Slovenia Country Brief
Background
Located in Central-Southern Europe, Slovenia borders Hungary to the north, Croatia to the east and Italy and Austria to the west. Slovenia has 47 km of coastline to its south, the Port of Koper providing an important link to the Adriatic Sea. Slovenia is home to 2 million people (July 2006 est). The capital of Slovenia is Ljubljana.
Slovenia declared independence from the former Yugoslavia in 1991. In 2004 Slovenia achieved EU and NATO membership. On 1 January 2007 Slovenia joined the Eurozone.
Bilateral Relations
Relations between Australia and Slovenia are based on small, but growing, trade relations and strong community ties. Australia recognised Slovenia as an independent state on 16 January 1992 and established diplomatic relations on 5 February that year. The Australian Embassy in Vienna is accredited to Slovenia. There is also an Australian Honorary Consul based in Ljubljana. Austrade covers Slovenia from Warsaw and Zagreb. Slovenia has an Embassy in Canberra, and a Consulate-General in Sydney.
Australia has a small but active Slovenian migrant community. Many Slovenians migrated to Australia in the 1950s and 1960s. The 2006 Census recorded 16,085 people of Slovenian origin living in Australia, with most living in Melbourne and Sydney. More than 14,000 Australians visited Slovenia in 2005 and Australia is also a popular destination for Slovenian tourists and students.
Slovenian Foreign Minister Rupel has visited Australia twice – in 2003 and again in 2004 – and met former Australian Foreign Minister Alexander Downer on both occasions.
Australia's trade with Slovenia is modest. Two-way trade in 2006-07 totalled A$79.4 million, with Australian exports accounting for A$18 million, while imports were A$61.4 million. Australia's major exports to Slovenia included confidential items and aluminium ores and alumina. The main imports in 2006-07 included household equipment, toys, games and sporting equipment.
Australian retailer Harvey Norman opened a furniture retail store in Ljubljana in 2002. In 2005 Aristocrat Leisure Limited, an Australian based, global entertainment company invested 30 million euros in Elektroncek Group BV, to obtain a 50 per cent share in the Slovenian company. Other investments have been made by Australian companies in the areas of wholesale and retail trading such as in electronics and garments, as well as consultancy services. Further opportunities exist for Australian businesses in sectors such as IT, pharmaceuticals, banking, insurance and telecommunications.
Political Overview
Slovenia is a democratic republic, with a bicameral parliamentary system. The President of the Republic is the Head of State and is elected by popular vote every five years, for a maximum of two terms. Danilo Tuerk was elected President in November 2007.
The President is the Supreme Commander of the Armed Forces, who,despite having chiefly ceremonial powers, retains enough moral authority for the system to be characterised as a 'dual executive'. The powers of the President include nominating the Prime Minister after consultation with parliamentary groups and, in rare circumstances, the power to pass laws and dissolve the parliament.
Legislative power is vested in the Head of Government, the Prime Minister, and a Council of Ministers (Cabinet). Both the Prime Minister and the Council of Ministers are elected by parliament. Since December 2004, the Prime Minister of Slovenia has been Janez Janša, leader of the centre-right Slovenian Democratic Party (SDS).
The Slovenian parliament comprises two chambers, the 90-member National Assembly, and the 40-member National Council. The National Assembly is elected for four years and comprises 38 directly elected deputies, 50 members selected on a proportional basis and two non-elected representatives of the Hungarian and Italian minorities. The National Council, which has a principally advisory function, has 22 directly elected members and 18 non-elected members representing various social, economic, trading, political and local interests.
At elections in October 2004, the SDS doubled its votes and, after forging a three party coalition, Janša was appointed Prime Minister in December 2004. The centre-left Liberal Democrats entered into opposition after having been in government for virtually all of the previous 13 years since Slovenian independence. The Slovenian Democratic Party campaigned on a promise to cut the costs of state administration and press ahead with privatisation in anticipation of Slovenia adopting the Euro.
While the current government has worked to introduce social, education and economic reforms, there have been mixed success, with levels of state ownership still high and plans for a flat tax shelved. Foreign direct investment remains stagnant. Prime Minister Janša has now introduced a ‘modified’ set of reforms and has established an Office of National Development, which will focus on modernising Slovenia’s railways and the port of Koper.
The Janša coalition remains stable despite the coalition’s narrow majority in parliament and its diverse policy agenda. In contrast, the main opposition party, the centre-left LDS party, remains in disarray due to continued internal divisions. Commentators doubt that the LDS will pose a challenge to the coalition and expects the coalition to remain in power at least until the general election scheduled for late 2008.
Economic Overview
Slovenia’s economic performance has been much stronger than the other former Yugoslav states and is one of the strongest economies among the new members of the EU. Historically Slovenia has been more oriented to the West than the other former Yugoslav Republics, with over 40 per cent of its trade conducted with Germany and Italy. Services account for 61 per cent of Slovenia’s GDP; industry 36 per cent; and agriculture only 3 per cent (which accounts for 1 per cent of the workforce).
