OECD Observer No 276-277 - Slovenia Supplement - December 2009-January 2010

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Special Focus

Slovenia

Interview with Slovenian Finance Minister, Franc Krizanic

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Sponsored statements Time to capitalise on the downturn

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Executive education in Slovenia - building a bridge between east and west

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Slovenian financial markets

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Legal framework

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Entrepreneurship in Slovenia

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This special extra on Slovenia was prepared by Pressgroup Holdings Europe especially for the OECD Observer.

The opinions expressed in the articles, including the sponsored statements, are those of the authors only and do not necessarily represent the opinion of the OECD. Their publication is for information and discussion only and should not be taken as endorsement by the OECD or any of its member countries.

© J. Skok

© Bobo

© Klemen Kunaver

© Matej Vranic

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Interview with Slovenian Finance Minister,

Franc Krizanic

By Jonathan Andrews

Slovenia is in its worst economic crisis since independence, with the OECD seeing growth contracting by nearly 6% this year before recovering slightly in 2010. Being a small and open economy, how difficult has it been for Slovenia to battle the financial crisis?

The direct impact of the financial crisis has been minor in Slovenia. The main reason for this has been our rather conservative banking sector that held a very small percentage of risky assets. What affected Slovenia the most was the credit shortage that resulted from the crisis. The European market was frozen for almost three months from October 2008 to January 2009. This required government intervention to ease tight liquidity conditions which was done successfully but export markets contracted substantially. Exports contribute a large percentage of GDP for Slovenia, and being a rather small and open economy we were hit hard in this area. To offset the impact of the crisis, given our relative low debt-to-GDP ratio, the government resorted to economic stabilisers which is reflected in the increase in debt, but still the debt-to-GDP ratio is one of the lowest in the euro area. We are now seeing the beginning of a recovery, with growth again, and progress on our ‘exit strategy’.

Stimulus measures were introduced in 2008, which mainly focused on building highways and modernising the railways.

How are these developing? Have there been further initiatives?

There are three main stimulus initiatives that are being implemented. One is in the field of infrastructure, labour market and increasing potential output.

We are also in the process of modernising our trains and railways along with a high tech signalling system. We do not see this as just a stimulus measure, but rather as a long-term investment.

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Secondly, we introduced subsidies to keep individuals connected with the labour market. The subsidies to enterprises supported the shortening of working hours and provided for temporary unemployment as against definitive layoffs of workers. These are particularly important for the manufacturing sector, as it is strongly linked to export markets.

Is business confidence returning?

Confidence levels have been steadily increasing since the second quarter of the year, not just in Slovenia, but in Europe as a whole. Exports are still lower than pre-crisis levels but the growth in export orders has increased since the second quarter and total orders in manufacturing are up. GDP has turned around in the second quarter and is signalling the end of the recession.

Slovenia is now in the euro area. How has this shaped your policy response to the crisis?

We cannot complain, because EU monetary policy was very effective with the size and speed of the response being correct. In particular, access to European Central Bank refinancing is an important insurance in times of crisis.

If we were not in the EU, then the most likely course for monetary policy would have been devaluation, and stemming from that inflation with falling demandthe stagflation nightmare of the 1970s.

© J. Skok

Thirdly, there are measures aimed at the Lisbon strategy goals, including enhancing the technological capability of large enterprises and export-oriented enterprises. Under the Lisbon strategy some of those are regarded as centres of excellence. Government expenditure of half a percent of GDP is being targeted for this type of enterprise while a little more than half a percent of GDP will be spent on enhancing the resilience and competitiveness of small and medium sized enterprises. The support measures are in compliance with European Union (EU) standards.

Further labour market reforms will improve the already business-friendly environment

After the crisis we will see economies that depreciated their currencies sharply, mainly in eastern Europe, that may be more competitive in the short term, in certain industries like textiles.

It could represent a problem for us in the future, but now there is no doubt that being in the European monetary union is a blessing.

A recent OECD survey of Slovenia describes the country as having ‘an overall business-friendly economy’, but nonetheless sees room for improvement, in areas such as pensions and the labour market.

How will you address these challenges?

We are addressing these with concrete measures and through social dialogue.

In the case of pensions the average age for retirement for women at the end of 2008 was 57 years and 7 months and for men 61 years and 11 months. The challenge is to further increase working age before retirement. The government has just tabled a comprehensive proposal to make people work longer and increase retirement age (see http://www.mddsz.gov.si/si/zakonodaja_ in_dokumenti/predpisi_v_pripravi/ )

University leavers today will be looking at a working life of 40 years and women a little shorter, meaning a retirement age of 65.

With regard to the labour market we are putting emphasis on the quality of the workforce, updating their knowledge and providing continuous education and re-training.

The survey also called for more competition, greater foreign direct investment in financial services and increasing privatisation.

We are interested in anyone coming here to compete and set up a business, not only in the main export marketoriented businesses, but also in the local domestic markets.

Most enterprises that have set up here say that it is a welcoming environment. We are offering them domestic conditions, and treating them as our own. If somebody does come and buy up industries and then cuts jobs, of course it is not something we would welcome or like but the investor still has the freedom to do it.

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© B. Bajzelj

The strong Slovene beer and wine industry has resisted ‘senseless’ protectionist measures

The state still holds stakes in network industries and we are committed to investment following best practices.

Investors are welcome to invest and become partners in the companies where the state still maintains or is reducing its presence.

Czech Republic, the Slovak Republic and the city of Moscow, were further developed during our transition in the 1990s. What happened in this crisis was that our new eastern markets were hit hardest, and fell considerably.

Why is the state still involved in these industries? It is a question of transition and the size of the economy; as a small, young country it is difficult to build up the economy without the state playing some role and so we are being careful in implementing changes.

It depends on the actions of IMF whether eastern Europe will recover fast. Their actions have been strong and rapid so the east should recover shortly after the west.

Ukraine, will recover much faster than in previous crises, while the economies of Poland and Turkey have performed relatively well during the crisis.

Turning to trade now, which Slovenia relies on the EU for, particularly Germany, what initiatives is Slovenia taking to diversify and expand its export market?

We have export diversification, and do not only rely on Germany, but also trade extensively with France, Italy, Austria, the former Yugoslav republics, our traditional markets, and eastern Europe. The eastern European markets, including Poland, the

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We are not too dependent on the car industry. It is an important sector, but we are strong in other sectors too, including pharmaceuticals, especially in generic production, which have not faced a decline in demand. Other large sectors include the furniture industry, tourism, the chemical industry, telecommunications and electric appliance production. The direction we are taking is towards developing sectors that add value.

Are you concerned about protectionist pressures growing within Slovenia or among your trading partners during this economic crisis?

There are some signs in the beer and wine industry of demands for assistance but in the end, protection is senseless. In the first three months of the crisis we were a little bit worried about some attitudes but we have not seen violations of free trade rules or a build-up of protectionist measures.

The EU framework has been instrumental in this regard.

Our trade is also connected to investment and I do not sense a protectionist mood.

Nor are we withdrawing our investments or losing our foothold in markets where we are present.

At a recent Non-Aligned Movement meeting, Serbia’s president called for companies from the former Yugoslav republics to join forces to bid on projects or contracts, as they are too small to compete by themselves.

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Croatia’s president showed some interest in this. Is that the case for Slovenia?

© J. Skok

We are involved in a completely different environment to the other former Yugoslav republics, namely the EU, so we do not really need it. We maintain good business relations with these countries and private enterprises decide how they co-operate on a case-by-case basis. Slovenia has relatively large companies that can bid for international contracts. It is in the interest of Slovenia and the EU that the former Yugoslav republics become EU members and mutually benefit from the large integrated market and the opportunities this presents.

Location, location, location is the catchphrase, not just geographically for trade, being at the crossroads of Europe, but also because of a great lifestyle. As our saying here goes, ‘In Slovenia you can ski in the morning and go to the beach in the afternoon’.

