2009 SLOVENIA INVESTMENT CLIMATE STATEMENT

UNCLAS LJUBLJANA 000012

SIPDIS

EB/IFD/OIA

E.O. 12958: N/A
TAGS: ECON EFIN ETRD ELAB USTR OPIC KTDB SI
SUBJECT: 2009 SLOVENIA INVESTMENT CLIMATE STATEMENT

REF: 08 STATE 123907


1. In response to reftel, the 2009 Investment Climate
Statement for Slovenia follows:

A.1 Openness to Foreign Investment
--------------
A European Union member since May 1, 2004 and a eurozone
member since January 1, 2007, Slovenia has a strong mix of
qualities to recommend it as an investment location. With
excellent infrastructure, a major port on the Adriatic Sea
and a highly educated work force, Slovenia can be an
attractive place for the investor to access the markets of
Central and Southeastern Europe.

The new left-leaning government that came into power in
November 2008 has not yet announced its plans for new
economic policies or privatization. The government has thus
far been occupied with responding to the global financial
crisis and efforts to implement and maintain broad fiscal
discipline to avoid a recession. This government is expected
to continue with Slovenia,s tradition of consensus-based
policymaking, which will slow privatization efforts. It will
attempt to privatize the financial markets and
telecommunication industry before other areas. The
government has said it will encourage development of big
infrastructure projects in the energy and transportation
sectors - good areas for FDI.

Slovenia welcomes foreign direct investment that does not
negatively impact the environment. Slovenia particularly
welcomes those investments that create jobs in the high-tech
sector and have links to R and D activities, for which
special tax incentives are available. Slovenia is a high-tax
country but, in January 2007, the government introduced tax
cuts that have significantly reduced business costs. The
payroll tax was eliminated in January 2009. The corporate
tax rate has dropped to 21% in 2009 and will level off at 20%
for 2010 and beyond.

There are no formal sectoral or geographic restrictions to
foreign investment. In some regions, Slovenia offers special
facilities and services to foreign investors. Slovenia
offers financial and tax incentives within EU parameters to
firms undertaking projects in economically depressed and
underdeveloped areas.

The Slovenian public agency for promoting foreign direct
investment, JAPTI, announced that their 2008 FDI Promotion
Program will make the most of Slovenia's comparative
advantages, specifically: 1) geographical location in the
heart of Europe with good communication and transport
infrastructure; 2) relatively well-developed and
technologically advanced industry; 3) well-educated labor
force; 4) the relative openness of its economy; and 5)
political and economic stability. JAPTI wants to position
Slovenia as the best logistical hub for new and old
businesses in the south of Europe. JAPTI has worked with
local communities in creating nine business zones for new
investors. The program also seeks to overcome the main
weaknesses of Slovenia,s current policies related to FDI.
Foreign companies report these weaknesses to be: the
Government,s passivity in promoting FDI, the inaccessibility
of building sites for conducting business activities, the
lack of financial incentives for greenfield investors, and
the low mobility of the labor force.

Companies investing (or considering investing) in Slovenia
may be eligible for financial assistance in the form of
grants from the Slovenian Public Investment Promotion Agency
(JAPTI). Information and application forms are available
from JAPTI or on their website www.investslovenia.si.
Incentives will be provided for projects that create at least
100 new jobs. This requirement is reduced to 50 new jobs in
less developed regions and to 10 new jobs if the investment
is in the field of R&D. The Government also provides free
training and retraining employment grants to employers who
intend to hire unemployed persons.

Municipalities offer different forms of incentives, which may
be negotiated on a case-by-case basis. These incentives may
include, but are not limited to, easy access to industrial
sites, utility connections and local tax holidays.

Despite the challenges listed herein, the GOS expects that
FDI inflows will increase in the near to medium term, as more
foreign investors look to Slovenia to establish a regional
presence or to strengthen their position in the area. FDI is
expected to increase from the following sources:

(i) Acquisitions of already privatized companies;
(ii) Privatization of state-owned assets;
(iii) Expansion of foreign-owned companies. (Historically,
this has been the largest source of new jobs in the
manufacturing sector);
(iv) Privatization funds and other state-run funds will
continue to consolidate their portfolios as a way to increase
liquidity; and
(v) Greenfield investments.

A.2 Conversion and Transfer Policies
--------------
Since September 1, 1995, Slovenia has adhered to Article VIII
of the IMF Article of Agreement, thus committing itself to
full current account convertibility and the full repatriation
of dividends. Slovenia replaced its previous currency, the
Slovenian tolar, with the Euro in January 2007. In practice,
to repatriate profits, joint stock companies must provide the
following: evidence of the settlement of tax liabilities;
notarized evidence of distribution of profits to
shareholders; and proof of joint stock company membership
(Article of Association). All other companies need to
provide evidence of the settlement of tax liabilities and the
company's act of establishment.

For the repatriation of shares in a domestic company, the
company must submit its act of establishment, a contract on
share withdrawal, and evidence of the settlement of tax
liabilities to the authorized bank.

A.3 Expropriation and Compensation
--------------
According to Article 69 of Slovenia,s Constitution, the
right to possession of immobile property can be taken away or
limited, with compensation in kind or financial compensation
under conditions determined by law on the basis of public
interest.

There are no current expropriation-related investment
disputes in Slovenia. National law gives adequate protection
to all investments.

However, there is an ongoing dispute over property
expropriated by the socialist Yugoslav government after World
War II. The 1991 Denationalization Act allowed for claims to
be submitted for recovery of such property. Of a total
39,626 denationalization claims submitted, 492 were filed by
U.S. citizens. None of these U.S. citizen claimants were
U.S. citizens at the time the property was expropriated. All
U.S. citizen claimants are either individuals who acquired
U.S. citizenship subsequent to their property being
expropriated, or the heirs of individuals whose property was
seized when the owners were not U.S. citizens. Of these
claims, 427, or 87%, had been resolved as of August 31, 2008.

