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Foreign Capital in Slovenia
by Neven Borak, Zarko Lazarevic,
Joze Princic
Introduction
In the pre-1918 period, Slovenia existed as an ethnic and cultural
phenomenon but not as a political-administrative unit or region.
When the first Yugoslav state came into existence in 1918, it
brought several changes as well as the Slovenians entering it.
The Slovenians found themselves in completely different circumstances
hitherto unknown to them. A large part of the Slovenian ethnic
territory became a constituent part of Yugoslavia and within
it Slovenia also became an administrative and political entity
(Ban’s country Drava in the Kingdom of Yugoslavia and a republic
in the Yugoslav Socialist Federation). The »Slovenisation« of
the political and economic life resulted in numerous changes.
Ethnicity integrated with policy and economy, and together they
laid down the firm foundations on which efforts for increasing
autonomy inside the Yugoslav state and full and independent
statehood were based; finally instigating the secession from
Yugoslavia in 1991. These efforts were based on the political
and economic nationalism both of which were successful mobilizers
of the public in the environments lagging behind concerning
industrialization and development. Slovenia was a straggler,
the others forming Yugoslavia together with it were even greater
stragglers.
This paper is divided into five sections. The introduction is
followed by the second section, which deals with the period
between the two World Wars. In Yugoslavia and elsewhere in the
middle and south-eastern parts of Europe, this was a period
»of certain excessive nationalism, which argued in all these
states for laws and measures to make the nation strong and powerful
and to foster the economic power of the state« (Ránki and Tomaszewski,1986,
p. 7). This was the period of »nationalization« or »nostrification«
of alien property and of a certain kind of economic self-sufficiency.
The third section of the paper is dedicated to the attitude
towards foreign capital in socialist Yugoslavia after the Second
World War. Although communists saw socialism as a world process
they did not, in terms of economic and political substance,
move from nationalism, which was additionally imbued with decisions
on autarchic and accelerated industrialisation, based on mobilisation
of human and natural resources and gigantic planned concentration
of monetary funds. In this section we first deal with the nationalisation
of alien property after the end of World War II. Further we
present the grounds which in the sixties of the 20th century
pushed the way to the cognition that the forms of the so-called
higher economic cooperation with other countries should be broadened
and variegated and the institute of joint-ventures legalized.
We draw your attention to the analysis of the hypocritical attitude
of the authorities towards joint ventures and their role in
the Slovene economy during the years from 1967 to 1990.
The fourth section deals with the role of foreign capital in
Slovenia after the disintegration of Yugoslavia and the abolition
of socialism. Concurrently, Yugoslavia and Slovenia found themselves
in an unexpected empty space, which arose when the Soviet Union
fell apart and the bipolar world vanished. The only model for
the future was the European Union to which Slovenia started
to incline towards, just before Yugoslavia fell apart. It made
the Accession Agreement with the EU and bound itself to total
liberalization of capital account and the formation of a free
trade area with the EU.
Finally, there is a conclusion.
Interwar Period
During the first years of Yugoslavia's existence »nationalizations«
or »nostrifications« of alien property in Slovenia played an
important role. In Slovenia these processes were explained by
the following words (Marn, 1938, p. 368–369): » National liberalization
demanded economic liberalization as well. It is our people who
should have the leading role in the economics and not foreigners,
as it was the case until then. It was a period when strict and
energetic measures were necessary.« The Slovene authorities,
which by then, regarding its competencies, had not yet drowned
in the Yugoslav centralism, placed all property owned by aliens
under control by a special regulation on the penultimate day
of the year 1918. This control applied to all companies, which
were diverting their profit abroad and to those that were presumed
to be prone to tax avoidance in Slovenia. All companies having
its headquarters abroad had to organize subsidiaries in Slovenia.
In the event that they were operating in the Slovenian territory
exclusively, they had to transfer their principal place of business
to Slovenia. Circumstances changed four months later after the
Yugoslav government issued a decree which ordered an inventory
and liquidation of alien’s property who under Serbian laws from
1915 and 1916 were subjects of hostile countries to Serbia,
that is of those with which Serbia had been in war. This decree
applied until 1922 and its spirit already differed substantially.