The Slovenian workforce is modern, professional and well-educated. The country is located in safe surroundings, with a low level of crime and corruption.

The workforce is quite mobile, being supported by good levels of infrastructure, transportation and communication.

English is taught from kindergarten upwards, and most students and professionals, from taxi drivers and waiters to CEOs have a very good level of English.

Research and development is strong in social sciences and technical sciences and each year we attract researchers from other countries, particularly Croatia and Hungary. Education is at a high level and most young people go on to university.

We have campuses and technical colleges spread around the country.

Within the EU framework we are also allowed to provide subsidies to new

© Klemen Kunaver

How would you sum up Slovenia’s strengths to investors and trading partners?

Location and lifestyle are strengths to attract foreign investors

foreign investments of up to 10% of the investment and to provide support to businesses. We have used these measures in the crisis and will do so in the future, especially to attract investment to the eastern part of Slovenia.

Slovenia is a candidate for entry to the 30-strong OECD. What contribution do you think Slovenia can make to the OECD and its member countries?

We are small, but with strong institutions and values which have propelled us to be the first new EU member in joining the euro area and to hold the presidency of the EU in 2008. We have one of the best sets of indicators of social cohesion among developed countries. We have gained experience in consensus building policies, which helped sustain growth in the past, before the present crisis, and without major shocks. This has resulted in a sustained increase in the standard of living of our population. Our experience and views can enrich the OECD with regard to development and reform agendas.

What would OECD membership mean for your economy?

It would mean being able to access information and learning from the most advanced countries in the world, including beyond the EU. We would be able to benefit from OECD input in all our projects. It would enable us to identify best practices and implement them here. There are countries such as Finland that we see as examples to follow, that have used these tools very well. We aim to follow such successes, in modernising further and becoming a value-added export economy. We also want the best for our public procurement projects, based on price, efficiency and quality, particularly in the areas of construction, and information and communications infrastructure. We are already changing our laws to make these areas more efficient. And new development measures to stimulate these sectors are being introduced such as industrial zones. We want to be a hightech economy. l

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Time to capitalise on the downturn Sponsored statement

By the investment promotion agency JAPTI (www.japti.si)

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lovenia takes pride in 18 years of independence, five years of EU and NATO membership, over two years of membership of the euro zone and the fact that it is part of the Schengen area of some 400 million inhabitants. It is classified as a high-income non-OECD country with OECD membership as the milestone to be reached in 2010.

Since the 2008 credit crunch in the US and its far-reaching effects across Europe and the rest of the world, the downward spiral in big and small economies has eroded confidence in an economic recovery. OECD short-term forecasting models point to an earlier recovery than envisaged a few months ago as G7 countries are expected to grow by 1.4% in the final quarter of 2009. In light of the global reach of this crisis and the fact that economies heavily reliant on exports have been hit hard, Slovenia’s government took the first steps to avoid the meltdown back in October with the concerted efforts of the European Union to weather the crisis in a coordinated fashion. The second package of measures aimed at limiting the damage caused by the financial and economic downturn to the real economy was

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launched in February. Since the economic recovery is likely to be protracted, restructurings may be necessary as the functions of financial markets change in pursuit of lower levels of leverage, reduced funding mismatches, improved risk management and less arcane financial instruments than was the case before the crisis. Strong cross-border dependencies within the single market and the single currency zone make it essential that national authorities work together to find better regulatory solutions that benefit all member countries.

It was the best of times; it was the worst of times Analysts agree that the Slovenian economy was driven by exports, with investments in civil engineering and construction leading the way, and household spending. The number of delinquent residential mortgages was low as the unemployment rate fell to 4.2% in August 2008. Since then, the figure climbed to around 9% in the first half of 2009 with a peak of 10% expected to be reached in 2010. There were upward pressures on inflation attributable to high commodity prices (largely food and energy), but as the

economic activity slowed down in Autumn 2008, headline and core inflation indicators followed suit.

The financial woes of Slovenia’s main trading partners became evident in a slump in demand accompanied by the cooling of the national economy and a fall in industrial prices. Steel products, machinery and equipment have been affected more than other manufacturers, and prices paid in the domestic market have outpaced export prices as suppliers faced fierce competition. Cash-strapped credit institutions started to tighten lending terms and the number of companies forced to scale down their operations turned to their employee base to cut costs.

Good deals in a downturn Despite the scale of the current crisis, Slovenian people have coped with gloomy patches on many occasions in their long and turbulent history. The existing foreign investors in Slovenia and the buyers of Slovenian products will not be surprised by the country’s commitment to go forward.

There are no plans to wait until the global economy is back in shape – slashing spending and investment and telling consumers to keep their spending domestically oriented is not what an export-oriented country trying to attract foreign investors is going to do. The message the Slovenian government and the people in Slovenia have is that this is not necessarily the worst of times if we use existing strengths, find additional customers in sectors that are new to us and

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show foreign investors that Slovenia is a premier location for investors seeking a stable income potential with great growth potential.

Investment landscape Since gaining independence in 1991, Slovenia has completed its transition to a functioning market economy and has signed the OECD Declaration on International Investment and Multinational Enterprises in recognition of its success in establishing a stable and nondiscriminatory business environment with a set of voluntary standards of appropriate business conduct. It has an open and nondiscriminatory regime for foreign direct investment (FDI) and since FDI is sensitive to cyclical movements, Slovenia’s FDI stock has not reached its record high from 2002.

Homing in on Slovenia Market forces are putting pressure on businesses inside and outside Slovenia, but the country’s advantages outweigh the risks to investors of political leaders letting short-term domestic political expediency take precedence over the economic requirements associated with FDI locations in a liquidity squeeze. The country’s banks do not need to be bailed-out, non-

The industries tipped to survive the current downturn are those with higher value- added and innovative products, and this offers Slovenia an opportunity.

Alongside investors’ favourites such as the chemical and pharmaceutical industry, information technology and communications, energy supply and distribution, tourism, shared services centres, and environmental technologies, transport and logistics also deserve to be shortlisted by foreign investors.

To attract inward investment in general and to facilitate greenfield projects in particular, Slovenia has provided electronic access to practically all public administration services and has made a number of locations available for property development and redevelopment to technological parks and economic zones.

Incentive schemes are in place as tangible proof of government commitment to boost FDI and new jobs and manufacturing orders will nudge the Slovenian economy forward. Foreign investors with existing operations in Slovenia can also benefit when wishing to expand or upgrade their facilities. The government FDI CostSharing Grant Scheme is designed to raise the profile of Slovenia as a prime location for FDI by lowering selected start-up costs for projects which promise to create new jobs, to apply high-tech solutions, to contribute to balanced regional

Foreign investors and buyers appreciate that Slovenia boasts a high percentage of companies that: 3 generate significant revenues outside their home market 3 use material inputs and/or supplies of foreign origin 3 have internationally-recognised quality certification 3 have their annual financial statements reviewed by an independent auditor 3 have women in senior positions and female participation in ownership 3 have their own website

Foreign investors agree that Slovenia has:

Sponsored statement

A tool to gauge Slovenia’s ability to compete with other locations for foreign direct investment is, among others, its corporate and financial legislation. Having transposed the relevant EU legislation into local law, there is always some fine-tuning to be done. To this end, many laws have been amended and modified recently to reflect the changes made to EU regulations and directives including the Companies Act, the Banking Act, the Market and Financial Instrument Act, the Investment Trusts and Management Companies Act, and a new package of tax legislation. Other important recent changes to relevant legislation include newly adopted or substantially amended regulations governing import procedures, economic zones, mergers and acquisitions, public procurements and public-private partnerships (PPP), the employment of aliens, etc. Slovenia is also a significant investor in its own right, particularly in southeastern Europe.

performing loans are well-provisioned for, higher unemployment is a chance for employers, and supply clusters have underused capacities for new production.