A.4 Dispute Settlement
--------------
Slovenia is a signatory to the 1958 New York Convention on
Recognition of Foreign Arbitral Awards and the 1961 European
Convention on International Commercial Arbitration.

Slovenia has a well-developed, structured legal system. It
is based on a five-tier (district, regional, appeals,
supreme, and administrative) court system. These courts deal
with a vast array of legal cases including criminal, domestic
relations, land disputes, contracts, and other
business-related issues and probate. A separate social and
labor court with regional, appeals, and supreme courts, deals
strictly with labor disputes, pensions, and other social
welfare claims. Similar to most European countries, Slovenia
also has a Constitutional Court that hears complaints
alleging violations of human rights and personal freedoms,
expresses its opinions on the constitutionality of
international agreements and state statutes, and deals with
other high profile political issues. In keeping with
European legal standards, in 1997 the Slovene Parliament
established an administrative court to handle disputes among
local authorities, between state and local authorities, and
between local authorities and executors of public authority.

The Parliament passed a law on Legal Proceedings in 1999 to
speed up court proceedings. The law stipulates a stricter
and more efficient procedure for serving court documents and
providing evidence. For commercial cases, defendants are now
required to file their defense within 15 days of receiving
notice of a claim. Despite the efforts to improve the
effectiveness of the Slovene court system, the court backlogs
at all levels are still significant and cases can drag on for
years. Slovenia has received warnings from the EU on this
matter several times. Because the problem is a major public
concern, in 2006 the government introduced a program to cut
the backlogs. The program targets a 50% decrease in open
cases and a significant cut in the time courts have to solve
an open case. Over the next five years, the program will cut
the average processing time of a case from 18 months to 6
months. In order to accomplish this, the Ministry of Justice
has started creating a better working environment in courts,
funding additional staff, changing remuneration of judges and
administrative staff, and improving IT tools used in the
judicial sector. There were 451,172 unresolved cases as of
end of June 2008.

Unless parties have agreed to binding arbitration for
disputes, the regional court specializing in economic issues
has jurisdiction over business disputes. However, the
parties may agree in writing to settle disputes in another
court of jurisdiction.

The parties may also exclude the court as the adjudicator of
the dispute if they agree in writing that contractual
disputes be solved by arbitration, whether ad hoc or
institutional. In the former case, the applicable procedure
and law must be determined. In the case of institutional
arbitration, the type of arbitration must be clearly defined.
The Permanent Court of Arbitration within the Chamber of
Economy is an independent institution that solves domestic
and international disputes arising out of business
transactions among companies.

The procedure before the Permanent Court of Arbitration at
the Chamber of Economy of Slovenia is governed by the
Regulations on the Procedure before the Permanent Court of
Arbitration at the Chamber of Economy of Slovenia.
Arbitration rulings are final and subject to execution.

Competition is keen in Slovenia and bankruptcies are an
established and reliable means of working out firms'
financial difficulties.

Slovene law provides three procedural methods for handling
bankrupt debtors. The first, Compulsory Settlements, allows
the insolvent debtor to submit a plan for financial
reorganization with the Court. The Compulsory Settlement
Plan is then voted upon by the creditors and must be accepted
by those creditors whose claims represent more than 60% of
the total claimed. If the settlement is accepted, the debtor
is excused from the obligation to pay the creditor the amount
that exceeds the percentage of payment set forth in the
confirmed settlement. The payment terms re then extended in
accordance with the conditios of forced settlement.
Confirmed compulsory setlement affects creditors who have
voted against ompulsory settlement and creditors who have
not rported their claims in the settlement procedure.
The creditor or debtor may also initiate bankrupty
procedures. The court names a bankruptcy admiistrator who
sells the debtor,s property accordig to the bankruptcy
senate president's instructios and supervision. As a rule,
the debtor,s proprty is sold by public auction. Otherwise,
the ceditors, committee may prescribe a different mode f
sale such as collecting offers or placing condtions for
potential buyers. The legal effect of completed bankruptcy
is the termination of the debtor,s legal status to conduct
business, and the distribution of funds created from the sale
of assets to creditors according to their share of total debt.

The third method, bankruptcy as forced liquidation, is
distinguished from voluntary liquidation (without court
intervention) as set forth in the Law on Commercial
Companies. Forced liquidation is imposed on a debtor, for
whom the law determines the liquidation procedure and the
legal conditions for ending his existence as a business
entity. This would occur, for example, if the management does
not operate for more than twelve months, if the court finds
the registration void, or by court order.

A.5 Performance Requirements and Incentives
--------------
No performance requirements are imposed as a condition for
establishing, maintaining, or expanding an investment. There
are some incentives offered to potential investors through
the "FDI Incentive Scheme." The Inward Investment
Cost-Sharing Grant Scheme will co-fund investments in
industry, strategic services, or research and development
that will result in at least 10 to 50 new jobs. More
information and application forms can be found at
www.investslovenia.org. On the other hand, the rigid
procedures necessary to acquire work permits serve as an
impediment for foreign investors. It can take two to three
months to obtain a work permit. The Ministry of Labor has
established a fast-track procedure for foreigners who are
registered in the court registry as authorized persons or
representatives of companies, managers of branch offices, and
for foreigners who are temporarily sent to work in
organizational units for foreign legal persons registered in
Slovenia. More info on work permits and employment services
at http://www.ess.gov.si.

A.6 Right to Private Ownership and Establishment
-------------- ---
Private enterprise and ownership are promoted and protected
in Slovenia, both by statute and the Constitution.
Slovenia,s laws on foreign investment are fully harmonized
with EU legislation. As provided for in the Law on
Commercial Companies, all business activities within Slovenia
are open to domestic and foreign natural and legal persons
who may establish wholly or partially owned companies in any
legal form provided by the Commercial Companies Act (Limited,
General, and Silent Partnerships; Joint Stock Companies,
Limited Liability Companies, and Partnerships Limited by
Shares; and Economic Interest Groups). Foreign investors may
freely invest in Slovene companies in most industries except
in banking and insurance industries, where a permit from the
Bank of Slovenia or Insurance Supervision Agency is needed.
Furthermore, current regulations limit the foreign ownership
stake in gaming interests to 20%. Foreign investors are
permitted to obtain concessions for the exploitation of
renewable and non-renewable natural and public goods. In
addition, foreign and domestic investors have the same
reporting requirements to the Bank of Slovenia.