In contrast with the Slovenian decree it subjected a much narrower
circle of aliens to control; but on the other hand, it exceeded
the Slovenian one by provisions which enabled the assignment
of alien property by the Yugoslav citizens (Kresal, 1994, pp.
61–63).
After the registration of sequestration, the enterprises owned
by the subjects of hostile countries could discard the state
control in several ways. Their owners could change their citizenship
for a citizenship of an allied country or they could nationalize
the enterprise by attaining Yugoslav citizenship. Joint stock
companies owned by foreigners could also be nationalized in
such a manner that domestic legal or natural persons took over
the majority stake (55%), of which three quarters of shares
had to be deposited with a domestic bank and blocked for three
years. Apart from that, if the majority in the board of directors
were Yugoslav citizens the company was considered and counted
as a domestic Yugoslav company.
The cases of nationalizations, in which mostly banks were active,
were actually the most numerous in the textile and paper industry.
In general the effects of this action were far from expected.
Contemporaries often established with sorrow that the Slovenians
were not prepared enough and did not know how to secure themselves
a majority stake in the most important factories. »So unprepared,
we Slovenians did not know how to grasp the share which was
available for us at the time of our liberation«, were the words
of Rudolf Marn thinking of it almost twenty years afterwards
(Marn, 1938, p. 369). Such situation was also helped by a failing
concentration of Slovenian financial funds with which the Slovenians
could have planned and purchased or nationalized the economic
entities in foreign ownership. Apart from that it often happened,
as we will see in the continuation, that after a few years the
already nationalized enterprises went straight back into the
hands of the original owners due to sale or fictitious »nationalisations«
( puppets!).
In spite of this severe judgement, one can estimate nostrifications
as positive, namely they rendered the control over, or the »slovenization«
of economic entities in Slovenia possible. In this context the
case of Trboveljska premogokopna družba (TPD) (Trfailer Kohlenwerks-
Gesellscaft; Societe des Charbonnages de Trifail; Coal Mining
Company) Trbovlje is characteristic, which in spite of huge
resistance had to give one quarter of its shares to the disposal
of the Yugoslav bank group and transfer its principal place
of business from Vienna to Ljubljana (Kresal, 1994, p. 62).
By such nationalization it subjected itself to the Yugoslav
legislation regardless of the ownership structure which was
still primarily composed of Austrian and French bank consortiums.
For the Slovenian and the Yugoslav authorities the nostrification
of TPD was an important achievement as this was a huge and in
those circumstances even a colossal company. In view of its
meaning and power it far exceeded the Slovenian boundaries and
even the extensiveness of Yugoslavia was hardly sufficient for
it. TPD was by far the largest Yugoslav company, it owned all
of the Slovenian coal mines, as well as some brick-fields, cement
works and lime factories in the Revirji region. The magnitude
of TPD is evident from the fact that its shares were quoted
at eight stock exchanges, three Yugoslav (Ljubljana, Zagreb,
Belgrade) and at five financial centres abroad: Vienna, Paris,
Prague, Lyon and Geneva (Compass, 1932, pp. 549–555). This data
become even more graphic when the facts are revealed that the
equity of TPD between the two Wars amounted to 200 million dinars,
or as much as 35 % of the entire Slovenian share capital (560
million dinars). Such a huge share of only one company tells
us two stories: it first demonstrates the real magnitude of
TPD, as well as how modest and also at the same time how fragmented
the economic structure of Slovenia was at that time, or about
the Slovenian poverty, as interpreted by Andrej Gosar (Gosar,
1940, p. 96). In the Slovenian economy at that time small enterprises
with little capital prevailed, moreover most of them were registered
as personal companies; and capital companies, especially joint
stock companies were scarce. The case of TPD was indeed specific
and unusual for the Slovenian environment as in other cases
»nationalizations« occurred in much smaller companies and were
in many cases carried out rather superficially, by halves and
fictitiously. One such case of inconsistent ousting of foreign
owners was the »slovenization« of Österreichische Credit-Anstalt
für Handel und Gewerbe Ljubljana Branch. Under changed political
circumstances and legal compulsion the company, if we express
it in today's modern language, decided on an ownership restructuring
into a Yugoslav company. During the process of »nationalization«
the ownership structure changed; the majority ownership and
the majority in the board of directors was taken over by the
Slovenian citizens. The foreign owner, in the changed circumstances
only a partner of the new bank institution called (the name
was merely translated from the German language) Kreditni zavod
za trgovino in industrijo from July 1920 – when the institution
started to operate as a Yugoslav legal person – retained a mere
30% stake (Nemo, 1935, p. 88). The fact that the »nationalization«
was merely apparent, was exposed to view eleven years afterwards
when a domestic consortium took over a stake of the bank. In
spite of the nationalization, the Vienna headquarters owned
88 % of the equity. It is more than obvious that after 1922,
when the state abandoned control over the ownership structure
of companies in the case of Kreditni zavod sales of shares owned
by domestic persons occurred, i.e. a reverse process. Thus Kreditni
zavod became a completely Slovenian bank and only after June
1931 did it also in the terms of actual ownership and not only
by form, but also according to the letter of the law.