Known for their flexibility and versatility, Slovenia’s large manufacturers and boutique firms alike can switch from carparts to other sectors outside their traditional expertise in short time. A highly qualified and skilled labour force gives a cutting edge to Slovenia’s industrial production, which today is a balanced composition between services and manufacturing. Suppliers of automotive and electronic components can switch to logistics where their expertise has developed in response to the complex justin-time delivery schedules imposed by manufacturers of vehicles and electronic appliances.

3 good customs and trade regulations, 3 efficient labour regulations, 3 business licensing and permits 3 low levels of crime, theft and disorder with no impact on running of operations 3 public officials do not expect informal payments to ‘get things done’ 3 no losses due to theft, robbery, vandalism, or arson

development or to hone alliances between foreign investors and Slovenian companies.

Investors can apply for funding when they intend to invest in manufacturing, in strategic services (customer contact centres, shared services centres, logistics and distribution centres, regional HQs) or in research and development. Incentives can be granted for up to 30% (up to 40% for medium-sized and up to 50% for small companies) of the eligible costs of infrastructure and utility connections, the cost of construction or purchase of buildings as well as the purchase of new machinery and equipment. l

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Slovenia’s performance may seem a winding road these days but it is coming into the straight and heading home

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fter a dozen or so years of accelerating pace and managing to beat the twelve-strong field in the race to the European Union, NATO and the euro area, the tumbling economies of Slovenia’s main trading partners have left it without the gear to sustain this speed.

Sponsored statement

It is not easy to deliver a high standard when you are just one piece of the mosaic that was hit by the “perfect storm”, as Europe’s worst recession in half a century rightly deserves to be called, and your buyers are in the doldrums. Analysts generally agree that Europe has responded promptly to the crisis and the optimists lead us to believe that the EU member countries will emerge from the recession earlier than the pessimists expect. Governments across the OECD area have adopted emergency policies to stabilise financial markets and support the economy, with Slovenia being no exception. But these lifelines will have to

be taken away once the economy weathers the storm. Right now, the side effects of decisive fiscal actions across nearly all member countries - cuts to short-term interest rates, quantitative and credit easing policies and actions to stabilise financial markets - have remained in the rear until the European Commission opens its Excessive Deficit Procedure against the countries with budget deficit soaring above the 3% ceiling allowed by EU regulations.

As the gusts of wind slowly subside, analysts and politicians are catching breath to discuss the width and breadth of structural reforms needed to help prevent similar financial crises and improve economic performance.

Improving financial regulation and supervision, raising the long-term sustainability of public finances, and further increasing foreign access to European markets, are undoubtedly the

Outline of measures adopted by the Slovenian government to combat the financial and economic crisis 1st Package

3 Partially subsidising Full-time Work Act along with ensuring part-time work 3 Raising the tax break for investments in plant and equipment and intangible assets 3 Co-financing the purchase of new technological equipment 3 Guarantees for collateralising bank loans at a subsidised interest rate 3 Co-financing development investment projects 3 Venture Capital Company for investments in start-ups and businesses with the identified potential for fast growth 3 Increasing funding for the promotion of technology development and R&D projects

2nd Package

3 Guarantee scheme provided to banks for general granting of loans to companies 3 Individual government-backed guarantees for corporate borrowers 3 Low-value aid (new ‘DE MINIMIS’ scheme 500,000) 3 Support to the strategic projects in the field of clean and technologically advanced industry 3 Shortening of payment period (Act Amending the Value Added Tax Act)

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steps in the right direction mentioned in the same breath with strengthening innovation, deepening the single market, and moving to a low-carbon economy, if long-term growth in the European Union is to regain momentum.

Way out When the going gets rough and a country’s economy starts to suffer, numerous analyses are produced to show what has gone wrong and possibly what should be done to overcome the challenges. Hardly anyone will object to the need to raise the level of innovation in order to increase value-added industries. On the other hand, even Slovenia’s Commissioner for Science and Research, Mr. Janez Potocnik, may agree that despite numerous policy initiatives, Europe still lags behind the United States and Japan in research and innovation with the funding of innovation, and encouraging research co-operation, being widely regarded as critical.

Slovenia boasts many innovative companies whose ground-breaking solutions are often better known abroad than at home thanks to a long industrial tradition, the special place it held in the former Yugoslavia and the role the former common state had in the world, especially in the 1970s and the early 1980s when Slovenian production and engineering enterprises sold plant equipment and provided turn-key solutions for large international projects.

The fact that Slovenia managed to find new buyers in the early 1990s rather quickly after the collapse of the Yugoslav market speaks highly of the flexibility and professional level of its business community capable of withstanding competitive pressures in nearby and farflung markets. The prospering industries include electrical engineering, electronic, automotive, pharmaceuticals and chemical, with the service sector constantly on the rise and plenty of

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development potential in tourism. It goes without speaking that ecological, social or other Slovenian policy objectives are fully aligned with the EU and in turn with global ones, as Slovenia continues to build sustainable progress for its people.

The restructuring of Slovenia’s economy started almost twenty years ago from smoke-stack industries to a low-carbon economy with policies aiming at reducing greenhouse gases by championing low-emission technologies

and low energy consumption. In hindsight, by letting market failures drown and by being flexible to let changes in without major disruption to the functioning systems, Slovenia has avoided potholes of drastic environmental and social changes without compromising the rules of competition. Its energy security is at a high level, with water power still to be fully realised, and the emergency stocks of petroleum products maintained in line with EU requirements.

Slovenia in a bid to be recognised as a location of choice Four pillars of business excellence Workforce

Infrastructure Investments in the transport and information and communications technology infrastructure serve to bank on Slovenia’s central position at the intersection of two pan-European transport corridors. The motorway and the railroad networks stretch along the two strategic directions and complement three airports, several airstrips and the deep-sea port in Koper that provides the shortest maritime route between Central Europe and Asia. The development of Koper’s port and logistics services is coupled with the construction of modern facilities and transport infrastructure - an ideal place for logistics and distribution companies with international reach in more than one industry.

Regional hub If we are to illustrate the importance of Slovenia’s role as a hub for accessing markets in east Europe and the western Balkans, then its two million people should be put in a larger perspective of over 450 million potential consumers in its immediate vicinity.

Traditionally strong trade flows with west Europe and EFTA countries make it crucial to foreign companies wishing to serve the EU single market plus the emerging markets in the region and save money on transport and business services in comparison with other locations.

Lifestyle The great outdoors offer opportunities for skiing, mountaineering, hiking, cycling and golfing, as well as for more energetic pursuits like paragliding, ski-jumping and white-water canoeing and rafting. Facilities for indoor sports are scattered around the country: basketball, volleyball, ice-hockey, etc. There is a culture of delicious, homeprepared food, village festivities, local handicrafts such as lace and embroidery, beekeeping and wine-growing. Expats appreciate the unpolluted nature, excellent educational institutions for their children, language skills of local people and low business risk and crime rates. In a nutshell: great opportunities to invest in Slovenia.

Slovenia’s 53rd place in the Doing Business 2010 ranking compiled under the World Bank’s Doing Business project, illustrates well the country’s openness and prowess when it comes to trade, outsourcing and foreign direct investment. The organisation operating within the framework of the Slovenian Ministry of the Economy is commonly known as JAPTI. It has a mandate to provide services to investors, help local companies do business across borders, bring foreign buyers in to meet potential suppliers, enhance entrepreneurship and do the homework for businesses from foreign countries by supplying intelligence, analyses and tailored solutions, and by putting buyers and investors in touch with government bodies and other institutions.

JAPTI’s mission can be divided into shortterm and long-term objectives. Building business contacts with companies with foreign and mixed capital, with the aim to encourage growth and development in the source and the recipient country is one of its short-term objectives, while efforts to increase the number of new (greenfield) investment projects and create new jobs are long-term objectives.