Slovenia’s entry to the Eurozone on 1 January 2007 is a reflection of its strong economic performance. Slovenia is the first of the new EU members to join the Eurozone. Slovenia boasts a per capita GDP in purchasing power parity of more than 80 per cent of the EU average and its economy is growing twice as fast as the rest of the Eurozone, a result of stability in domestic demand and export activity.
In 2006, Slovenia experienced a 5.2 per cent growth in GDP. However, in 2007 GDP growth is expected to drop to 4.2 per cent and continue to decelerate in 2008.
Unemployment dropped to 6 per cent in 2006 and Slovenia’s Consumer Price Inflation was 2.5 per cent. Economists predict that inflation will increase slightly to 2.7 per cent in 2007 before decreasing again in 2008.
In 2006, Slovenia’s current account deficit was 3 per cent. Economists predict that the deficit will steadily fall as a proportion of GDP until 2010 when it is expected to reach 0.5 per cent, largely owing to the predicted strengthening of Slovenian export performance as Euro zone markets become more accessible.
Tax reforms are likely to take effect in 2007-08. The reforms will reduce the number of personal income-tax brackets and a lower the top rate. The tax burden on business will also be alleviated with the phasing out of payroll tax and the lowering of corporate income tax from 25 per cent to 23 per cent in 2007 and to 20 per cent by 2010. However in 2009-11, economists suggest that the Slovene Government may raise the rate of value-added tax (VAT) to make up for revenue shortfall, a consequence of the tax reforms.
Whether Slovenia can sustain its public finances is a serious economic question. Many commentators still regard Slovenia as a protected economy in which competitors continue to struggle against the state’s large ownership stakes in significant companies. It is estimated that as much as 40 per cent of corporate capital is state owned.
Privatisation and improvements in the business environment are essential and remain key economic policy issues for Slovenia in 2007. However, reform in these areas is slow and difficult due to the consensus-based nature of Slovenian policy-making.
Slovenia also faces an urgent need to reform its welfare system, particularly its pension system, in response to the rapid ageing of its population. Slovenia also has a very high level of employment protection in comparison with other European countries and has very low labour movement. Despite trade union resistance, the Slovene Government has continued to seek the relaxation of collective wage bargaining regulations and is also striving at reducing employment protection in the public sector.
Foreign Policy
Slovenia became a member of the EU on 1 May 2004 and will take on the Presidency of the Union in January-June 2008. Slovenia joined NATO in March 2004, a little less than two months before it became an EU member.Slovenia is also a member of the Council of Europe and is chair of the IAEA’s Board of Governors until September 2007.
One of the basic goals of Slovenia’s foreign policy is to ensure stable relations with its neighbours – Austria, Italy, Hungary and Croatia. Slovenia works alongside other Central European countries within the Central European Initiative and Regional Partnership and contributes to the stabilisation of South Eastern Europe within the Stability Pact. Slovenia has also joined many international organisations and regional initiatives. In 2005, Slovenia chaired the Organisation for Security and Cooperation in Europe (OSCE).
Slovenia currently has 241 troops deployed on foreign peace-keeping missions, a reflection of its commitment to international conflict resolution. The Slovenian government is in the process of restructuring its armed forces, primarily to participate in NATO operations outside of Slovenia. Conscription was abolished in 2003 and a 14,000 strong professional army (8,500 regular troops, 5,500 reservists) is to be established by 2010. Slovenia’s security priorities are primarily focused on the Balkans, but it has also sent 49 troops to Afghanistan, as part of the United Nation’s International Security Assistance Force (ISAF), and four military trainers to Iraq.
EU Accession
Slovenia currently holds the European Union (EU) Presidency, with a term from January to June 2008.
Slovenia has indicated that it will concentrate its efforts on carrying forward the current EU agenda. Slovenia’s EU priorities include enlargement into the Western Balkans (particularly Croatia), neighbourhood policy, energy, climate change and inter-cultural dialogue.
Trade Opportunities
With its port at Koper on the Adriatic coast, modern rail and road transport networks that connect with central Europe, membership of the Central European Free Trade Agreement (CEFTA) and the EU, and traditional business links with the other former Yugoslav republics, Slovenia provides access to central and eastern European markets, which are of interest to a growing number of Australian companies.
Privatisation of state assets is one area where Slovenia has lagged behind other Central European countries. Some progress was made in 2002, with the partial sale of Slovenia's largest bank, Nova Ljubljanska Banka (NLB) and the sale of Lek, the country's largest pharmaceutical company, to Switzerland's Novartis. Further privatisation of the banking sector was put on hold that year when plans for the partial privatisation of the second leading bank in Slovenia, Nova Kreditna Banka Maribor (NKBM), were abandoned. Further privatisation projects, such as in the steel sector, were also halted in 2003, slowing down the restructuring process. In July 2006, a renewed effort was made when the government adopted a privatisation program providing for the sale of state stakes in banks (NLB, NKBM, Abanka and Banka Celje) and major companies such as Telekom Slovenije, Petrol (oil company), HSE (energy producer), Krka (pharmaceutical producer), Zavarovalnica Triglav (insurer), as well as Adria Airways, casinos and gaming companies. No timeframe has been set, and the state is expected to continue to hold minority stakes.
Last updated: 8/01/2008