A more successful story was noted in the case of Ljubljanska
kreditna banka (LKB) (Credit Bank of Ljubljana), the first Slovenian
bank established in 1900 with the majority stake of Czech origin.
Even this company, which was not liable to nationalization as
it belonged to a friendly country, went through a kind of ownership
restructuring. Upon increasing the equity needed for further
operational growth after the first War the Slovenian citizens
succeeded in obtaining a strong majority share whilst the Czechs
were left merely with one fifth of the shares (Hocevar, 1984,
pp. 268). LKB was actively involved in »nationalizations« of
foreign companies in Slovenia, such as the factories (Litija,
Prebold) of Mautner textile concern in Slovenia, whose owner
was the Vereinnigte Österreichische Textilindustrie company.
On establishment of the independent Yugoslav company Jugoslovenske
tekstilne tvornice Mautner; which stayed under the patronage
of the Czech wing of Mautner associated companies, LKB took
over 55 % of the equity; and the rest was retained by the former
owners of the factories. Following the same parity principles
the management board consisted of: 6 councillors (3 from LKB
and 3 were representatives of the Yugoslav public and business
world) and 5 councillors represented the foreign owners (3 from
Mautner textile concern and a representative of Bodenkreditanstalt
of Vienna and Živnostenska bank of Prague). (Kresal, 1976, pp.
56–57).
By entering the Yugoslav state Slovenia stepped into a completely
agrarian environment. This determined the Yugoslav economic
policy, which due to strong desire for industrialization had
to be protective. Barriers determined by a new customs tariff
in 1925 safeguarded the domestic economic potentials. The customs
duties of imported goods were fixed depending on how developed
respective economic fields were, the average customs duties
in agriculture amounted, on average, to fifty percent of the
value and for industrial products one fourth of the value, on
average (Ogris, 1932, p. 323; Pitic, 1989, pp. 114–116). Industrial
goods were imported goods subjected to the lowest import duties.
In order to surpass the agrarian character of its economics,
the Yugoslavian government allowed and encouraged foreign investment
into domestic economy. Foreign capital, foreign investments
and the transfer of technologies during the first years were
desired due to capital scarcity and technological backwardness
of the Yugoslav economy; therefore the authorities did not introduce
impediments for the foreign investors to enter our market. On
the contrary, they tried to smooth the first entry steps by
customs and tax policies. Thus they allowed duty free import
of second hand machinery and employment of foreign experts and
managerial staff in companies (Kresal, 1987, p. 34).
During that period Slovenia proved to be quite an attractive
environment for foreign investors. In regard to industry and
technology, Slovenia was the most developed part of Yugoslavia.