The role of Slovenian investors in other countries is particularly important for the Central and Eastern European (CEE) countries such as Croatia where outward investments put Slovenia in fourth place after Austrian, Dutch and Luxembourg investors.

The commitment of Slovenia and its government to democracy and the market economy stands to benefit further from future membership of the OECD. It provides a setting for discussion and strategic direction where Slovenia can make its voice heard l

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Sponsored statement

A pool of highly qualified and dedicated workers with strong technical, language and customer service capabilities with skills in high value manufacturing, business services and RTD and with a reputation for creativity and innovation. An excellent education system at all levels and for all qualifications. 70% of young people enrol in higher education institutions.

Trade and foreign investment At the time of writing, the red ink of Slovenia’s export and import figures for 2009 (-13.4% exports Q1 09/Q4 08 and 15.2% imports) is beginning to fade as its trading partners are doing better. The time is right to put worries behind and start competing for a pole position before others do.

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Executive education in Slovenia building a bridge between east and west

The development and quality of both the country and its economy largely depend on its education system. The country is well aware of this fact and therefore strives to ensure that there is constant development and improvement of the education system, including executive education in the management and business field. In these days of globalisation, the rise of information and internationalisation, coupled with continuously changing business environments and the need for management education, is becoming ever more important.

In the last decade, Slovenia's education system has been

The Faculty of Economics, University of Ljubljana - a bridge between east and west FELU is both a national leader and an internationally recognised education and research institution in the area of business and economics. Now, and in the future, the Faculty is endeavouring to become even better known internationally for its quality and achievements in education and research. FELU offers degrees at the undergraduate, graduate and doctoral levels. In the 2009/2010 academic year the Faculty is offering two different Bologna study programmes at undergraduate level (Business and Economics and a Business programme). It also offers 16 graduate programmes. In the 2008/09 academic year the Faculty began its Bologna doctoral programme. English streams are established in all three Bologna cycles and each year FELU offers at least 68 courses in English.

Sponsored statement

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lovenia was the most developed republic of the former Yugoslavia and today it is often hailed as a Balkan success story.

Emerging relatively unscathed from the Balkan Wars of the 1990s, it quickly gained independence, prospered and then joined the EU and NATO by 2004. It is now a candidate for membership of the OECD. These days Slovenia enjoys widespread economic and political stability. As soon as Slovenia declared its independence, it immediately turned to the west. Its geographical location along Europe's virtual centreline, sees the country linking east and west, and that is what makes it so strategically well-positioned.

thoroughly modernised. The principles and values underpinning this are accessibility and transparency of the public education system, the rule of law at all levels, democracy, autonomy and equal opportunities. Specific parts of the system include management education and executive education. Executive education in Slovenia is provided by a wide range of organisations. Some of them offer a degree, while other post-secondary vocational education institutions offer a two-year course in management/business, although they are not part of higher education. A small amount of non-degree executive education, such as open courses, in-company courses and consultancy, is provided by state universities. The Faculty of Economics at the University of Ljubljana (FELU) has the longest tradition of executive education among all education and training institutions in Slovenia. FELU's core competence in executive education stems from its ability to connect and combine the research, teaching and consultancy competencies of its faculty members.

In its strategy the Faculty has positioned itself as a centre of excellence in south-east Europe. As such, it acts as a bridge between east and west, relying on its ability to source knowledge globally and transfer it to the southeastern European region and vice versa while, by developing its expertise in business and economics in the region, FELU also contributes to the global creation of knowledge. By gaining the EQUIS Award, the Faculty now ranks among the world’s best business schools.

Executive education has always been an important element of FELU’s programme portfolio and one of the key objectives of the new FELU strategy. Therefore, in 1972 the Centre for Management Development and Training (CISEF) was established and it grew rapidly in importance after socio-economic changes in Slovenia after 1990. The CISEF’s mission derives from the Faculty’s, best described as a means for facilitating the effective and socially responsible transfer of knowledge to business practice, thus improving individual managerial performance and the overall competitiveness of organisations in Slovenia and southeastern Europe. Executive education at FELU has been a way of influencing society and creating a culture of learning and professionalism in management. Every year, the Faculty organises over 40 open courses, 30 customised programmes, two business conferences and five to ten special events.

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A wide range of executive education programmes FELU provides a range of open executive training programmes, each year amounting to around 60 courses in the fields of general management, finance, accounting, leadership, marketing, informatics, and organisation.

In 2008 the high quality programme Competitiveness and Strategy aimed at top Slovenian executives was launched. The programme was developed together with the London School of Economics and Political Science (LSE) as FELU’s strategic partner for top executive programmes and was delivered partly at the FELU and in London at the LSE. A FELU representative accompanied the group in London, while other activities such as a visit to parliament and social events also formed part of the programme.

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Customised programmes are tailored to meet the specific needs of individual organisations and are offered as in-company programmes or programmes designed for special groups. Some examples include extensive programmes for the directors of de-mining centres in ex-Yugoslav republics (the programme was delivered in cooperation with Cranfield University), for managers and advisors in governmentsponsored entrepreneurial development support offices and for court experts in economic affairs (in co-operation with the Slovenian Ministry of Justice). In all of these programmes, the Faculty is open to suggestions, works closely together with its clients and offers customised programmes including short courses, long programmes for special groups and business academies.

In 2007 FELU developed a new product for in-company executive education called the Business Academy which is designed as a management development tool for top executives, middle managers or aspiring young managers. The programme combines knowledge and skills, and offers individual participants ample opportunities to match their personal interests with the programme objectives.

The International Full Time Master Programme in Business Administration (IMB) has become the leading and most

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intensive full-time master’s programme in this part of Europe. It compares favourably with the best programmes of its kind in the world. The IMB programme is also part of the NIBES network, an international network of top business and economic schools from all over the world. In recent years more and more foreign students have joined this programme. The Consortium Master’s Programme is a special form of the part-time Master’s Programme in Business Administration whose students are selected by the companies which form the consortium, ensuring that the contents are tailored to the specific consortium members. Since 2005 this kind of programme has also been organised in Macedonia. In addition, for a long time, the FELU has organised the International Master’s in Business Administration in cooperation with the ICPE (the Institute for the Promotion of Enterprises). The majority of students on this programme are foreign.

The Faculty’s executive education portfolio also includes business conferences and special events. Its strong research output, expertise, internationalisation and connections with the corporate world provide grounds for building up the mentioned bridge between east and west for spreading knowledge. For example, the international Portoroz Business Conference brings top executives, researchers and policy-makers together to discuss relevant contemporary issues shaping business, society and the environment in Slovenia, the wider region, Europe and globally. The participants generally come from central and south-east Europe and other countries relevant to the topics discussed. In addition, up-to-date research by the Faculty is presented to the participants. Viewed from the other side, through discussion and sharing experience, the participants in executive education provide valuable feedback on the relevance of the research while sparking ideas for future research projects.

The importance of internationalising executive education The internationalisation of executive education is strongly supported by FELU’s new strategy and specific operational goals.

Efforts in the last three years have already

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yielded some results such as the programme for top executives in cooperation with the LSE and the opencourse seminars offered in Macedonia. The portfolio of short programmes also includes programmes on how to conduct business in a foreign language.

The annual programme includes about seven to ten open courses that build on expertise gained through own research, and research findings are also regularly incorporated in customised programmes, whereas each year about one-third of all new courses are based on research. These include Slovenian multinationals which have mostly developed operations in the southeastern European region, foreign multinationals operating in Slovenia, and local companies and organisations from the southeastern European region. When we look at international partners with which executive education has been carried out, we find institutions such as Indiana University, the London School of Economics and Political Science, Cranfield University, Eindhoven University, AT Kearny, the National Banks of Macedonia and Montenegro, and the Commercial Bank of Skopje.

