Our comprehensive assessment of Slovenia's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Slovenia, as well as the latest industry developments that could impact Slovenia's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Slovenia before your competitors.
Slovenia Country Risk
The short-term economic outlook has improved in light of accelerating regional economic activity and a slight rebound in domestic demand.
The corporate sector remains overleveraged and will remain a major risk to the banking sector - unless ultimately some form of restructuring takes place, whether on the loans itself to reduce debt servicing costs, or through cost cutting (shedding jobs/trimming investment).
Major Forecast Changes
We have revised our current account forecast from 7.3% to 7.9% in 2016 as a result of our Oil and Gas team's recent downgrades to the Brent crude price forecast. We forecast Brent crude to average USD40.0/bbl in 2016, from USD53.6/bbl in 2017, which we estimate will result in a net saving of around EUR270mn.
Slovenia Operational Risk Coverage (9)
Slovenia Operational Risk
Slovenia Operational Risk
BMI View: Slovenia's strong education system, with high levels of enrolment at all levels, suggests businesses stand to benefit from a solid level of skilled labour availability among the country's workforce. Furthermore, Slovenia's membership of the EU denotes access to a large regional workforce without visa restrictions. Somewhat offsetting these benefits, however, are the high labour taxes and limited labour market flexibility which increase operational costs in the country. As such, we have given Slovenia a score of 56.4 out of 100 on the...
Slovenia Crime & Security
Slovenia Crime & Security
BMI View: Slovenia presents investors with limited risks from a crime and security perspective. The country is generally considered one of the safest in the region with low violent crime rates and benefits from a highly capable and reliable police force. Financial crime is a potential risk area, particularly in conjunction with the high levels of corruption in government which creates the need for additional due diligence. Overall, the low crime rates combined with a lack of domestic terrorism threat and strong regional relations give Slovenia a high score 79.6 out of 100 on the BMI Crime and Security Risk Index. This places the country first out of the 31 Emerging Europe region states and 19th out of 201 states on a global basis.
|Competitive Security Climate Vulnerable To Marginally Higher Risk Of Business Crime|
Slovenia Labour Market
Slovenia Labour Market
Slovenia's labour market supports the country's business environment due to its highly educated workforce and access to the labour pool of 27 European states. Reforms are currently underway at the tertiary level to address the skills shortage stemming from low graduation rates in science and engineering. However, high labour costs offer the most significant detraction to investing in Slovenia, and serve to depress its score of 59.6 out of 100 in the Labour Market Risk Index, placing it ninth out of 30 emerging European countries, in between Lithuania and Latvia, and 42 nd globally, just above Saudi Arabia.
Solid labour availability boosts Slovenia's overall position in the Labour Market Risks Index. Its regional outperformance in this category is underlined by a sizeable labour force with strong basic skills. In addition, female labour participation rates are high by regional standards, which expand the talent and size of Slovenia'...
BMI View: Extensive investment across the transport network over recent years means that Slovenia offers a broad range of supply chain options, ensuring the country is well connected with its key trading partners throughout Europe. The country's utilities infrastructure is also well developed and businesses will benefit from the lack of trade bureaucracy, which ensures speedy transit times. Detracting from these positive factors is the relatively high cost of fuel and electricity, which makes the country less competitive on a regional basis. Overall, Slovenia scores 65.1 out of 100 on the BMI Logistics Risk Index, which...
Slovenia Trade & Investment
Slovenia Trade & Investment
Slovenia faces few trade and investment risks for investors due to its relatively open economy and harmonization of EU regulations. The major risks to trade are posed by the lack of available credit in the banking sector and underdeveloped capital markets. However, the government offers attractive financial incentives to certain industries. In addition, stable institutions and low levels of corruption help to further mitigate these risks. Slovenia's outperformance across the three pillars in the Trade and Investment Risk Index is reflected by its overall score of 70.9 out of 100, placing it fifth regionally after the Estonia, Lithuania, Hungary, and Cyprus and 18th th out of 170 countries worldwide.