Its traffic infrastructure was solid (railways, roads, telegraph
and telephone service) and there was abundance of (literate)
labour with elementary education. Apart from that it had a large
market in the hinterland, hungry for various consumer goods
and it did not possess any serious competition and was protected
by customs duties. The same as in the exchange of goods Austria
and Czechoslovakia used these opportunities best so proving
to be the most important exporters of capital and technology
for Slovenia. The above stated circumstances and the openness
for foreign investments resulted in the fact that the share
of foreign capital in Slovenia was large, it amounted to one
third of investments before the Second World War. The majority
of capital in Slovenia was of Austrian and Czechoslovakian origin.
Their important share was the result of steady financial flows,
already established before the First World War, namely it was
characteristic that the western European financiers conducted
business with the Yugoslav and other eastern European markets
through the Viennese and Prague intermediaries. The Austrian
and the Czech investors cooperated in Slovenian banking through
two of the largest and the most important Slovenian banks. To
illustrate the impact of these two bank companies as well as
foreign capital, let us tell that in 1932 Ljubljanska kreditna
banka and Kreditni zavod za trgovino in industrijo together
directly controlled as much as 46% of the share capital in Slovenia.
The first mentioned bank held a good fifth and the second mentioned
held a good one seventh of share capital. In the middle twenties
the banks with foreign participation in capital held a two-thirds
share of the market, but later it diminished.
Austrian and Czech direct investments into Slovenian industry
were also considerable, mostly in the textile industry. By financial
investments, transfers of technology and transferred production
in Slovenia the Austrian and Czech companies were solving the
problem of excessive capacities in their home countries and
simultaneously they were satisfying the needs of the Yugoslav
market. The ownership structure of the Slovenian textile companies
shows that in 1935 70% of the companies were in foreign ownership.
The Czech investors topped the list, being the owners of 40%
of textile companies and the Austrian companies holding a half
smaller share followed them. Also Polish capital was present
in our textile industry so there were two textile mills owned
by Polish citizens (Kresal, 1976, p. 155). Simultaneously with
the foreign capital entering the Slovenian economy, employment
of nonresidents in the alien owned companies took place, of
various skilled workers, technical and managerial staff (Kresal,
1987, p. 38). It would be surprising if data were different
than what was observed until now. They are completely in accordance
with expectations: the most numerous groups of non-Yugoslav
residents – employees in the Slovene economy were Austrian (22%)
and Czechoslovakian (12%) citizens (Kolar-Dimitrijevic, 1973,
pp. 128–29).
Communist Yugoslavia:
Nationalization of Foreign Property After WWII
After the end of World War II communists came to power and it
became clear that in the economic life of the new state there
would be no space for individual entrepreneurship nor private
property of domestic or foreign origin. According to the revolutionary
theory, collective property and government initiative were two
conditions for »unlimited rule of socialism and its economic
system«. The new government let the cooperative and private
property live for tactical and practical reasons just for such
a period of time it needed for the renewal and revitalization
of economic life.
The nationalization of foreign property was a demanding and
delicate operation. It necessitated deliberate, gradual, sometimes
even concealed measures and procedures, especially in the cases
of property of western European citizens and some other countries
which represented the allied coalition during 1941-1945.
The so-called German property was subjected to the process of
nationalization first. Since February 1945 the property of the
German Reich, its citizens and the property of persons of German
nationality was nationalized. The fundamental reason for this
was the reparation for huge damage caused by the German occupying
authorities and military forces to the Yugoslav territory during
1941 to 1945 as well as the great economic power of the German
minority in Slovenia, amounting to about one hundred thousand
members. More than ninety percent of German property was confiscated
in Slovenia. (Princic, 1998).
The nationalization of the capital of the allies and of neutral
countries, the presence of which in the pre-war Yugoslav economic
property was great, was a more complicated and initially a delicate
process. By a precocious nationalization Yugoslavia would certainly
aggravate its international position, prolong its way to international
recognition and limit its potential to renew its economic bonds
with these countries. Therefore the Yugoslav government protracted
the beginning and the course of negotiations with these countries.