In the open programmes, lecturers from the business community represent about 60% of all faculty members, foreign lecturers represent about 10%, while the rest are FELU’s own full-time faculty. The growth is not limited by the size and composition of the Faculty since it also recruits lecturers from elsewhere. This policy is intended to provide the optimal mix of lecturers with research and academic backgrounds and business professionals.

The importance of executive education in Slovenia has changed significantly in recent years as organisations recognise the critical importance of their human capital and even the most successful organisations are encountering new and unexpected challenges. Since the country lies at the very centre of Europe, it has the ability to connect and exchange knowledge between east and west and it is here that FELU has clearly taken the lead among all institutions in Slovenia by offering executive education. l

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Slovenian financial markets

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A

ccording to International Finance Corporation (IFC) methodology, emerging markets are those which fulfill at least one of the following two criteria: the country has been low- or middle-income for at least one in the last three years, or its investable market capitalisation (usually measured only for shares) is low if compared to its GDP figures (again for at least one in the last three years). Although Slovenia is regarded as a developed country, its financial (capital) market is not.

The share of equity market capitalisation of all emerging financial markets in total world equity market capitalization ranges from 5% to 20% (Emerging Stock Market Factbook). The share oscillates and is largely dependent on market conditions, among both the developed and the emerging, as well as on the number and size of new issues of shares, which are again larger in the developed markets.

The so-called New Europe, that includes the 12 new EU members, all have emerging financial markets, have market

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capitalisation well below â‚Ź100 billion, the turnover of capital is lower than its market capitalisation and includes about 1,000 listed companies. The markets of New Europe therefore account for only 2% of the European Economic and Monetary Union (EMU) equity market capitalisation and only a good 1% of the EU one. Even lower are its shares in equity volume of trading and corresponding turnover of capital.

The great unimportance of New Europe is evident not only from the capital market figures but also from other similar studies done in other areas. If we take into consideration the financial area and make some comparison for bank deposits, we will get similar results.

Poland, the Czech Republic, Hungary, Slovak Republic and Slovenia together have, for instance, slightly less bank deposits than Austria alone. The mentioned countries of New Europe account for approximately a good 3% of all deposits in the EMU countries and a good 2% of all deposits in the EU countries. If we were to include other

New Europe countries (three Baltic countries together with Cyprus and Malta) the results would be only slightly better. Although banking has undoubtedly been the most traditional sector in those countries, the comparisons with the EMU and EU countries show similar results.

Capital markets in the emerging European countries began to develop when privatisation led to mass ownership in a number of companies. The organised market was necessary in order to assure transparent, regulated and fair ownership transfer among new (instant) shareholders. Other reasons for establishing the organised markets were public debt management, the need to attract foreign investors and in some cases the need for fresh capital. The emergence and the type of the capital market depended on the method of privatisation, regulation, banking sector status, clearing and settlement procedures, definition of market segments, the choice of trading methods and technology.

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The biggest problems of the European emerging markets were, and still are, volatility, liquidity, the drain of capital and companies, fairly unstable (macro) economic situations, efficiency of the legal system, lack of corporate governance, accounting and auditory standards, and integration in the international environment. Some of the mentioned factors are very typical for the developed markets as well, especially of late.

Source: Ljubljana Stock Exchange, Inc

The financial market in Slovenia A wider definition of a financial market would mean a capital market, a money market, a foreign exchange market and a market for derivative financial instruments, and with this breakdown we can explore the Slovenian market.

Although it may seem that Slovenian mass privatisation was uncontrolled, it was in fact relatively well controlled. The second round of privatisation which is taking place now is actually leading to the concentration of ownership inside Slovenia and some companies already privatised are being wound back in their process. The third round of privatisation will comprise mergers, acquisitions and takeovers, where both domestic and foreign owners, with their strategic interests, are and will be present. Yet the real privatisation of certain important governmental companies (two banks, telecom, energy and railway companies) still has not happened.

Different privatisations have in fact helped to develop the Slovenian capital market and Stock Exchange.

Primary market Because of the way ownership is transferred (where many companies were overvalued), because of the large number of companies that found themselves on the market in a relatively short period, and also because of the central bank’s monetary policy (managed floating of tolar, sterilisation, while the interest rates were residual) a real primary equity market (with the exception of the one originating from mass privatisation’s public offerings) never really developed.

Another reason for this is the tax policy that has always favoured untaxed interest rates from bank deposits over taxed investments in securities. The debt primary market has been successful to a certain extent and is being successfully used by the government and the financial sector, but the primary equity market is still struggling. Lately the prices on the secondary market have been so low as to represent serious obstacles for additional public capital rising through equity.

Market capitalisation Market capitalisation has been increasing during the years despite several major takeovers, which resulted in total

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Compared with the standards in the EMU and EU countries, emerging EU markets have low liquidity because of the lack of such tradition and the lack of an adequate base of institutional and small investors. Size also matters. The liquidity of domestic markets in countries with a higher number of foreign investors is in fact lower, because the foreign capital acts as a substitute for the development of the domestic capital market. Studies show that countries with better regulation have a larger number of listed companies. The stock exchanges in New Europe should concentrate their efforts on providing more rational services to domestic small and medium sized companies that are too small for large European markets.

These stock exchanges should also explore possible cooperation with other (possibly the largest) European stock exchanges on the basis of technology (a typical example is NOREX and German XETRA) and/or even ownership (EURONEXT). Two factors are crucial: regulation and technology. The fact that the most developed markets of New Europe (Poland, Hungary, the Czech Republic and Slovenia) are nearly as developed as the smallest or the least developed markets of the EU and EFTA countries (Iceland, Luxembourg, Austria, Norway, Ireland, Portugal) should also be noted. Hungary, Slovenia and the Czech Republic are close together but are being taken over by the Austrians. Their alliance is called the CEE Stock Exchange Group. Their market capitalization amounts to more than €120 billion (Austria alone represents more than half of this amount).

Market capitalisation by type of securities on Ljubljana Stock Exchange from 2000 to 2009 in EUR 000

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Extreme values of SBI 20 in period 2000 to 2009

Max Value in History Min Value in History

SBI 20 value date 12.242 31.08.07 1.584 25.05.00

Source: Ljubljana Stock Exchange, Inc.

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delistings of companies from the official market. Because of low levels of activity by foreign investors, the Slovenian capital market is relatively isolated from international happenings, both in ‘good’ and ‘bad’ times. Thus the price growth was slower than the global rate. The convergence, as the result of EU and especially of EMU accession, also played an important role in Slovenia and in New Europe countries. Market capitalisation corresponds to approximately 25% of GDP. Including different funds, this figure is approximately 30%. The figures have been larger in the past, however, owing to the effects of the global crises hitting Slovenia, the figures slowed down.

Foreign ownership in market capitalisation is less than 10%. This share is among the lowest in the EU, which has positive and negative effects.

providers of financial services; the growing involvement of the biggest institutional investors in direct trading, which leads to an efficient and costeffective trading infrastructure; a tendency towards a more integrated trading, clearing, settlement and registry infrastructure; and the emergence of new technological solutions, which began with the Internet and continued with alternative trading systems and clearing, settlement and registry services. Although these factors derive from 1999, and even considering the current economic crisis, they are still seen as very valid, indeed, even more so for a small country like Slovenia. The Ljubljana Stock Exchange has therefore decided to merge with the Vienna Stock Exchange to strengthen its future within the region and to be closer to other national and regional players. The idea of the group is to have a local, regional and global focus. The idea is also to introduce XETRA, the German trading software, to all members of the CEE group in order to get direct access to the most important international global markets and to reduce their own trading and technology costs.

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For OECD work on financial markets, see www.oecd.org/finance

Stock exchange index

Money, forex and derivatives markets All three market segments were quite small in the past in Slovenia, owing to its small currency, the Slovenian tolar; however, with the EMU entrance they all started to develop in the “normal” continental European way. The Euro–Slovenia’s currency from the beginning of 2007–put some Slovenian specifics aside. Slovenian money, forex and derivatives markets have now become part of the larger European one.