There are also some restrictions on foreign investment in the
field of military supply. For example, direct investments
made by non-residents in companies or other entities that are
engaged in the production of, or trade in, weaponry and
military equipment are allowed only if specifically
authorized by the Government of the Republic of Slovenia.

Any company registered in Slovenia is granted the status of a
Slovenian legal entity under which they enjoy national
treatment. Foreign investors are subject to the same legal
treatment as domestic companies and enjoy the same rights and
obligations. The registration process is rather simple and
usually takes between three weeks and one month to complete.
Registered foreign-owned companies may also become members of
the Ljubljana Stock Exchange.

Foreign-owned companies are entitled to own property in
Slovenia. All citizens and enterprises of the European Union
or the U.S. have the same purchase rights and rights of use
of land and natural resources as citizens and domestic
enterprises. If a foreign citizen or legal person from a
third (i.e., non-EU) country decides to establish a company
in Slovenia, this company is considered a Slovenian legal
person and as such can buy, own and sell real estate.
However, while the law provides for these rights, some
foreign companies have experienced unexplainable delays in
obtaining land even after all the necessary paperwork is in
order.

Foreign shareholders are entitled to free and unrestricted
transfer of their profits abroad in foreign currency,
providing that they meet their tax obligations. The 23%
corporate tax rate in Slovenia applies to domestic and
foreign companies and is among the lowest rates in Europe.
In 2007, the government announced further reduction of the
corporate rate from 23% in 2007, to 22% for 2008, 21% for
2009 and 20% for 2010 and beyond.

Credits and guarantees between residents and non-residents
are regulated by the Foreign Exchange Act. The law
differentiates between commercial and financial credits.
Commercial credits are those credits relating to trade and
rendering international services that involve a resident as
one of the contracting parties. Commercial credits include
contractual trade credits (deferred payments and/or advances)
and their financing by banks. Factoring operations are also
considered to be commercial credits, on the condition that
the underlying operations from which the claims arise have
the nature of commercial credits. All other operations are
considered to be financial credits, including mortgage-backed
and consumer loans as well as financial leasing operations.

All credit transactions, except commercial credits with
payment delay or prepayments less than 12 months, must be in
written form and contain all obligatory parts of the credit
business. Authorized banks undertake credit operations with
non-residents for their own accounts and in their own name or
in their own name and for someone else's account as his
proxy. Residents other than banks undertake credit
operations with non-residents for their own accounts and in
their own name. Residents must report all credit operations
with non-residents to the Bank of Slovenia within 10 days of
signing the loan contract.

Larger banks in Slovenia also have specialized International
Desks, which offer bank services to foreign companies and
persons.

The 1999 Law on Banking allows foreign banks to establish
branch offices in Slovenia. Since 1999, local borrowers have
faced no restriction regarding borrowing from abroad, which
was strictly regulated before the new legislation. Once
Slovenia joined the EU, its banking regulation was entirely
harmonized with the banking regulation of the EU.

As of June 2001, all restrictions on portfolio investments by
foreigners in Slovenia have been abolished and the purchase
of foreign equities by Slovenes has been fully liberalized.

A.7 Protection of Property Rights
--------------
There is no law, statute, or regulation that specifically
deals with mortgage banking services in Slovenia. However,
the Government has committed itself to creating a mortgage
banking system to include property assessments and deeds that
will replace the current Land Registry system. Currently
there are no special mortgage banks in Slovenia.
Accordingly, only a few Slovenian banks offer mortgage loans
per se. Nevertheless, banks provide loans that are secured by
mortgages. They are frequently granted to corporate clients
and entrepreneurs as well as to private individuals.

In order for mortgages to be effective against any owner of
real estate, the mortgage must be registered in the Land
Registry Book at the Land Registry Office. The Land Registry
Book was introduced within the present territory of Slovenia
in the 19th century and serves to inform the general public
of the owner of land, buildings, and parts of buildings.
Within the legal system, the Land Registry Book is connected
in part with substantive civil law, which regulates default
procedures on real estate.

Even though many banks give priority to the cash flow
statements before the collateral of the loan, the use of
mortgages to finance real estate developments is common in
Slovenia. Mortgages are used as collateral for corporate
financing of development projects. The creditor often
requires the debtor to own, in equity, one and a half to two
times the amount of the loan, depending on the debtor,s
credit rating. Once the mortgage is consummated between the
creditor and debtor, it is registered in the Land Registry
Book. If the mortgager defaults on the loan, the law
provides for a foreclosure procedure on the mortgaged
property.

Slovene banks also offer project financing services for
construction and development projects. Under this program,
the banks offer up to 70% financing (30% of the project cost
is usually required from the investor,s own sources). The
banks also offer advisory services pertaining to Slovene
regulations on building and sales of real estate as well as
transfer of ownership of the mortgaged real estate. As
collateral, the bank usually requires a mortgage on the
building being built.

Slovenia has enacted highly advanced and comprehensive
legislation for the protection of intellectual property that
fully reflects the most recent intellectual developments in
the TRIPS Agreement (Trade Related Aspects of Intellectual
Property) and various EU directives. Slovenia negotiated its
TRIPS commitments as a developing country and implemented its
commitments as of January 1, 1996. Slovenia is a full member
of the TRIPS Council of the World Trade Organization (WTO)
and the World Intellectual Property Organization (WIPO).
Slovenia has already ratified the WIPO Copyright Treaty and
the Cyber Crime Convention.

