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.

Country Risk

Slovenia Country Risk

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Core Views

  • 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 upgraded our forecasts for real GDP growth in 2015 on the back of stronger than expected exports, and early indications that household consumption is finally recovering.

Risks To Outlook

  • Politics remains a key risk to the national reform programme...

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Slovenia Operational Risk Coverage (9)

Slovenia Operational Risk

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Slovenia is one of the most appealing destinations for investment in the Emerging Europe region. Foreign and local businesses alike are exposed to limited crime and security risks, boasted by a strong police force and membership of regional security initiatives. The country's sole port is also fast becoming a major northern Adriatic transhipment hub, while extensive road connections open up the economy to neighbouring European markets. Investors will face some risks with regards to extensive tax legislation, which serves to increase business costs. Given Slovenia's minimal risks and attractive operating environment, we award the country a score of 64.7 out of 100 in our Operational Risk Index, ranking sixth out of 31 Emerging European countries.

While Slovenia boasts strong education attainment levels at the primary, secondary and tertiary levels, and therefore a relatively skilled workforce, the small size of the population...

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Slovenia Crime & Security

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BMI View: Slovenia presents investors with very few 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 when competing for public contracts. Overall, the low crime rates combined with a lack of domestic terrorism threat and solid regional relations give Slovenia a strong score 79.5 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 18th out of...

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Slovenia Labour Market

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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'...

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Slovenia Logistics

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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...

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Slovenia Trade & Investment

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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...

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Slovenia Industry Coverage (14)

Autos

Slovenia Autos

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The Slovenian auto production sector looks set for strong recovery in 2015, following five consecutive years of decline. H114 figures also showed a decline, of 9.8% to 48,826 units, according to figures from the International Organization of Motor Vehicle Manufacturers (OICA). Passenger cars (48,778 units) accounted for virtually all Slovenian production over the January-June 2014 period. Given the poor start to the year, this means that we are still targeting a slight decline (of 1.8%) for 2014.

However, over H214, the outlook for domestic auto production has improved significantly. In November, we revised up our 2015 production growth forecast from 8%, to 28%. This followed the news that Slovenia's main automotive producer, Revoz, was starting a third shift at its Novo Mesto plant, starting December 2014.

Revoz - which is wholly owned by French manufacturer Renault -...

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Commercial Banking

Slovenia Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Defence & Security

Slovenia Defence & Security

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BMI View: Defence expenditure as a proportion of GDP rose in the last decade, from 1.15% of GDP in 2000 to 1.6% of GDP in 2010. However, it has declined since, and we estimate defence of 1.2% in 2014, although we do see a rise to 1.3% in 2015. This is well below the NATO European average of 2.2% and below the 2% target that NATO specifies for its members.

Borut Pahor, Slovenia's president, insisted in October 2014 that the country would make no further cuts to military expenditure in the coming years. The government has made pledges to this end to stabilise defence spending levels. Slovenia needs to address both defence spending levels and military modernisation.

We expect Slovenia to spend around USD576mn on defence in 2015, a fall from our estimate of USD589mn in 2014. By 2019 we expect the Slovenian defence budget to be worth USD672mn.

We have...

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Food & Drink

Slovenia Food & Drink

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BMI view: After two consecutive years of contraction, the Slovenian food and drink market recorded modest growth in 2014. While we expect the positive trends in the Slovenian economy to persist in the near term, the recovery is anticipated to be slow and modest. As a result, we forecast weak growth in the Slovenian food and drink market with sales figures accelerating towards the second half of our forecast period.

Headline Industry Data

  • Food consumption (local currency) growth (y-o-y) in 2015: +0.4%; compound annual growth rate (CAGR) 2014-2019: +1.0%.

  • Per capita food consumption (local currency) growth (y-o-y) in 2015: +0.2%; CAGR 2014-2019: +0.9%.

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Freight Transport

Slovenia Freight Transport

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We anticipate year-on-year (y-o-y) improvements across the board in the Slovenian freight transport mix in 2015, which mirrors the upgraded growth estimate and forecast for the economy as a whole in 2014 and 2015 respectively. This growth will be built on the back of stronger than expected exports, as well as early indications that household consumption is finally recovering. Nonetheless, a considerable corporate debt overhang and government austerity plans will cap the overall pace of real GDP growth.

The Slovenian freight sector will certainly be buoyed going forward by stronger than expected exports in the first half of 2014, which bodes well for tonnage handled across the freight modes in 2015. With that in mind, the outperformer in terms of y-o-y growth is set to be the country's smallest mode by output, the air freight sector (5.69%), while the rail and road modes are both set to record steady growth over the next 12 months (4.40% and 4...

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Information Technology

Slovenia Information Technology

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BMI View: Slovenia is a lucrative IT market in Central and Eastern Europe, with high incomes supporting high levels of spending per capita, and we expect this position to be maintained over the medium term. Growth opportunities are however relatively limited due to a combination of market maturity and macroeconomic weakness. The IT market is expected to rebounding from slow growth during the recession in 2012 and 2013, but BMI believes Slovenia's IT market growth will continue to be constrained by economic challenges due to fiscal austerity and regional financial market uncertainty. There are however opportunities for vendors to tap faster growth, particularly in the services and software segments...