The future of the Slovenian financial market Factors in the development of any stock market are an increase in cross-border investment activities and enhanced competition between market places and

Main conclusions Compared with the EU financial markets, the emerging financial markets of the new EU member countries (the so-called New Europe) and of some non-EU member countries are small and mainly not competitive with the largest markets.

Their common problems are the lack of tradition and economies of scale, liquidity and their competitiveness in the European and wider context. The financial markets of New Europe and others will have to offer competitive services (technological solutions, regulation and other) in order to grow market potential at home and at the same time be competitive in the medium and small sectors on the global level. According to several quantitative market figures Slovenia is ranked in fourth place among the markets of New Europe while the qualitative evaluation places it even higher (second place).

After entering the EU and EMU, and especially after merging with the Vienna Stock Exchange in 2008, the Slovenian financial market is facing rationalisation, cooperation, connection and international integration. l

Source: Ljubljana Stock Exchange, Inc.

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represents one of the major goals of Slovenian foreign policy.

Legal framework

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ince gaining independence in 1991, the republic of Slovenia has carried out many legal reforms, predominantly aimed at completing transition processes, restructuring the economic system and fulfilling the conditions of European Union membership. In 2004, Slovenia became a

member of the European Union, and in 2007 it adopted the euro. In the World Bank’s rankings on the ease of doing business, Slovenia held 58th place in 2009, and improved its ranking to 53rd place in 2010. According to the Ministry of Foreign Affairs, OECD membership currently

The vast majority of Slovenian joint stock companies issue dematerialised (book-entry) securities that are transferable by entry into the central registry of dematerialised securities as maintained by the Central Securities Clearing Corporation (KDD). The only stock exchange in Slovenia is the Ljubljana Stock Exchange, whose majority owner is the Wiener Börse. Less than 80 companies have their shares listed on the stock exchange, but most Slovenian joint stock companies are nevertheless subject to takeover legislation, due to the fact that the Takeover Act also applies to any joint stock company having at least 250 shareholders or more than €4 million of total capital.

Another distinct feature of the Slovenian Takeover Act is that it contains strict definitions of acting in concert.

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Corporate governance Slovenia is a civil law country; its corporate law is mostly based on the German and Austrian models. The vast majority of commercial companies are established as limited liability companies or joint stock companies. Establishment of a Societas Europaea is legally possible, but none has sofar been established in Slovenia. The corporate governance system in limited liability companies may to a large extent be freely selected by the shareholders; most limited liability companies select a one-tier management system with one or several managers and a general assembly of shareholders. The corporate governance system in joint stock companies is, on the other hand, set forth by the Companies Act which only allows deviations where expressly permitted by law. It is possible to select a one-tier management system or a two-tier management system, the latter being the most commonly used in Slovenian joint stock companies. Public joint stock companies also abide by (or disclose their deviations from) the Corporate Governance (CG) Code for joint stock companies which was adopted by the Ljubljana Stock Exchange, the Slovenian Association of Supervisory Board Members and the Managers’ Association. A public debate about the proposed amendments of the CG Code is currently pending.

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The level of foreign direct investment in Slovenia is rather low. By contrast, state ownership of enterprises is comparatively high. In addition to public sector entities – such as public enterprises, public institutions and agencies – the state is also present in many commercial companies, in particular in the public services sector, financial sector, energy sector, transport sector and telecommunications. Direct state ownership is currently managed by various ministries (that are also in charge of other state policies in the respective fields), and the state also owns commercial companies indirectly, mostly through Kapitalska druzba, d.d. (KAD: the Pension Fund Management company) and Slovenska odskodninska druzba, d.d. (SOD: established for the settlement of liabilities towards beneficiaries under various legislation governing denationalisation of property and other legislation).

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Further to some recent measures in the field of corporate governance of state-owned enterprises – such as the establishment of an independent Council for Accreditation of Staff (KAS) and adoption of two Decrees on incompatibility of public function of high officials with the function of supervisory board members – the Slovenian government adopted its Policy on Management of StateOwned Enterprises on 23 July 2009. In its preparation, the government considered the EU recommendations, as well as the OECD Principles of Corporate Governance and the OECD Guidelines on Corporate Governance of State-Owned Enterprises. The purpose is to determine a clear policy of state ownership in state-owned enterprises, the mechanism of responsibilities for carrying out the policy and reporting to the Slovenian National Assembly. The two principal aims of the policy are to achieve a clear separation between the various functions of the state, the ownership function, and the market regulatory function and state role relating to the development of activities. Thereby, a level-playing field should also be achieved in markets where state-owned enterprises and private sector enterprises compete in order to avoid market distortions.

In the first phase (to be completed by the end of March 2010), the policy foresees the preparation of a list of state investments – split by strategic investments and portfolio

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investments – and the establishment of a special agency whose sole purpose shall be to manage such investments and carry out related tasks. The agency should act independently from the government, but in accordance with the guidelines adopted by the government annually; it should be supervised by the Court of Audit of Slovenia, and report annually to the Slovenian National Assembly. Its tasks should include keeping a record of direct and indirect state investments; purchasing and selling of state investments; participation in the preparation of corporate policies of state-owned enterprises; preparation of state proposals for shareholders’ assemblies of state-owned commercial companies and exercising of voting rights thereon; the formation and upgrading of mechanisms for the selection of candidates for management and supervisory positions in state-owned enterprises, as well as their remuneration and responsibilities; cooperation with other stakeholders and reporting thereon; and preparation of a special Corporate governance code for stateowned enterprises (to be adopted by the end of June 2010). According to the policy, the state is still deciding upon the exact method of including KAD and SOD into the above described system of management of stateowned enterprises.

In addition to the developments described above concerning state-owned enterprises, most legal reforms and economic developments in Slovenia are currently aimed at combating the economic crisis which has affected Slovenia rather heavily after the economic growth it had enjoyed for more than a decade. Among others, the state is subsidising enterprises for reduced working hours in order to maintain employment, and through various incentives–including state guarantee schemes, credit lines from the state-owned SID bank and direct state guarantees–to attempt to support the banking system and thereby enhance bank lending to businesses and consumers.

The economic crisis has also affected other aspects of the Slovenian economy. The Slovene Stock Exchange Index (SBI 20), which registered a 78% annual growth in 2007, decreased by 67% in 2008. The annual change from 30 June 2008 to 30 June 2009 was still -45.88%, but the semi-annual

change in 2009 (1 January – 30 June 2009) was already positive, at 15.36%. In the second half of 2008 and during 2009, the number of M&A transactions in the Slovenian market decreased sharply, and the IPO activity that started emerging in 2007 and the first half of 2008 became almost non-existent in 2009. There were five new equity market listings on the Ljubljana Stock Exchange in the first half of 2008, two new equity market listings in the second half of 2008, and none so-far in 2009. One may also expect that privatisation of state-owned enterprises (in the financial sector, in the energy sector and others) will fully resume only following the improvement of the economic crisis.

The bad financial situation has started resulting in bankruptcy proceedings that are going to be particularly challenging to complete, due to their size, as well as due to the fact that a new Financial Operations, Insolvency Proceedings and Compulsory Dissolution Act entered into force in October 2008. Although one of the aims of the new insolvency legislation was also to correct certain solutions of the previously applicable insolvency legislation which proved to be ineffective or unjust, its new legal solutions will undoubtedly bring certain new dilemmas which the jurisprudence will need to solve. The open issues in the new insolvency legislation are evidenced by the fact that it was already subject to two amendments in 2009. One may expect that many new legal solutions of the new legislation will have to be tested in court, and this will likely further slow down bankruptcy proceedings. This is particularly important considering the fact that court procedures in Slovenia in complex cases tend to last several years, and that many issues have to be resolved for the first time in each complex proceeding due to the small size of the economy and the consequent relatively small number of similar cases. The same trend could be observed in the past as a result of constant changes to the Companies Act, which was substantially amended (or newly adopted) more than ten times since its adoption in 1993.