Slovenia,s Intellectual Protection Office actively
participates in the Intellectual Property Working Party of
the Council of the EU, the Trademark Committee and other EU
working bodies in formulation of new EU legislation. The
Copyright and Related Rights Act amended in 2001 and 2004
deals with all fields of modern copyright and related rights
law, including traditional works and their authors, computer
programs, audiovisual works, as well as rental and lending
rights. The act also takes into account new technologies
such as storage and electronic memory, original databases,
satellite broadcasting, and cable re-transmission. The 2004
harmonization with the EU legislation introduced a new system
of collective management of intellectual rights following the
latest directive.

The 1994 Law on Courts gives the District Court of Ljubljana
exclusive subject matter jurisdiction over intellectual
property disputes. The aim of the law is to ensure
specialization of the judges and the speed of relevant
proceedings. Concerning the TRIPS Agreement,s enforcement
provision, Slovene law provides for a number of civil legal
sanctions, including injunctive relief and the removal of the
infringement, the seizure and destruction of illegal copies
and devices, the publication of the judgment in the media,
compensatory and punitive damages, border (customs) measures,
and the securing of evidence and other provisional measures
without the prior notification and hearing of the other
party. Furthermore, these infringements also constitute a
misdemeanor with fines ranging from 417 Euro ($583) to 41,729
Euro ($ 58,300) for legal persons and a range of fines, from
41.73 Euro ($58) to 2,086 Euro ($2,917),for supervisors of
individual offenders provided that the reported offenses are
not criminal in nature. In such a case, the Slovenian
Criminal Code would apply, which may result in fines or in
extreme cases, imprisonment. While Slovene laws regarding
intellectual property are clearly defined, there have been
complaints by foreign investors about the slow nature of the
court system.

Since the enactment of the Law on Copyright and Related
Rights Act, there have been relatively few reported
prosecutions for infringement violations. Most notably are
cases of computer software piracy. In 2004, a long-running
software piracy court case ended with a jail sentence and
monetary fine. Since piracy prosecution is still in the
early stages of implementation, Slovenia has dedicated
resources to the training of prosecutors and public
authorities. Slovenia continues to address the preservation
of evidence in infringement procedures and border measures by
amending existing legislation. Moreover, the Ministry of
Culture established the Intellectual Property Fund, the
Slovene Copyright Agency, and the Anti-Piracy Association of
Software Dealers (BSA) to combat the problem of piracy in a
collective manner.

The Law on Industrial Property grants and protects patents,
model and design rights, trademark and service marks, and
appellations of origin. The holder of a patent, model, or
design right is entitled to: exclusively work the protected
invention, shape, picture, or drawing; exclusively market any
products manufactured in accordance with the protected
invention, shape, picture, or drawing; dispose of the patent,
model, or design right; prohibit working of the protected
invention, model, or design and legal transactions in respect
of them, by any person not having his consent.

The holder of a trademark has the exclusive right to use the
mark in the course of trade to designate his products or
services. The authorized user of a protected appellation of
origin has the right to use the appellation in the course of
trade for marking products to which the appellation refers.

The patent and trademark rights granted by the Law on
Industrial Property take effect from the date of filing the
appropriate applications. Patents are granted for twenty
years from the date of filing and model and design rights are
granted for ten years. Trademarks are granted for ten years,
but may be renewed an unlimited number of times. The term of
an appellation of origin is unlimited. All patents and
trademarks are registered through the Slovenian Intellectual
Property Office with all registers open to the public.
Patent and trademark applications filed in member countries
of the International Union for the Protection of Industrial
Property are afforded priority rights in Slovenia. The
priority period is twelve months for patents and six months
for model and design rights.

Any person who infringes upon a patent or trademark right may
be held liable for damages and prohibited from carrying on
the infringing acts.

The Law on Industrial Property also provides for the
contractual licensing of patents, model and design rights,
and marks. All license agreements must be in writing and
specify the duration of the license, the scope of the
license, whether the license is exclusive or non-exclusive,
and the amount of remuneration for the use if compensation is
agreed upon.

Compulsory licenses may be granted to another person when the
invention is in the public interest or the patentee misuses
his rights granted under the patent. A misuse of a patent
occurs when the patentee does not work or insufficiently
works a patented invention and refuses to license other
persons to work the protected invention or imposes
unjustified conditions on the licensee. If a compulsory
license is granted, the patentee is entitled to compensation.
Slovene industrial property legislation fully complies with
EU standards.

A.8 Transparency of Regulatory System
--------------
Foreign companies conducting business in Slovenia have the
same rights, obligations, and responsibilities as domestic
companies. The principles of commercial enterprise, free
operation, and national treatment apply to the operations of
foreign companies as well. Their basic rights are guaranteed
by the Law on Commercial Companies and the Law on Foreign
Transactions.

Generally, the bureaucratic procedures and practices are
sufficiently streamlined and transparent for the foreign
investor wishing to start a business in Slovenia. In order
to establish a business in Slovenia, the foreign investor
must produce a sufficient minimum amount of capital, and
8,763 Euro ($12,256) for a limited liability company and
25,038 Euro ($35,018) for a stock company, establish a
business address, and file appropriate documentation with the
court. The entire process usually takes from three weeks to
one month, but may take longer in Ljubljana due to backlogs
in the court.

Slovenia signed a reciprocal taxation treaty with the U.S. in
June 1999. The rate of taxation of profits in Slovenia is
lower than in the United States. Slovenia introduced the
Value Added Tax (VAT) in July 1999. Slovenian VAT only has
two grades, 8.5% and 20%. The standard VAT is 20% with 8.5%
for some specialty items.

In Slovenia, highly concentrated market structures are not
illegal per se; however, the abuse of market power is. The
Law on the Protection of Competition prohibits acts that
restrict competition in the market, conflict with good
business practices relating to market access, or involve
prohibited speculation. The law, which is fully harmonized
with EU legislation, is applicable to corporate bodies and
natural persons engaged in economic activities regardless of
their legal form, organization, or ownership. The law also
applies to the actions of public companies.

