WE WILL NOT TAKE WHAT BELONGS TO OTHERS, BUT WE WILL

Foreign Investments in Slovenia

Investments in Slovenian Economy

NOT GIVE WHAT IS OUR OWN EITHER

AIM Ljubljana, 10 December, 1996

"Per Aspera Ad Astra" - along the path full of difficulties towards the stars and through difficult battles, that is how developments concerning foreign capital in Slovenia could be commented. Foreign investors are a true enigma, because it is almost impossible to predict which will be their next steps. Even state secretary for privatization, Dr Edo Pirkmajer, admits that the volume of foreign investments in the Slovenian economy, especially those from the developed world, is too small.

Although there is about 600 American dollars of investments from abroad per capita of inhabitants of Slovenia, this apparently stimulating number should not mislead anyone. Although this figure is two or three times higher than in majority of Eastern European countries, the biggest share of this money is either in newly established mixed enterprises or it is concentrated in large firms such as Revoz from Novo Mesto - the Slovenian branch of Renault. It is characteristic for these firms that they have been connected to Western partners for quite some time. In other enterprises, there is very little foreign capital. Reasons for such a situation should be sought in the fact that in majority of these enterprises influence of internal owners is highly pronounced. They are afraid of new foreign owners who could threaten their position. That is how it is happening that although survival of many firms is threatened, their present owners do not wish foreign capital and simply do not let it even get close in the attempt to defend their own positions.

Gradual approach of Slovenia to the European community and in this connection, Slovenia's promise given to the foreigners concerning selling real estate to them revealed irrational fear of a brunt of foreign capital in Slovenia. It is a fact that Slovenia is not prepared for it. And on the other hand, there are a lot of cases which indicate that Slovenian enterprises are being bought cheaply by speculating capital of domestic, foreign or unknown origin. Recently this happened to the secondary offer of shares of Lek, factory of drugs and cosmetic products, one of the most sound Slovenian industries.

Such practice could easily be marked by the well-known slogan from the times after the Second World War: We will not take what belongs to the others, but we will not give what is ours either. Foreign portfolio investments via two Austrian banks in Slovenia, Creditanstalt and Bank Austria, have already made a decisive move and reached out for shares of respectable Slovenian enterprises and perhaps events have already begun to get the better of the creators of Slovenian financial market and its system. In fact, its macro-economic and structural elements connected to the process of privatization and foreign investments are increasingly becoming the target of criticism from abroad.

The danger of being taken over by "enemies" as a result of foreign portfolio investments has lately disturbed many Slovenian enterprises. The Law on Transfer which was expected to regulate this sphere has not been adopted yet, and since the Slovenain parliament was constituted only two days ago, and we will have to wait for a long time for the new Slovenian government, we cannot expect quick major changes in this field. That is why the president of the management of Droga from Portoroz, Matjaz Cacovic claims that a theoretical possibility exists that large portion of shares can be taken over without the management of firms or the share-holders even being informed about it. Similar are reflections in Lek and Kolinska, where they admit that it is almost impossible to avoid the risk of possible silent taking over of a large portion of shares. They are partially trying to defend themselves with a statutory decision that those who are buying a certain portion of shares (25 or 30 per cent) must in advance offer the remaining part of shares to share-holders, publicly and at the highest price at which the potential buyer was buying them during the past, usually one-year period. Due to various complaints concerning alleged attempts of taking over firms on the sly, the Privatization Agency and state secretary Pirkmajer are already seriously considering the possibility of adoption of an intervention law.

One of the latest proofs of limitations of the fear of foreign investments is the story about Shell Oil. Domestic oil companies were privileged in relation to the foreign ones concerning issuing concessions for construction of new gas stations along Slovenian roads. That is how it happened that the Slovenian Government refused to issue concessions to Shell and Agip, which was quite stupid. After that foreign ministers of the European Union demanded from the European Commission to deal with "discrimination of foreign enterprises in Slovenia". The Government changed its mind and issued permits to the world oil companies to build a few gas stations, and at the same time learnt the lesson from Europe: if Slovenia wishes to enter the Union as soon as possible and as harmlessly as possible as an associate member, it should already begin adapting to it. This makes it clear that due to the principle of economic competitive capability which is also a condition for joining the EU, it is possible to limit foreign investors only highly cautiously and with a great deal of tact. In this context the stance of the Council of the Bank of Slovenia on portfolio investments of foreign investors is quite understandable. The official information of the Slovenian central bank states that the Council has acquired information about the latest data on investments of foreigners into Slovenian enterprises. And that is all. In the minds of the people from the stock exchange this immediately created the impression that there is a difference between stances advocated by state institutions in public and measures they in fact take. Rumours that Bank of Slovenia made great difficulties to a foreign investor who had tried to make a strategic investment into a partner Slovenian enterprises through the organized market increased suspicion.

It is true that in the contract on associate membership with the EU Slovenia enjoys comparatively favourable provisions which allow it to limit foreign portfolio investments. For the time being, it has not used them yet, and it could ask for more reports from stock exchange brokers who deal with foreigners, it could introduce taxes for portfolio investments and additional licences for brokers who deal with foreigners. In short, it could take a whole series of measures which would probably not be received by the European Union with an applause. It is true that the Union offers good possibilities, but it cannot eliminate all problems. It is very significant for Slovenia to know exactly what it can and what it cannot expect from being in the EU. However, majority of the Slovenians ought to be made aware that foreign investors have no intention to make malversations, but just wish to compete and earn money. And this is, after all, the interest of all states, because the profit would be mutual. And why would not foreign money be used in combination with donestic know-how for the sake of achieving better results?!

Milan Povirk, AIM