Competition Competition was one of the areas that merited particular attention from the OECD in its past

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documents on Slovenia – including the OECD Economic Survey of Slovenia in 2009 – and is where the most dynamic developments have recently taken place.

While substantive competition law has been compliant with the European Union rules for some time, enforcement was not effective and it was acknowledged within the field that even hard core cartels are sometimes not effectively deterred and remedied in Slovenia.

This situation might change in the future, as the Competition Protection Office was granted new investigative powers in the new competition legislation and expressed its willingness to use them.

In June 2009, the Competition Protection Office also accepted commitments proposed by the largest Slovenian retailer, the purpose of which was to eliminate its alleged dominant position on the market for purchasing household products for resale in Slovenia. The retailer was accused of having abused its dominant position by concluding contracts with its suppliers of household products subject to the requirements for a number of unjustified contractual bonuses not included in calculation of retail prices and high rebates not justified with normal business conditions.

Partially as a result of the deficiencies discovered during the above mentioned dawn raid, an amendment to the Prevention of the Restriction of Competition Act was enacted in June 2009.

The amendment also enabled a true leniency programme, which the Slovenian government is currently in the process of adopting. Before the amendment, the Prevention of the Restriction of Competition Act regulated only a possibility to waive sanctions. The amended Prevention of the Restriction of Competition Act now regulates the matter more closely and allows the Slovenian Government to adopt a leniency procedure. According to the amendment, a sanction in a cartel may be waived or reduced if strict conditions are fulfilled. If an undertaking participating in the cartel applies for the waiver, it has to disclose its own participation and submit evidence which enables the investigation of the Office; moreover, it has to cooperate with the Office during the whole proceedings and cease to participate in the cartel–unless the Office opines that such cessation is contrary to the interests of the investigation–and, finally, the undertaking should not have forced other participants in the cartel to participate or to continue to be participants thereof.

Subsequent leniency applicants may apply for a reduction of sanction (30% to 50%).

Importantly, the Supreme Court of Slovenia recently upheld the Office’s decision taken on 6 August 2008 by which five energy

distribution companies having the largest market share in Slovenia in the supply of electricity were found as being guilty of the concerted practice of raising electricity price on the same day by almost the same percentages. The decision on the fine set by the Office–approximately €8.5 million for the legal entities and approximately €20,000 for each responsible person among the infringers–which is the highest fine imposed by the Office so-far, is, however, still pending before the court competent for misdemeanour proceedings. These decisions of the Competition Protection Office and the Supreme Court were particularly important as they increased the public awareness of competition issues and support for competition policy. Among others, the Slovenian Consumers’ Association publicly asked the above energy distribution companies to repay the amounts due to consumers, and to publicly declare their intentions with respect thereto.

At the same time, the case confirmed that there are likely to be no effective legal remedies that would allow private enforcement in cases such as this one, where many individuals are damaged by anticompetitive conduct, but the damage caused to each of them is small.

Some further competition-related developments could be expected in the future. Among others, the Competition Protection Office is administratively still organised within the Ministry of Economy, contrary to some other regulatory bodies such as the Securities Market Agency which are organised as independent agencies. Some developments are also to be expected in the public procurement field, as the Competition Protection Office recently published a Slovenian version of the OECD Guidelines for Fighting Bid Rigging in Public Procurement (public procurement currently represents close to 10% of the Slovenian GDP). It is, however, questionable whether the Competition Protection Office can continue effectively performing its tasks with the current staff of 21 employees, and considering the fact that the revised national budget has reduced its available financial means for 2009. l Visit www.selih.si See also www.oecd.org/daf/corporateaffairs

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Following the first true dawn raid in Slovenia, the Competition Protection Office completed two important procedures. In May 2009, the Office accepted commitments proposed by three retailers having the largest market shares in Slovenia. The purpose of the commitments was to eliminate the circumstances in which these retailers were allegedly colluding in allowing an increase in the prices of household products after the suppliers of household products, had submitted the price increases to the retailers for approval; and the retailers were allegedly colluding in prohibiting and/or setting requirements on terminating cooperation between suppliers and certain competitive retailers on the market for purchasing household products for resale in Slovenia.

The core reasons for the amendment were a need for better defined powers of the Competition Protection Office in investigative proceedings in relation to data protection, and introduction of the leniency programme in Slovenia. The practice of the Office has shown that the definition of data is needed in order to define what data the Office may obtain and process. In a dispute between the Information Commissioner (who supervises the protection of personal data, as well as access to public information) and the Office, the Information Commissioner has, namely, prohibited the Office from using certain personal data acquired during the dawn raid by arguing that the Prevention of the Restriction of Competition Act does not suffice as a legal basis for interference with communication privacy. The clarification in the amendment now enables the Office to avoid any misunderstandings of its powers since data are defined as any information, including confidential data, notwithstanding on which data support medium such information is carried.

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Entrepreneurship in Slovenia

By Igor Pavlin and Stefan Bogdan Salej, ICPE, Slovenia International Centre for the Promotion of Enterprises (ICPE)

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Dr.Stefan Bogdan Salej,Director General ICPE Ljubljana,Slovenia

Evolution of Slovenian handicrafts In the Roman province of Noricum, which covered parts of modern Austria and Slovenia, mining and smelter workshops had a lasting influence on many of the crafts evolving in the region at the time. Later on, in the middle ages, following the clergy and feudal landowners from their provinces, numerous craftsmen of German origin arrived in the Slovene-inhabited territory, bringing with them not only new craftsmanship, but a vibrant commercial culture. Between the 12th and 15th century, at the height of the feudal system, the small Slovenian territory already included about 70 market-based settlements and 27 towns. In most of them, craftsmen and traders formed an important part of society and acted as the vital agent in the introduction of a monetary economy. In the 19th century, strict regulations on craftsmanship were liberalised by the advent of Austrian and Napoleonic standards, subordinating industry and commerce directly to the state. In the countryside, however, the original symbiotic relationship between farming and craftsmanship survived, and continues to thrive to this day. The positive aspects of oldenday crafts organisations in many cases have been preserved and are reflected in contemporary associations. In the 19th and early 20th century, craftsmanship-

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cooperatives and industrial development, gradually evolved into parallel streams of economic activity, paving the way for the modern evolution of Slovenian entrepreneurship.

Research in entrepreneurship Since 2002, Slovenia has been included in the annual Global Entrepreneurship

that the majority of individuals become entrepreneurs out of the desire for greater freedom. The ratio between the population engaged in opportunity-driven entrepreneurship and the population engaged in necessity-driven entrepreneurship is 9:1. 70% of Slovenian established businesses make products, which are known to nearly all customers.

Moreover, there is a continuous screening of achievements in the SME and other economic sectors through various analyses, leading to prizes for fastest growing enterprise in different geographical regions of Slovenia, or for the entrepreneur of the year. Breaking the mould of the socialist mentality of safe employment in a predominantly public sector within the central European context, the traditions of entrepreneurship, innovation and creativity within larger industrial companies, combined with the application of scientific break-throughs have brought about a number of high-tech SME companies that can be considered world leaders in their fields.

Evolution of entrepreneurial education Following the concept of teaching pupils to plant and sell their crops in the market in Austro-Hungarian primary schools in the 19th century, entrepreneurship became an elective subject in secondary schools in Slovenia in the early 1980s, soon after the concept was designed by Alan Gibb in the U.K. Later on, it spread to most vocational and technical secondary schools as a compulsory subject. Among the higher education institutions, the Faculty of Economics and Business, University of Maribor, was established with a distinct business focus, joining the prestigious Faculty of Economics, University of Ljubljana. The institutions have accreditations from the European Council of Business Education and the European Foundation of Management Development.

