular EU markets with high growth potential.

Matija Testen
Matija Testen

The Slovenian government strives to make doing business in Slovenia as easy as possible, and has already implemented several reforms in this regard with respect to registering property, establishing companies, introduction of online submission of customs declaration forms for easier cross-border trade, and simplification of insolvency processes.

Slovenia experienced strong growth in 2003-2007, with GDP increasing at a compound annual growth rate of 7.3%. As a result of the global economic crisis, GDP contracted in real terms in 2009, but rebounded in 2010.

Economic relations between China and Slovenia are traditionally good, although China does not yet represent one of Slovenia’s largest trading partners. In 2010, China was 17th on the list of the most important Slovenian trading partners, and was the most important trade partner in Asia. The two countries have set up an excellent and well defined framework of bilateral treaties that provide investment protection and avoidance of double taxation, and promote economic co-operation in several commercial areas including health and medicine, technology and science, education, etc.

Commercial trade between Slovenia and China (see chart) has steadily increased, with a decrease in 2009 as a consequence of the global economic downturn. Overall trade between the two countries has reached 663 million (US$853 million) in 2011. Much of the trade is Slovenian imports from China, which are approximately five times greater than Slovenian exports to China.

Starting up in Slovenia

Starting a business in Slovenia is easy, due to a simple procedure and low cost of registration, and low amounts of required start-up capital. The most common form of company that new entrepreneurs choose is a limited liability company, for which the required start-up capital is only 7,500, and which can be registered within a few days. Slovenia is ranked 28th in the world in the “Ease of doing business – starting a business” category of the Doing Business 2012 project undertaken by the World Bank and the International Finance Corporation. As an alternative to starting a business, investments can be made via mergers and acquisitions, take-overs and concessions, or public-private partnerships.

Treatment of investors

Under Slovenian law, foreign undertakings must conduct their business in Slovenia through a branch registered in Slovenia. There are no legal restrictions on registering branches, and with regard to its rights, obligations and responsibilities, a foreign undertaking conducting business through a branch is equated with domestic undertakings or entrepreneurs with registered offices in Slovenia.

Protection of investments is guaranteed through the Organisation for Economic Co-operation and Development’s (OECD) draft convention on the protection of foreign property, and by bilateral treaties between the two countries. Expropriation, nationalisation, or any other measure with an equivalent effect is prohibited except for public purposes, on a non-discriminatory basis, under due process of law and in exchange for prompt, adequate and effective compensation.

With respect to real estate investment, companies established or purchased by foreign nationals in Slovenia have the same property rights as companies established by domestic persons (principle of national treatment), meaning that they may own real estate without limitation.

Challenges and opportunities

The most suitable opportunities for foreign investment are considered to be in the automobile industry, energy, transport and logistics infrastructure (railways, sea ports, road transport and airports), construction, and research and development. As a consequence of the financial and economic downturn, there are ample opportunities for purchases of equity and other assets that are being sold at lower prices in insolvency procedures or restructuring processes. In addition, state-owned assets are being sold as part of an attempt to balance state finances, and as the final phase of privatisation. The current economic situation, with state finances still struggling from the consequences of the financial crisis, represents an excellent opportunity for foreign investors.

cee%ef%b9%a3bar_chart_2Slovenia is developing into an important European logistics centre, and logistics companies could bring interesting opportunities for Chinese investors. In the final phase of privatisation, and as part of an attempt to balance state finances, the state’s ownership interest in several Slovenian transport logistics companies (such as Port of Koper, the national airline Adria Airways, and Slovenian Railways) might be available to potential investors. In addition, Port of Koper and Slovenian Railways may have to look for a strategic partner for a planned third pier, in connection with construction of a new railway to increase the capacity of yearly throughput to more than 27.5 million tonnes.

It is worth noting that China Development Bank has been in Slovenia for approximately three years, seeking strategic investment projects. In April 2011, Slovenia hosted a meeting of the Slovene-Chinese group for co-operation in the area of railway transport, the result of which was the signature of a memorandum of co-operation between the two countries, defining the importance of co-operation in railways and railway infrastructure.

Matija Testen is an equity partner at Rojs Peljhan Prelesnik & Partners in Ljubljana, Slovenia. He can be contacted at +386 1 230 6750 or by email at testen@rppp.si