Slovenia is a relatively open country for economic activity, due to its market-oriented economy and tariff-free access to the markets of its 26 EU peers. However, risk to investors is posed by the absence of a formal FDI strategy and...
Slovenia Industry Coverage (14)
Passenger car sales have been outperforming commercial vehicles against a positive macroeconomic backdrop in 2015.
A spate of new model launches from leading carmakers has also provided clear impetus to the local passenger car market across 2015.
For 2016, we are expecting commercial vehicle sales to outperform passenger car sales, as companies look towards fleet renewal.
Slovenia is becoming an ever more important production centre for the European market, with output up by 50.8% over H115, at 73,647 passenger cars.
Renault subsidiary Revoz will remain the dominant automaker in Slovenia over our forecast period to 2019.
Slovenia is also home to a well-developed auto parts supply chain,...
Slovenia Commercial Banking
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Defence & Security
Slovenia Defence & Security
BMI View: As a result of Slovenia's limited external and internal security threats, as well as its weak economy, the country's defence sector is small on a regional comparison. Although Prime Minister Miro Cerar has announced that his government is committed to raising military spending - and despite an improvement in economic conditions from 2016 onwards - we do not expect the defence budget to grow significantly over our forecast period to 2019, as the country will remain relatively secure, and with Ljubljana continuing to direct the majority of funding towards socio-economic development. Meanwhile, the Slovenian...
Food & Drink
Slovenia Food & Drink
BMI View: We forecast positive growth in Slovenia's food and drink industry, led by the mass grocery retail sector growing by 4.8% over our five-year forecast to 2019. Growth will be supported by the increasing trend of acquisitions seen across the industry. In 2014 and 2015, a number of foreign players bought majority stake in local companies and we expect the trend to continue into 2016. The acquisitions will allow for decreased prices as companies benefit from economies of scale. However, overall food consumption growth will be subdued, underperforming other categories.
Slovenia Freight Transport
BMI View: In 2016, Slovenia's freight sector will witness strong growth across the board as the improved economic outlook for the eurozone will stimulate demand for Slovenian exports and improved domestic consumption will drive a recovery in imports. Air and road freight will post the strongest growth rates, at 7.2% and 5.6% respectively, as they will benefit directly from rising import levels. Meanwhile, rail freight growth will remain constrained by difficulties to find investors for infrastructure expansion, a trend which we believe will continue over the medium term.
We forecast the...
Slovenia Information Technology
BMI View: Slovenia is a lucrative IT market in Central and Eastern Europe, with high incomes supporting high levels of spending per capita. However growth has been hit in recent years by challenging economic conditions. We expect the economic to become more supportive from 2016, reflected in stronger economic and consumption growth, as well as a marked improvement in business sentiment in H215. We forecast total IT market spending will grow at a CAGR of 3.9% 2016-2019. We identify several areas of opportunity for vendors, particularly enterprise cloud solutions in the services and software segments. Slovenian enterprises have shown willingness to take advantage of the cost savings offered by cloud computing and the...
BMI View: After five years of industry contraction, the construction sector is once again growing since 2014, along with the economic recovery of the country. A slowly recovering economy, lower unemployment and rising consumer confidence will provide a moderate increase for residential and non-residential construction. While Slovenia's transport sector dominates the country's infrastructure industry, we highlight the rising importance of gas interconnector projects in the energy and utilities sub-sector as some of the most important infrastructure projects going forward. These will receive EU funding related to diversifying energy sources and limiting Russian gas dependence.
We expect the Slovenian construction industry will grow moderately over the forecast period to 2025, at an average annual rate of 5.03%.