Restriction of competition through cartel agreements, unfair
competition (i.e., false advertising, promises/gifts in
exchange for business, trade secrets, etc.),illicit
speculation during times of irregular market situations, and
dumping and subsidized imports are all prohibited. The
Government may, however, prescribe market restrictions in the
following instances: in cases of natural disasters,
epidemics, or in a state of emergency; in cases of
appreciable market disturbances due to the shortage of goods;
or when necessary to satisfy requirements for the products,
raw materials, and semi-finished goods of special or
strategic importance to the defense of the nation.

The Competition Protection Office (CPO) is charged with
ensuring fair competition in the marketplace. Investigations
can be initiated by the CPO or conducted at the request of
private companies. The CPO can issue a decree against any
company found to have violated the Law on the Protection of
Competition, although the power to fine companies rests
solely in the hands of the courts. Any party trading in
goods or services on the market may initiate legal
proceedings in cases of unfair competition. Injured parties
are entitled to compensation and the injunction of the unfair
acts.

The court may issue a penalty of 125,188 Euro ($175,100) to
375,563 Euro ($524,000) against companies found to have
engaged in cartel agreements, abused a dominant market
position, committed an act of unfair competition, or engaged
in illicit speculation. The managers and directors of the
sanctioned company may be liable for a minimum fine of 4,173
Euro ($5,800). Self-employed persons found to have committed
any of the legally prohibited actions are liable for no less
than 41,729 Euro ($58,800). There are also fines for not
complying with the CPO in the range of 2,086 Euro to 4,173
Euro ($2,900 to $5,800) for every week that requested
documentation is not submitted. The same range of fines also
applies if the sanctions are not carried out.

A.9 Efficient Capital Markets and Portfolio Investment
-------------- --------------
The financial sector remains relatively underdeveloped for a
country with Slovenia's prosperity. Enterprises rarely raise
capital through the stock market. The shallowness of the
sector hinders economies of scale and, despite shortcomings
in the banking sector, capital is cheaper to acquire through
banks than through more direct equity or debt sales.

The banking sector in Slovenia is marked by a relatively high
degree of concentration (the three largest banks account for
half of total banking assets and the top seven hold nearly
80% of the market),excess capacity (21 banks, 3 savings
banks in a country of 2 million people),and a low level of
services. As a result, a number of banks are unable to
exploit economies of scale and have relatively low
productivity levels, with the consequences being high margins
and low returns on equity.

In the past several years, a number of Slovene banks have
been partially or fully taken over by foreign banks. In
addition, a number of Slovene banks have announced mergers.
In 2001, France,s Societe Generale took over Slovenia,s
largest private bank, SKB Banka. In October 2001, Italian
banking group San Paolo IMI purchased 82% of Bank of Koper,
the fifth largest bank. In spring 2002, the Government sold
34% of the largest commercial bank, Nova Ljubljanska Banka
(NLB),to the Belgian KBC Group, with another 5% sold to the
European Bank for Reconstruction and Development (EBRD). The
Government has stated that it intends to invite further
investment in NLB, but no activities have been in place so
far. Instead, the EBRD sold its stake in NLB to a domestic
investor; KBC negotiates sale of its stake with a foreign
portfolio investor. The two largest banks, NLB and Nova
Kreditna Banka Maribor (NKBM),are still majority-owned by
the state but the current government avers that it is
committed to privatizing them. Because the Government could
not find a strategic partner for NKBM, it offered 49% of the
bank to small investors in December 2007. The Government
announced a further decrease of state shares down to 25% over
the next two years. Because the sale of NKBM among small
investors was publicly well received, the Government
announced similar privatization for NLB and insurance company
TRIGLAV prior to parliamentary elections in the fall of 2008.
Lack of time and global financial crisis caused cancellation
or postponement of such plans.

The balance sheets of Slovenia,s banks are relatively
strong, reflecting an early and aggressive program of bank
rehabilitation launched by the Government in 1992. However,
the wide differences between the balance sheets of the
largest and the smallest banks seem to indicate that the
ultimate consolidation of the banking sector is inevitable.
The Government has encouraged bank mergers as a means of
dealing with the sector's excess capacity.

New banking legislation authorizes commercial banks, savings
banks, and stock brokerage firms to purchase securities
abroad. Investment funds may also purchase securities abroad
provided that certain diversification requirements are met.

The Ljubljana Stock Exchange (LSE) was established in 1990.
A Commodity Exchange (CE) was established in 1994, but ceased
operation in 1998. The LSE underwent its most rapid growth
during the period from 1994 to 1997, aided by the listing of
new companies in the first phase of privatization in
Slovenia. The LSE serves more as a vehicle for achieving the
transformation of enterprises than as a means for raising
capital. In 1997, the LSE became a full member of the
International Association of Stock Exchanges (FIBV). In
September 2008, the Wiener Borse acquired a majority stake in
the LSE (81%). The change should help the development of the
stock market and could provide an incentive to speed up the
privatization process.

The LSE has been working to encourage the government to list
shares of strong, state-owned companies such as Telekom
Slovenije or NLB in order to boost market activity. As of
January 2009, Telekom Slovenije, insurance company TRIGLAV
and NKBM bank are the only state-owned companies listed on
the Ljubljana Stock Exchange. Although the initial Telekom
Slovenije, TRIGLAV and NKBM trade volume was low, doors are
open for an investor.

The LSE has two official listings - A and B - depending on
the amount of a listing's capital, audited financial
statements, size of the class of securities, and securities
distribution. The over-the-counter (C) market has less
stringent requirements. In spite of the market boom since
2002, securities markets remain relatively underdeveloped in
Slovenia. Despite appreciation of the market capitalization
of the LSE in recent years, it remains a very illiquid
market, with annual turnover similar to a single day,s
trading on the NYSE.