Following the directives of the communist party leadership the
Yugoslav representatives insisted that each case should be solved
on the basis of the Yugoslav legislation and practice while
the other side persisted in the use of international law. The
problem was aggravated when foreign countries nationalized bigger
companies owned by their citizens in Yugoslavia by which act
that state appeared as the owner. In this situation the Yugoslav
government had two choices: to obtain mutual treaties by which
it could assure itself at least a partial consideration of its
standpoints or to carry out a nationalization. It decided for
the latter option (Petranovic, 1969). The companies and institutions
with the capital of allies and private capital first came under
sequester and the state as a temporary administrator did not
limit itself to the company administration but in opposition
with the international law it appropriated their accumulation
as well (Princic, 1994, pp. 35–37). The state got hold of one
part of the companies with the first nationalization at the
end of 1946 and the remaining came under the second supplemental
nationalization in the spring of 1948. By this economic-political
measure the period of nationalization of foreign property ended
in the second Yugoslav state (Princic, 1994, pp. 77– 100).
Communist Yugoslavia:
Joint Ventures
Foreign trade policy immediately after WWII followed three basic
objectives: 1. To monopolize foreign trade; 2. To establish
a barrier between the domestic, planned economy and foreign
market economies and to isolate domestic economy from fluctuations
in the capitalist world; 3. To put into effect a policy of economic
autarchy identified with economic independence for the Yugoslav
economy in the form of a closed, socialist, planned economy.
The changes in due course did not alter these basic principles.
These principles were never abandoned despite some efforts made
to introduce some minor incentives on a micro level motivated
by poor balance of payments results and foreign exchange shortage.
Rhetoric used by authorities involved steps like tolerance of
foreign trade, then the principle of commercial gain, followed
by integration into an international division of labour. Foreign
capital entered Yugoslavia as debt capital and not as equity
capital. Its final users were entities backed with the government's
guarantees and not those who could assure the best use of it.
Capital inflow was regulated more by the monetary circumstances
outside and inside Yugoslavia than it was by economic criteria.
Quick industrialisation of the country and the desire for self-sufficiency
very quickly faced balance of payments constraints. Such circumstances
demanded considering a new development strategy in opening to
foreign countries. All of the sudden cooperation with other
countries assumed a modernization role. With the expansion of
the foreign trade activities, the country could secure itself
the necessary foreign currency and credits which were badly
needed and would open possibilities for companies to develop
different forms of business, technical and other cooperation
with companies abroad by which their endeavours for the modernization
of obsolete equipment and production plans would get a more
factual and stimulating foundation. Considerations about a new
orientation in development was also encouraged by two facts:
The International Monetary Fund conditioned the release of a
300 million $ loan by loosening of foreign trade regulations
and a foreign currency reform (Pirjevec, 1995, p. 247) and the
demands of Slovenia and Croatia for a more market oriented reforms
and for the opening of the countries outwards.
In the middle of the sixties the economic circles suggested
incentives for the participation of foreign capital in domestic
economy investments. Soon it became obvious that this was a
very »delicate« matter and was not able to be solved easily
nor quickly (Delo, 21.1.1976). The harmonization of the interests
of the Yugoslav investors with the interests of foreign investors
was the most difficult. The speakers in favour of tighter bonds
with foreign capital endeavoured for a legislation to attract
foreign investors, as they were aware that the Yugoslav market
was not attractive for them due to the lack of firm assurance
for a secure investment. In the struggle of different factions
inside the communist party the conservative faction prevailed.
The initial reform steps were stopped at the end of the sixties.
The conservative political faction again put forward the autarchic
development plan from the fifties and leaning on domestic forces
and the substitution of import with domestic production. However,
we should not idolize the advocates of inclusion of foreign
investments into the Slovenian and Yugoslav economy either.
They were of the same opinion as the conservative faction that
foreign capital could not have a position it had in other economic
systems and that it could not in any way encroach upon the rights
of the socialist disposition (Princic, 1999, p. 245). Therefore
in the Slovenian and the Yugoslav case we cannot speak about
foreign direct investments but about joint ventures. Joint venture
agreements known by the Yugoslav legislation was »an excellent
example of trans-ideological cooperation between two distinctly
different partners« that represented »a unique symbiosis of
interests between the Western capitalist MNC and the Yugoslav
labour-managed enterprise« with different major underlying objectives
of two partners (Sarkovic, 1986, p. 155). Joint ventures were
a form of industrial cooperation between market economies and
socialist Yugoslavia. It involved pooling of assets, sharing
of profits and risks according to a commonly agreed formula.