BMI View: We hold a positive outlook for the Slovenian insurance industry sector as a whole in 2016. We believe that the life insurance segment has historically witnessed subdued growth, due to competition from traditional savings outlets, the banking and the real estate sector. Nevertheless, we believe that growth in the life segment will outpace growth in the non-life segment as the population begins to age and insurers look to target their audience. However, the overall size of the life market makes it a very small one in comparison. Growth in the life segment, on the other hand, will begin to cool down over historical levels but we believe that the motor vehicle and health insurance lines will continue to dominate the non-life landscape...
Slovenia Medical Devices
BMI View: We expect the Slovenian medical device market to grow by a 2014-2019 CAGR of 0.7%, with growth hindered by slow economic recovery and weak import performance in US dollar terms. Slovenia is heavily reliant on imported medical devices as domestic production is characterised by small, specialised manufacturers, many of which engage in exports, principally to neighbouring countries....
Oil & Gas
Slovenia Oil & Gas
B MI View: Slovenia's upstream sector remains close to inexistent, with little to no oil or gas production within our forecast period. While there are glimmers of hope in gas segment attributed to the Ascent-operated Petisovci tight gas project, the initiative is facing continued regulatory and funding headwinds, thereby informing our modest upstream outlook. We acknowledge upside risk to our forecast in the event of its start-up, however, overall volumes are likely to be relatively modest, with imported Russian gas set to dominate supply for the foreseeable future.
Pharmaceuticals & Healthcare
Slovenia Pharmaceuticals & Healthcare
BMI View: Krka's exposure to Eastern European markets will continue to act as a drag on revenue growth. However, strong sales growth in Western Europe will mitigate the impact of revenue declines for the short term. We expect a continued focus on cost containment by European healthcare payers to moderate Krka's growth outlook over the longer term, unless the company looks to geographically diversify its exposure.
Headline Expenditure Projections
Pharmaceuticals: EUR675mn (USD896mn) in 2014 to EUR671mn (USD738mn) in 2015; -0.6% in local currency terms and -17.6% in US dollar terms. Forecasts unchanged compared to previous quarter.
Healthcare: EUR3.22bn (USD4.27bn) in 2014...
BMI View: Slovenia will maintain a positive retail sector growth forecast as continued economic recovery stimulates household incomes and employment in the country. This will directly benefit disposable income levels and allow consumers to divert funds for higher levels of discretionary spending on non-essential products and services. Despite this, the Slovenian economy will continue to be limited by the diminutive size of its market and growing international completion that together will begin to saturate opportunities for expansion, reduce the market for new entries and see elevated instances of mergers and acquisition as businesses focus on improving operations and efficiencies.
|Headline Household Spending|
BMI View: The Slovenian market has undergone major consolidation measures in 2016 with Si.mobil acquiring Amis and Telemach acquiring Tus mobil. Furthermore, T-2, a fixed line operator remains in receivership and both operators are eyeing its prospective purchase. Furthermore, the sale of state-owned telecoms giant Telekom Slovenia remains incomplete as the government looks to find a buyer. We believe these consolidation measures will lead to heated competition and a quicker uptake of 3G and 4G LTE services. We have revised our 3G and 4G LTE uptake forecast in light of the new consolidation measures and are now forecasting a higher percentage of 3G and 4G enabled phones to penetrate the market quicker. The country's relatively high income levels have led to it having the highest ARPU and postpaid subscription mix in the region, backed by growth...
BMI View: Despite its relative underdevelopment with regards to airport infrastructure and hotel numbers, we believe that the Slovenian tourist industry has strong growth potential. In particular we identify the need for more high-end hotels to cater to the luxury tourism market, as the country already has a well-developed health spa and mountain resort portfolio.
Over 2015 we expect a steady uptick in European arrivals, as the weaker euro is encouraging holidaymakers to stay within the currency bloc to reduce costs. This trend is further boosted by the country's eurozone membership which facilitates the ease of tourist entry and exit within region.
Over the medium term through to 2019, we anticipate rises in rail and road tourists as the number of connections to other countries increases over the longer term following completion of various transport infrastructure...