In 1995, the Central Securities Clearing Corporation (KDD)
was established. KDD runs the central registry securities
and trade clearings concluded on the LSE electronic trading
system. The Securities Market Agency (SMA),established in
1994, has powers similar to the SEC in the U.S. The SMA
supervises investment firms, the LSE, the KDD, investment
funds, and management companies, and shares responsibility
with the Bank of Slovenia for supervision of banking and
investment services.

The LSE uses different dissemination systems, including real
time online trading information via REUTERS or the BDS
System. The LSE also publishes information on the Internet
at http://www.ljse.si.

A high level of concentration characterizes the insurance
sector in Slovenia with the largest company, state-owned
Triglav d.d., holding 43% of the total market in gross
premiums and the 5 largest companies accounting for 91% of
market share. Insurance companies invest their assets
primarily in non-financial companies, state bonds, and
bank-issued bonds.

There have been significant changes in the legislation
regulating the insurance sector since 2000. The Ownership
Transformation of Insurance Companies Act, designed to
accomplish the privatization of insurance companies, was
postponed several times due to ambiguity concerning the
estimated share of state-controlled capital. Although
insurance sector privatization discussions have been ongoing
since 2005, no concrete plans have been implemented.

Currently, there are three health insurance companies
registered in Slovenia and 13 companies offering other kinds
of insurance. However, under EU regulation, any insurance
company registered in the EU can market its services in
Slovenia as well, given that the insurance supervision agency
of the country where this company is registered has notified
the Slovenian Supervision Agency of the company,s
intentions.

A.10 Political Violence
--------------
Except for a brief, 10-day conflict in 1991 over Slovene
independence, there have been no incidents of political
violence in Slovenia.

A.11 Corruption
--------------
Similar to many other European countries, Slovenia does not
have a bribery statute equal in stature to the U.S. Foreign
Corrupt Practices Act. However, Chapter 24 of the Slovene
Criminal Code (S.C.C.) provides statutory provisions for
criminal offenses in the economy. Corruption in the economy
can take the form of corruption among private firms or
corruption among public officials.

The S.C.C. provides for criminal sanctions against officials
of private firms for the following crimes: forgery or
destruction of business documents; unauthorized use or
disclosure of business secrets; insider trading;
embezzlement; acceptance of gifts under certain
circumstances; money laundering; and tax evasion.

Specifically, Articles 241 and 242 of the S.C.C. make it
illegal for a person performing a commercial activity to
demand or accept undue rewards, gifts, or other material
benefits that will ultimately result in the harm or neglect
of his business organization. While Article 241 makes it
illegal to accept gifts, Article 242 prohibits the tender of
gifts in order to gain an undue advantage at the conclusion
of any business dealings.

Public officials are held accountable under Article 261 of
the S.C.C., which makes it illegal for a public official to
request or accept a gift in order to perform or omit an
official act within the scope of his official duties. The
acceptance of a bribe by a public official may result in a
fine or imprisonment of no less than one year, with a maximum
sentence of five years. The accepted gift/bribe is also
seized.

While Article 261 holds public officials accountable, Article
262 holds the gift,s donor accountable. Article 262 makes
it illegal for natural persons or legal entities to bribe
public officials with gifts. Violation of this article
carries a sentence of up to three years. However, if the
presenter of the gift discloses such bribery before it is
detected or discovered, punishment may be omitted.
Generally, the gift is seized. However, if the presenter of
the gift disclosed the violation, the gift may be returned to
him/her.

The state prosecutor,s office is responsible for the
enforcement of the anti-bribery provisions. The number of
cases of actual bribery is small and is generally limited to
instances involving inspection and tax collection. Although
the prosecutor,s office may suspect bribery and related
corruption practices in government procurement offices,
obtaining evidence is difficult, thereby making it equally
difficult to prosecute. Corruption in Slovenia is on a minor
scale. 2001 saw Slovenia,s first and only serious scandal
involving a high public official convicted of accepting a
bribe.

A.12 Bilateral Investment Agreements
--------------
Slovenia has signed Bilateral Investment Treaties (BITs) with
Albania, Australia, Austria, Belgium - Luxembourg Economic
Union, Bosnia & Herzegovina, Bulgaria, Chile, China, Croatia,
Cuba, Czech Republic, Denmark, Egypt, Finland, France,
Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy,
Kuwait, Lithuania, Macedonia (F.Y.R.),Malaysia, Malta,
Moldova, Montenegro, Netherlands, Norway, Poland, Portugal,
Romania, Russian Federation, Singapore, Slovak Republic,
Spain, Sweden, Switzerland, Thailand, Turkey, Ukraine, the
United Kingdom, Uzbekistan, and Serbia. Slovenia is
currently negotiating BITs with Argentina, Brazil, Saudi
Arabia and Vietnam. Slovenia does not have a BIT with the
United States due to ongoing discussions between the US and
the EU on how member states without a BIT treaty will accede
to the US-EU BIT agreement.

A.13 OPIC and Other Investment Insurance Programs
-------------- --------------
The U.S. Overseas Private Investment Corporation (OPIC) and
Slovenia signed a bilateral agreement on April 24, 1994.
There are currently a number of OPIC investment finance and
insurance programs available in Slovenia, including loan
guarantees, direct loans, and political violence and
expropriation insurance.

The U.S. Export-Import Bank offers short-, medium-, and
long-term private sector as well as short-term public sector
programs in Slovenia. In July 1999, the Slovenian Export
Corporation (SEC) and the U.S. Export-Import Bank signed a
memorandum on cooperation in financing, insuring, and
reinsuring exports to Southeast European countries. In
January 2007, the SEC restructured to become the Slovenian
Export and Development Bank. More information is available on
their website www.sid.si.

A.14 Labor
--------------
The labor market has been tight in recent years, and as of
September 2008, the unemployment rate stood at a record-low
3.9% (according to the ILO method). But the spreading global
financial crisis began to affect Slovenia in the last quarter
of 2008, and in January 2009, Slovenia experienced its first
layoffs. We expect unemployment will rise moderately in
2009, especially in construction, automotive, textile and
other areas of industrial production. The government,s
economic reforms propose to address this problem through a
combination of retraining and investment in new technologies.
The regions of highest unemployment in Slovenia are mostly
in the northeast.

