Slovenia

Executive Summary

Several factors make Slovenia an attractive location for foreign direct investment (FDI): modern infrastructure with access to important EU transportation corridors, a major port on the Adriatic Sea with access to the Mediterranean, a highly educated and professional workforce, proximity to Central European and Balkan markets, and membership in the Schengen Area, EU, and Eurozone.  With a small domestic market of just over two million people, Slovenia’s economy is heavily dependent on foreign trade and susceptible to international price and currency fluctuations as well as economic conditions among its major trading partners.

In recent years, Slovenia’s economic growth rate has outpaced those of most other EU member states, and the country has enjoyed rising incomes, growing domestic consumption, falling unemployment, low inflation, and burgeoning consumer confidence.  However, in 2020, GDP contracted by 4.2 percent to EUR 46.9 billion due to the COVID-19 pandemic.  The pandemic impacted certain industries, including retail and hospitality sectors, more severely than others.  Overall, the economy faired relatively well, with a series of government COVID-19 stimulus measures – worth approximately EUR 2.5 billion (USD 2.9 billion) – mainly focused on preserving jobs.  Slovenia’s economy rebounded in 2021 with GDP growth of 8.1 percent, exceeding the eurozone average. However, Slovenia is expecting more modest GDP growth in 2022 and 2023, with the Bank of Slovenia estimating growth of 4.0 percent and 3.3 percent, respectively. The central bank warned that the country was experiencing supply chain issues as well as labor shortages and expressed concern about rising inflation and energy prices. Russia’s invasion of Ukraine is expected to exacerbate inflationary pressures, making a slowdown more likely.

Despite a number of privatizations in the banking sector in 2019 and 2020, approximately 25 percent of Slovenia’s economy remains state-owned or state-controlled based on consultations with economic and financial experts. While estimates of the percentage of state involvement in the economy vary, most experts agree that it is among the highest among EU member states. There is widespread skepticism in some quarters toward privatization and foreign direct investment, despite general awareness of FDI’s importance to economic growth, job creation, and developing new technologies.  Potential investors in Slovenia may face significant challenges, including a lack of transparency in economic and commercial decision-making, time-consuming bureaucratic procedures, opaque public tender processes, regulatory red tape, and a heavy tax burden for high earners.

According to Bank of Slovenia figures, FDI in Slovenia totaled EUR 16.6 billion (35.3% of GDP) in 2020, a 2.4 percent increase over the previous year.  The relatively modest growth in investment flows were largely attributed to the COVID-19 pandemic. Slovenia’s most important sources for direct foreign investment were Austria (25.6 percent), Luxembourg (13.0 percent), Switzerland (10.7percent), Germany (8 percent), and Italy (7.3 percent).  However, Bank of Slovenia data indicated U.S. companies accounted for 9.4 percent of total inward foreign direct investment (FDI) in 2020, EUR 66 million (USD 72.5 million) invested directly and an additional EUR 1.48 billion (USD 1.63 billion) invested indirectly through U.S. subsidiaries in other European countries.  This combined investment of EUR 1.55 billion (USD 1.78 billion) placed the United States as Slovenia’s third largest source of direct and indirect foreign investment, behind Austria (EUR 2.58 billion) and Germany (EUR 2.40 billion).  The most important sectors for FDI were manufacturing (33.5 percent), financial and insurance activities (22.5 percent), wholesale and retail trade and repair of motor vehicles and motorcycles (17.1 percent).

Although firms with foreign owners represented just 1.8 percent of all Slovenian firms in 2020, firms with FDI accounted for 24.2 percent of capital, 25.9 percent of assets, and 23.5 of corporate sector employees.  Their capital and workforce generated EUR 29.0 billion in net sales revenue and EUR 1.1 billion in operating profit.  Foreign companies accounted for 47.7 percent of corporate sector exports and 52.5 percent of corporate sector imports.

Slovenia, in line with the European Union (EU), committed to reducing greenhouse gas emissions by at least 55 percent by 2030 (compared to 1990 levels) and achieving climate neutrality by 2050. Slovenia’s long-term climate strategy, approved in July 2021, includes a provision specifying that the country will use nuclear energy in the long term, clarifying the country’s energy future and committing to produce a large percentage of its energy supply domestically. In July 2021, the EU approved Slovenia’s national recovery and resilience plan, allowing funds up to EUR 2.5 billion (EUR 1.8 billion in grants and 700 million in loans) to be drawn from the EU Recovery and Resilience Facility.  42.5 percent of the funds are earmarked for green transition projects.