They were neither pure credit relation nor equity capital.
Foreign direct investments were too dangerous for the zealous
custodians of socialism. They did not even like joint ventures.
The operations analyses of the companies, which had received
foreign investment, helped them as they were revealing subordinate
positions of domestic companies. The findings in Slovenia showed
that foreign entrepreneurs decided on investments if they had
assured a (direct or indirect) market for the sale of their
products, equipment and licences, if in this way they obtained
certain raw materials, inexpensive labour and if their income
was subjected to lower taxes than at home. By these agreements
the Slovenian companies were assured investment funds, a quick
and relatively large income on the market and an almost balanced
foreign exchange payment inflows and outflows. However, by these
agreements they did not obtain modern technology, they could
only sell their products on the domestic (Yugoslav) market and
to those eastern socialist countries where foreign partners
had no sales units of their own. The companies often had to
limit their exports to West European countries and the earned
foreign currency income often did not suffice for distribution
of foreign currency profit to foreign investors. The latter
were very cautious when investing financial funds; therefore
a large deal of investments were intended for the so called
know-how. Foreign partners wanted to have insight into the financial
operations and development programmes of the companies. They
strived to obtain monopolistic and hidden profits which they
were putting into effect by selling their equipment and reproduction
materials at world prices and achieving lower export prices
for the jointly manufactured goods in Slovenia. Some of the
agreements were made in such a manner that the foreign partner
became a co-owner of the company by investing.1
Therefore the Yugoslav federal government aggravated the regulations
and conditions for foreign investments in each case.2 Thus,
for instance, a domestic company could not conclude an agreement
on joint venture with a foreign person if the agreement did
not render the export of products possible. The agreement had
to stipulate the export quantity as well as the value of products
in appropriate foreign currency by which profit distribution
and the restitution of the invested funds were assured to the
foreign person.
It was also impossible to determine by the agreement whether
the board of directors would decide on some the most important
business matters such as adoption of planning and general self-management
acts, the determination and distribution of profit, the conclusion
of credit and loan agreements and similar. An alien could invest
equipment into a Slovenian company only if its value did not
exceed one third of the total investment of a foreign investor
and if such equipment was not produced in Yugoslavia and if
it was of adequate quality. This regulation diminished the already
scarce interest of foreign companies to invest into Yugoslav
economy.
The rising economic problems and different standpoints of the
republics towards foreign investments dictated adoption of new
legislation, which would be more encouraging for foreign investors.
In April 1978 a new Law on Foreign Investments in Domestic Companies3
came into force assuring a special protection of foreign investors.
A foreign investor thus obtained the same rights as domestic
companies regarding income, the right to transfer the income
abroad and the right to the restitution of the property, which
had been confiscated due to general interest. This Law expanded
the scope of foreign investments but excluded investments in
the lines of insurance, trade and social activities. In the
beginning of the seventies the Slovenian authorities saw foreign
investments as an opportunity for paving the 1 Archives of the
Republic of Slovenia (ARS), 1589-IV/761, Minutes of the 20th
session of the Presidency Central Committee of the League of
Communists of Slovenia, 13 February 1976, Certain elements for
the evaluation of implementation of ideas and political standpoint
of the League of Communists in the field of foreign trade in
Slovenia, 10 Feb. 1976.
2 Official Gazette of the Federal People's Republic of Yugoslavia,
No.26/375, 18.6.1976, Decree on precise conditions for investments
of aliens into domestic organizations of associated labour.
3 Off. Gaz. of R Yugoslavia, No.18/312 of 7 April 1978.
way to developed markets and the technological modernization
of the Slovenian economy.4 Slovenian companies had already concluded
some joint venture agreements during 1968 and 1969 which were
»more or less trial operations, since none of them survived
until today« (Rojec, 1994, p. 90). The most productive years
were from1971–1974. As many as 17 joint ventures from that period
could also be found working in 1986 when 27 joint ventures were
operative (Rojec, 1994, p. 90) and as many as 9 among them are
nowadays still considered successful foreign investments in
Slovenia.