Slovenia fully harmonized its labor legislation with the EU
on May 1, 2004. Slovenia has opted for no transition period
in connection with workforce movement within the EU, but has
kept the right to intervene through 2009 in case of market
distortion. In line with new legislation, Slovenia has
retained strict rules on issuing work permits to non-EU
applicants. The 2001 Employment of Aliens Act introduces a
quota system for work permits and simplifies the procedure
for obtaining work permits for foreigners who have worked and
lived in Slovenia over a long period of time.

Slovenia,s wage-setting practice follows the "social
partners" mode, designed to contain upward pressure by
centralizing wage decisions. In practice, however, high wage
expectations have pushed Slovenia,s wage levels far above
those of its central European neighbors, reaching about half
the cost of Austrian labor. However, its well-educated labor
force and position as the most productive transition economy
allow it to remain competitive in niche markets.

Slovenia adopted an Employment Relationship Act that entered
into force in January 2003. The Act defines a full time
workweek as 36 to 40 hours (made up of 6 to 8-hour days
including a 30-minute lunch break),increases protection of
critical working groups (including women and children),and
eases the conditions under which an employer may terminate
employees.

Slovenia,s labor force performs well in the higher
value-added activities that utilize its skilled technicians
and engineers at a somewhat lower cost than in the developed
West. However, Slovenia would benefit from a workforce with
stronger managerial skills, most notably in the banking and
insurance sectors. Despite the introduction of greater labor
market flexibility, the market for workers remains quite
rigid and investors will find that termination of workers is
more difficult than in the U.S. In addition, the labor
market remains relatively over-protected, and pay scales in
public service are very complicated and do not reward
performance.

One month before the September 2008 national elections, the
outgoing government implemented public sector pay reforms,
establishing new minimums. In light of the global financial
crisis, the new government has already requested to change or
repeal the reforms. It has stated that unless the unions
agree to lower the minimums, it will have to institute public
sector layoffs.

A.15 Foreign-Trade Zones/Free Ports
--------------
There are two kinds of Free Trade Zones in Slovenia: Free
Economic Zones and Free Customs Zones.
A.15.1 Free Economic Zones
--------------
Free economic zones (FEZ) exist in Koper and Maribor. FEZs
may be established by one or more domestic legal persons.
The founders must provide the resources necessary for the
establishment and commencement of operation, as well as
suitable technical, organizational, ecological, and other
conditions for the performance of business activities.

The following activities may be performed within free
economic zones: production and services; wholesale trade;
banking and other financial services; and insurance and
reinsurance regarding the above mentioned activities.

After obtaining an appropriate tax authority decision, users
of FEZs are entitled to the following benefits:

VAT exemption for imports of equipment, production
materials, and services necessary for export production or
performance of other permitted activities;
a reduction in corporate tax rates from the normal 21%
to 10%;
a tax allowance amounting to 50% of invested resources
on investments in tangible assets in the FEZ; and
a reduction in the taxable base amounting to 50% of the
salaries of apprentices and other workers formerly unemployed
for at least 6 months.

While FEZ Koper is fully operational, only a few companies
are present in FEZ Maribor. Despite the poor showing in
Maribor, the Law on Free Economic Zones guarantees operations
will continue in FEZs through at least January 1st, 2010.
A.15.2 Free Customs Zones
--------------
As of December 2008, the only free customs zone (FCZ) in
Slovenia is the Port of Koper. Under the Customs Act,
subjects operating in FCZs are not liable for payment of
customs duties, nor are they subject to other trade policy
measures until goods are released into free circulation.

Duties and rights of users include the following:

Separate books must be kept for activities undertaken
in FCZs;
Users may undertake business activities in a FCZ on the
basis of contracts with the founders of FCZs;
Users are free to import goods (customs goods, domestic
goods for export) into FCZs;
Goods imported into FCZs may remain for an indefinite
period, except agricultural produce, for which a time limit
is set by the government;
Entry to and exit from FCZs is to be controlled;
Founders and users must allow customs or other
responsible authorities to execute customs or other
supervision; and
For the purposes of customs control, users must keep
records of all goods imported into, exported from, or
consumed or altered in FCZs.

The Customs Act also allows the establishment of open FCZs
regulated by more liberal provisions regarding their
organization and customs authorities, supervision.

In such FCZs, users may undertake the following activities:

Production and service activities, including
handicrafts, defined in the founding act or contract, and
banking and other financial business transactions, property
and personal insurance and reinsurance connected with the
activities undertaken;
Wholesale transactions; and
Retail sales, but only for other users of the zone or
for use within the FCZ.

Slovenia has recently developed sites designed for greenfield
investments. Most of the newly developed industrial zones
have direct access to highways and rail service. The
infrastructure in place is well developed. In some
instances, prices for fully equipped land in industrial zones
may be acquired at a reasonable rate since municipalities and
the State often subsidize infrastructure and land costs.
Above all, local authorities are interested in new employment
opportunities. Land prices can vary greatly. In Lendava, a
town located in the eastern part of the country, price per
square meter of land is roughly 5 Euro, while prices in the
vicinity of Ljubljana can run to 50 Euro or more. Potential
investors may also count on a full range of free services and
concessions provided by local development agencies for
start-ups. The assistance may also include assistance in
completing all the necessary paper work (permits) and, in
some cases, organizing and financing construction in line
with the investors, requirements. Interested investors can
contact the U.S. Embassy in Ljubljana for further
information.