According to the reports of GEM in the last years, about 5% of the adult population in Slovenia have just recently started their own entrepreneurial activity (i.e. nascent entrepreneurs) or have had their own enterprise for not more than three and a half years (i.e. new business owners). Over 60,000 individuals have had their own company for more than three and a half years. A realistic estimate is that there are close to 110,000, i.e. about 8% of entrepreneurially active individuals in Slovenia. The majority of individuals in Slovenia start their entrepreneurial activity aged between 25 and 34, while the majority of entrepreneurs who have owned their businesses, for more than three and a half years, are aged between 45 and 54.

Slovenian entrepreneurs predominantly come from the group of people with the highest household income (the upper third). This information correlates with the fact that the majority of entrepreneurs in Slovenia decide to become involved in entrepreneurial activity in order to seize a business opportunity rather than out of necessity. It also correlates with the finding

In the second half of the 1990s, following an initiative by Slovenian entrepreneurs and professors of economics, a higher education institution devoted solely to entrepreneurship evolved from short courses in marketing and business planning. Gea College for Entrepreneurship received much support in its development from Babson College in Boston. Similar higher education based courses are now widespread in Slovenia. In the area of management and executive development, the International Executive Development Centre (IEDC) has had an important role.

Founded in 1986, IEDC School of Management in Bled, Slovenia, was one of the first business schools in central and eastern Europe.

These strides in entrepreneurial education offered an applied component to the already highly developed natural and technical science research and study.

Scientific institutes like Jozef Stefan work hand in hand with other similar R&D

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Family business and growth Family business has long been an important source of the country’s economic development. A model of development that can be considered typical for Slovenia is exemplified by a family business, which emerged from the ruins of pre-socialist craftsmanship. The case of woodprocessing machine producers is instructive of the way in which Slovenian entrepreneurs were competitive internationally decades before the officially recognised transition to a market-driven economy came about. This example regards an enterprise, which developed from a small carpentry business in the 1970s into a modern factory producing woodprocessing machinery. Skillfully bypassing the strict socialist regulation of a maximum number of five employees, the owner, a mechanical engineer, established a cooperative of craftsmanship, which soon outnumbered 200 employees. Split into separate cells of provisional craftsmanship workshops, the company was able to produce high-tech machines, each selling for over $1 million to buyers from Switzerland, Austria, Japan and others. The company needed proper financing and acquired a bank in a neighbouring country that could join interested buyers in providing proper financing of large-scale production. Liberal attitudes of the Slovenian political elite in the years leading up to the disintegration of the former Yugoslavia helped ease the restrictions of straightjacket regulations, which had been preventing the effective use of economies of scale, and strengthened Slovenia as an export-oriented economy. In this way, the seed was planted for international success of Slovenian enterprises that were to follow, as it ensured a healthy path to entrepreneurial privatisation as opposed to widespread predatory privatisation, which afflicted many other transitional economies.

Monitor (GEM). GEM produces comparative data on the entrepreneurship environment and trends. The survey is focused both on established entrepreneurs as well as those just becoming involved in entrepreneurship. The results are considered complementary to statistical data and are widely used in economic policy formulation.

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centres, industry, medical institutions and others within Slovenia and internationally.

Areas of activity include production and control technologies, communication and computer technologies, knowledge technologies, biotechnologies, new materials, environmental technologies, nanotechnologies, and nuclear engineering.

A large number of incubators and technological parks ensure a more effective integration of the business and scientific aspects of entrepreneurial development.

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A UN-sponsored intergovernmental institution with member countries from Latin America, Africa, Asia and Europe, the International Center for Promotion of Enterprises (ICPE), located in Slovenia’s capital, Ljubljana, contributes to SME development in Slovenia with its EU development programmes. These include entrepreneurship bank support to SMEs, self-employment, women’s entrepreneurship and franchising development in cooperation with the Gea College for Entrepreneurship, Chamber of Commerce of Slovenia and several international institutions.

The ICPE’s contribution to SME development has been growing in the last 10 years with its involvement in joint EU research and development projects with institutions in 16 other European countries.

Since 1989, ICPE has organised a series of conferences and seminars on these subjects with the European Bank for Reconstruction and Development, European Franchise Federation, National Westminster Bank, ING bank, ILO and several local institutions. For the past 21 years, the ICPE has also conducted an international MBA programme, with world-class lecturers and alumni from 45 different countries.

Internationalised Slovenian SMEs Slovenia has been noted for its high-tech opportunity-driven entrepreneurship through its local and international entrepreneurial traditions of crafts, family businesses and strong export industry.

Hundreds of well-targeted niche players have brought Slovenian business to the peaks of modern global entrepreneurship, often accredited by international prizes.

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Many of them are active in the areas of modern electronics, biotechnology, furnished with contemporary IT and modern marketing tools.

Among these companies one can find those that have expanded primarily to the emerging markets in Central and Eastern Europe with their services in direct marketing, where they act as partners sharing the risk for market results. One such company purchases over 80 hours of daily programming with 320 million spectators on larger TV stations in these markets. They know the mentality, purchasing habits and the expectations of the respective customers. They assist companies with the development of marketing solutions with direct feedback, ensure brand recognition, keep costs low and increase efficiency.

Many Slovene high-tech companies are based on unique technological solutions; one of them, for example, provides technology that facilitates distant monitoring, measurement and steering of different processes. It started with solving the problem of distant ultrasound monitoring of the fuel in containers as well as logistics of fuel and transport trucks that distribute the fuel. Today various technological solutions have been created for different domains that function within specialised subsidiaries and profit units in different countries. They are originators of the system M-Pay for paying via mobile phones, which has been tested in many countries including Malaysia, Brazil, Saudi Arabia and Croatia.

Another company, located in a small Slovenian town, provides measurement equipment for the NASA telemetric centre, where it is used to monitor space shuttles.

They also supply their products to the automotive and aircraft industry including Audi, BMW and Mercedes Benz. Their turnkey data applications provide instant customising of user displays, acquiring data to disk, exporting it and printing it in full colour. They combine several worlds of data processing to calculate all kinds of math, formulas, statistics, and state of the art power calculation, FRF, torsion vibration, order tracking, combustion

OECD Observer No 276-277 - December 2009-January 2010

analysis, acoustics and others. With only 13 employees, it has a lot of room for growth.

Clusters, business angels and growth One of the contemporary mechanisms for entrepreneurship development and growth are clusters, which reflect the entrepreneurial tradition of the country and the high level of mutual trust among entrepreneurs. In Slovenia, there are about 30 clusters, with over 500 member enterprises, throughout the country. These clusters often build on common human resource development, investment into development and research projects, as well as new products. In Slovenia, clusters are especially focused on automotives, transport, plastics, and wine production.

Among promoters of Slovenian business is the Slovenian Business Angels Club, bringing together prominent Slovenian entrepreneurs, who are willing to invest in ambitious young entrepreneurs in the initial growth phases. They support startups with business plan assessments and suggestions for improvements. The club cooperates with other business angels associations and investors both in Europe and elsewhere. The Slovenian Business Angels Club is in the process of becoming a member of the European Business Angel Network (EBAN).

The recent developments in global markets have proven that entrepreneurial policy must shift from ‘general SME policy’ to ‘growth-oriented entrepreneurship policy’ as businesses which have the willingness and the objective capacity for growth and market expansion are rare. At the same time, they have requirements and needs which have to be dealt with quickly, flexibly and effectively. Among other things, ‘growth-oriented entrepreneurship policy’ must be both highly selective and proactive in the search of those entrepreneurs in the environment who have both motivation and objective capacities for growth. l For OECD work on entrepreneurship and local investment initiatives such as clusters, see www.oecd.org/sfe and www.oecd.org/gov

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Š OECD Observer 2010