But the standpoints of the communist party remained steadfast.
They feared that with foreign investments domestic companies
would become economically and technically dependent on foreign
countries, they feared harmful transference of ideologically
disputable ways of production and operations organizing and
appropriation of domestic profits by the aliens. In the years
to follow even the communist party leadership toned down their
standpoints. After 1975 the Yugoslav regulations and administrative
procedures grew more restrictive. Therefore the Slovenian companies
preferred to enter into agreements on long-term production cooperation,
leasing and sub-contracting rather than joint venture agreements.
Even the joint ventures entered into before 1975 felt that the
authorities were not in favour of foreign investments. The import
and the transfers of profits abroad were restricted therefore
the partners resorted to agreements on long-term production
cooperation which rendered untroubled exchange possible in cases
when import did not exceed the export and the transfer of profits
abroad by transfer prices. Therefore until 1988 each joint venture
was accompanied by a long-term production cooperation agreement.
In such circumstances the interest of foreigners for joint investments
into the Slovenian economy continued to decrease. By 31 December
1982 only four new agreements were entered into and there were
only 32 valid and still in operation. The share of foreign funds
in joint ventures had decreased to 23.5%.
Although joint ventures fell short of expectations, the political
and administrative leaderships did not pay any attention to
it. But after 1982 the circumstances started to change. Yugoslavia
went through an external debt crisis. Again considerations of
foreign direct investments awoke. These considerations demanded
a new verification of rigid ideological and political criteria.
Twenty years old rules enabling only restricted use of foreign
capital had to be changed. A foreign investor could not obtain
any proprietary rights in an organisation, which was a joint
venture and could retrieve the invested funds only if all conditions
for their retrieval were met. But there were no results. The
apparent and the factual attempts to liberalize the system of
foreign investments were directed merely towards particular
improvements but they did not deal with the basic problems,
therefore they yielded no success.
The ambiguous attitude of the authorities towards foreign investments
was also demonstrated by figures. In general the data, which
are available, are quite reliable. During the period 1968- 1988,
368 joint venture agreements with 1.124,4 million US$ of »contractually
agreed foreign resources« were registered in Yugoslavia. But
in fact a much lesser number of them were 4 ARS, 223-2452, Minutes
of the 26th session of the Executive Council of the Assembly
of Socialist Republic of Slovenia, 23 March 1970, Proposition
on issuing a resolution on long-term economic and political
development of Slovenia; 222-4229, Minutes of the 53rd session
of the Executive Council of the Assembly of the R Slovenia,
23 October 1973, Resolution on economic contacts of SR Slovenia
with foreign countries. carried into effect. In 1987 only 144
joint ventures responded to a regular and obligatory statistical
survey and they reported only 507 million US$ of invested foreign
funds by the time (Svetlicic and Rojec, 1991, p. 29). It was
estimated that Slovenia with less than 9% of the Yugoslav population
absorbed 22% of foreign direct investment projects and 30% of
total invested foreign resources went to Slovenia (Rojec, 1993,
p. 8).
An intensive process of transformation of political and economic
life started in Yugoslavia towards the end of the eighties.
The faith in society owned property and self-management in a
one party system vanished. A changed regulation in 1988 introduced
equity joint ventures and wholly foreign owned subsidiaries.
In 1989 and 1990 no less than 3,500 new foreign direct investment
projects have been registered in Yugoslavia, with 1.729 mill
US$: 9.6 times more contracts with 30% more funds to be invested
than in the past 22 years: 68.5% have been joint equity ventures
776 mill US$, followed by 18.5% wholly foreign owned companies
with 181 mill US$ and 13% contractual joint ventures with 760
mill. US$( Ursa – I suggest you use the following US$M amount)
(Svetlicic and Rojec, 1991, pp. 29–30). In reality it was about
small amounts and investments into less important companies
and businesses. Almost one third of foreign investors and outside
partners were natural persons and 80% of domestic investors
were natural persons as well. However, in the old joint ventures
foreign legal persons prevailed. Yugoslavia with its huge internal
problems was not interesting for foreign capital therefore it
fell out from the world investment game at that time. The circumstances
in Slovenia were not any better: in 790 projects, registered
during the years 1989–90 there had been an average of 1100 German
Marks invested per project (Rojec, 1993, p. 10).