A.16 Foreign Direct Investment Statistics
--------------
Foreign Direct Investment (FDI) in Slovenia is fairly low,
despite Slovenia,s overall good mix of qualities as an
investment location. Total FDI stock in Slovenia at the end
of 2007 was $12.60 billion. As with trade, the bulk of FDI
in Slovenia is European in origin. U.S. FDI in Slovenia, as
calculated by the U.S. Embassy, is around 7% of the total, or
roughly $850 million. (N.B.: The Bank of Slovenia (BoS),in
its official data, lists U.S. FDI at approximately $74
million or 0.6% of total FDI. However, this amount does not
take into account significant investments by U.S. firms,
notably Goodyear. This data is not listed as U.S. in origin
by the BoS as U.S. funds were routed through a third country.
Goodyear,s investment in Sava Tires, for example, came to
Slovenia via a bank in Luxembourg. Based on our discussions
with U.S. firms, we believe our estimate of $850 million is a
more accurate representation of the true U.S. FDI presence in
Slovenia.)
Foreign Direct Investment in Slovenia - Stock on 31.12. 2007
(major investors)

Country Total Value Share of
(Million Euros) Total(%)

Austria 4,264.0 44.6
Switzerland 1,063.1 11.1
Netherlands 730.3 7.7
France 724.9 7.6
Germany 645.4 6.8
Italy 483.0 5.0
Luxemburg 354.6 3.7
Croatia 277.8 2.9
Belgium 265.5 2.8
USA 55.4 0.6
...
Total 9,542.9 100.0


Foreign Direct Investment in Slovenia by sector - Stock on
31.12. 2007

Sector Total Value Share of
(Million Euros) Total(%)

Financial intermediation, not insurance 3838.6
40.2
Mfr. chemicals & chemical products 957.0 10.0
Wholesale, commission, not motors 593.4 6.2
Other business activities 566.6 5.9
Retail Trade 345.2 3.6
Sale/repair of motors and machinery 318.8 3.3
Electricity, gas, steam, and hot water 270.1 2.8
Mfr. of pulp, paper & paper products 265.7 2.8
Mfr. of rubber & plastic products 262.7 2.8
Mfr. of machinery & equipment 230.4 2.4
...
Total 9,542.9 100.0


Slovene Foreign Direct Investment abroad - Stock on 31.12.2007

Country Total Value Share of
(Million Euros)Total(%)

Croatia 1,074.6 22.0
Serbia and Montenegro 1,396.3 28.6
Bosnia and Herzegovina 565.3 11.6
Russian Federation 243.9 5.0
Netherlands 216.6 4.4
Macedonia 192.6 3.9
Monte Negro 159.6 3.2
Germany 144.9 3.0
Austria 135.6 2.8
Poland 108.9 2.2
Liberia 82.2 1.7
USA 22.4 0.5
...
Total 4,888.8 100.0


Slovene Foreign Direct Investment abroad by sector - Stock on
31.12.2007

Sector Total Value Share of
(Million Euros)Total(%)

Other business activities 674.5 13.8
Financial intermediation, not insurance 714.2 14.6
Retail trade, not motors; repairs 595.8 12.2
Mfr. chemicals & chemical products 453.8 9.3
Wholesale, commission, not motors 307.4 6.3
Mfr of food products & beverages 266.3 5.4
Mfr. of machinery & equipment 204.4 4.2
Postal Services, Telecommunications 196.8 4.0
Tourism 183.0 3.7
Sale/Repair of motor vehicles, etc 153.7 3.1
Manufacture of motor vehicles, etc 124.7 2.6

...
Total 4,888.8 100.0



Major U.S.-based Investors:

The following is a short list in alphabetical order of U.S.
firms holding investments or with a presence in Slovenia.

3M
Amway
ANR-Amer Nielsen Research
Caterpillar
Coca-Cola Corporation
Colgate-Palmolive
Cisco
Deloitte & Touche
DHL International
DuPont
Ecolab
Eli Lilly
Ernst & Young
Emerson Electronics
Goodyear
Hewlett-Packard Company
IBM
Johnson & Johnson
Liberty Global
Marsh
Masterfoods
Merck, Sharp & Dohme
Microsoft
McDonald,s
Motorola
Oracle Corporation
Pfizer Corporation
Philip Morris
PriceWaterhouse Coopers
Procter & Gamble
Schering-Plough
United Global Communications
Wrigley
Xerox
Other Major Foreign Investors in Slovenia:

Alcan, Canada
AmBev, Brazil
Belisce, Croatia
Bramac International, Austria
Brig&Bergmeister, Austria
Chiorino, Italy
Citroen, France
Danfoss, Denmark
Debitel AG, Germany
EGO, Switzerland

E. Leclerc, France
Faurecia, France
GKN, United Kingdom
Grammer Automotive, Germany
Grupo Bonazzi, Italy
Hella, Germany
Henkel Central, Austria
Horizonte Enterprise Development, Netherlands
IBRD, United Kingdom
Imperial Tobacco, United Kingdom
Inexia AB, Sweden
ISS Central Europe, Austria
IHC Holland, Netherlands
KBC, Belgium
KM Moebl, Germany
Lafarge Perlomooger, Austria
Mannesann Rexroth, Germany
Messer Griesheim, Germany
Mobilcom, Austria
Nijaz Hastor, Bosnia and Herzegovina
Novartis, Switzerland (Sandoz Group)
Novem, Germany
Pfledider, Germany
Podravka, Croatia
Renault, France
Rexel, France
Roto Frank AG, Germany
San Paolo IMI, Italy
Safilo, Italy
Siemens AG, Germany
Societe Generale, France
Sodexho Alliance, France
Spar, The Netherlands
STE Troyes, France
Styria Federn, Austria
TCG Unitech AG, Austria
UNI Credito, Italy
Vogt, Germany
Wieneberger, Austria


Web Resources
Employment Service of Slovenia: http://www.ess.gov.si/eng

Ljubljana Stock Exchange: http://www.ljse.si

Public Agency for Entrepreneurship and Foreign Investment:
http://japti.si

Slovenian Intellectual Property Office:
http://www.uil-sipo.si/sipo/

Slovenian Export and Development Bank Inc., Ljubljana:
http://www.sid.si/sidang.nsf

Bank of Slovenia: http://www.bsi.si/en/
GHAFARI