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Infrastructure

Slovenia Infrastructure

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BMI View: The fortunes of the Slovenian construction industry have finally taken a positive turn after five years of contraction. According to 9M14 construction indicators from the Statistical Office of the Republic of Slovenia, the construction sector grew 40% year-on-year. We're forecasting the Slovenian economy will have moved out of recession in 2014 to post 2.0% growth. We've accordingly adjusted our 2014 and 2015 industry figures upwards; however, we remain relatively cautious as growth - economic and industrial - in 2014 can be largely attributed to the very low base of 2013. Nonetheless, we're more optimistic than we have been for the last few years and believe infrastructure will settle into a modest, if restrained, growth pattern from 2015, thanks largely to EU energy and transport funding.

As for the infrastructure subsector mix, there will be very little change in dominance over our forecast period to 2024...

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Insurance

Slovenia Insurance

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BMI View: Although Slovenia's insurance sector is more developed than that of many of its peers in Eastern Europe, overall the market remains relatively small by global standards, particularly in terms of density. The short-term outlook for Slovenia's insurance market is dampened by a subdued domestic economy which is limiting demand, particularly in the non-life sector, however the medium to long term outlook is more positive and we do expect to see steady growth in insurance premiums written across the life and non-life sectors over the remainder of the forecast period to 2019 and beyond.

The insurance market in Slovenia is already highly consolidated with a small number of players, mostly large domestic firms, accounting for the bulk of premiums written. At present, currency fluctuations mean that we expect to see declines across life and non-life premiums in...

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Medical Devices

Slovenia Medical Devices

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BMI Industry View: We expect the Slovenian medical device market to grow by just 0.6% per annum to 2018, but slow economic growth, inconsistent imports and corruption within the healthcare system could affect funding and spending patterns in the short to medium term.

Headline Industry Forecasts

  • The medical equipment market is small, constrained by the country's small size. It is, however, one of the richest markets in the European region when viewed on a per capita basis. In US dollar terms, we expect the market to increase by a CAGR of just 0.6%, which should see it rise from an estimated USD294.3mn in...

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Oil & Gas

Slovenia Oil & Gas

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B MI View: There are glimmers of hope in the upstream oil and gas segment, with the Ascent-operated Petisovci tight gas scheme capable of improving near-term energy self-sufficiency and slowing the rate of growth in gas imports. The project is in the detailed permitting phase, facing unexpected slowdowns due to the lack of an established Slovenian regulatory infrastructure and new EU tendering obligations the country adopted in 2013. Permitting required for phase is progressing with public consultation starting in the first half of 2015. Recently the Slovenian Government has decided to adopt a more supportive view of the project than in previous years in recognition of its strategic importance to the country. However, overall volumes are likely to be relatively modest, with imported Russian gas set to...

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Pharmaceuticals & Healthcare

Slovenia Pharmaceuticals & Healthcare

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BMI View: Slovenia, similar to most Central and Eastern European (CEE) countries, currently has limited capabilities in managing its rare disease population and we expect that EU authorities will push the country into accelerating its implementation of the necessary infrastructure to manage this patient subgroup. While Slovenia has adopted a national strategy and has a more progressive attitude towards orphan drug reimbursement than many of its CEE peers, it currently lacks crucial elements needed to manage these populations. It is an area where Slovenia's healthcare system will need to expand coverage to deliver better patient outcomes.

Headline Expenditure Projections

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Retail

Slovenia Retail

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BMI View: The Slovenian retail sector will benefit from the economic growth projected for the forecast period. As the country exits a period of weak economic performance, unemployment will start decreasing more rapidly and household incomes will continue to grow benefitting the retailers in Slovenia. The country's saturated market will enjoy growing sales, however, further entries and expansions are unlikely.

After performing weakly in 2011-2013, the Slovenian economy posted a full year of solid growth in 2014. The country's real GDP expanded by 2.6% providing consumers and businesses with more optimism and certainty about future expansion. Households lagged to translate their confidence into spending as they raised their expenditure by 0.6% in euro terms last year. Despite that, the main retailers, such as Mercator and Spar, managed to increase their...

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Telecommunications

Slovenia Telecommunications

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BMI View: Slovenia's fairly small size and population has led to the market becoming saturated quickly, with minimal levels of growth throughout the sector. The continued dominant position of state-owned Telekom Slovenije has also stunted overall growth and investment in the market. With limited subscriber growth opportunities, we expect to see increased levels of M&A activity, as consolidation of smaller players by larger companies plays out over the next few years. For such a small market, there are too many active players, none of which can properly challenge Telekom Slovenije. This has led to bankruptcy procedures at T-2 as well as Tusmobil becoming an acquisition target Telemach and Telekom Austria. The privatisation of Telekom Slovenije expected to be sold by February 2014, ...

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Tourism

Slovenia Tourism

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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...

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