The Opening of Independent Slovenia
With the fact that foreign capital “was lingering” in front
of an open door the new political orientation, which took over
the leadership in Slovenia in the spring of 1990, led the republic
into secession. The new Slovenian government resolved to follow
the example of western European countries in regard to foreign
investments. It decided on a liberal attitude and to use restrictions
only to protect the non-defined national-economic interest or
if we use the term widely used today »the national interest«.5
During 1991-1992 Slovenia adopted legislation which rendered
restitution of the property confiscated after the war, privatisation
of the housing apartments and privatisation of society owned
companies possible. It concluded the Accession Agreement with
the European Union, foreseeing total liberalization of payment
balance and the formation of the free trade area with the EU.
Of course the total liberalization of payment balance means
removal of all obstacles for foreign direct investments, portfolio
investments and investments in real estate. Privatisation of
enterprises in social ownership was carried out as a non payable
distributional privatisation: 20% of shares of any privatisation
bound company were transferred to two parastatal funds (Pension
Fund and Restitution Fund); 20% of the shares were transferred
to authorized investment funds which collected vouchers of the
population; 20% of the shares were reserved for a favourable
exchange for the vouchers of internal owners (managers, employees
and previous employees); 40% were alternatively intended for
purchase with a discount by the internal owners and for the
exchange for vouchers at public sales, for the 5 ARS, 223-4873,
35th session of the Executive Council of the Republic of Slovenia,
22 Nov.1990, Elements of strategic orientations(directions).
exchange for the vouchers collected by authorized investment
companies or for the purchase by strategic owners. The insiders
chose the type of privatisation.
Simultaneously such privatisation was a unique »nostrification«
of property with the role of the insiders, para-statal funds
and investment funds strongly emphasized. We could say that
the nationality of capital is being preserved by the control
of the insiders and the state. Because of this there were almost
no sales to strategic owners: out of 1500 companies only a few
ten chose privatisation against payment with the sale to strategic
owners, all other chose variants of distributional privatisation.
The insiders (managers and employees) used the opportunity of
first option for 40% of the shares. In general the companies
came under the control of two groups of owners: the insiders
and para-statal and investment funds. Domestic and foreign persons
who could figure as strategic owners were thus excluded from
the first round of privatisation. It is expected that the second
round of privatisation will bring about the consolidation of
ownership; the ownership structure of companies will change
and the number of owners will be reduced. In this phase concentration
of ownership in the hands of the management and the abovementioned
funds is expected. This phase, which is not yet complete, is
not in favour of foreign persons as strategic partners either.
But the truth is that there are no real reasons to impede foreigners
entering anymore. In spite of that, Slovenia is not regarding
its attitude towards foreign investments, excessively in its
favour. The feeling of self-sufficiency is present to a great
extent. The attitude towards foreigners in public is still formed
under the influence of the alleged exploitation before World
War II. However, the consolidation and the concentration of
ownership cannot go on without foreigners any more. Foreign
capital increases the meaning and the role of Slovenia. It penetrates
all economic fields, also the very sensitive bank field. The
data available show roughly the following picture. The study
C.E.E.P.N. (Simoneti et al., 2001) using a sample of 183 companies
followed from the completion of their privatisation found about
10% of ownership held by aliens by the end of 1999. The Economic
Chamber of Slovenia reported a 7.2 percent share of foreign
owners after inspecting 60 of the largest Slovenian companies
in 2000 (ECS, 2001). The Bank of Slovenia reported 12 percent
ownership in banks held by foreigners by the end of 2000 (Bank
of Slovenia, 2001). The Agency for the Supervision of Insurance
Companies reported a 5 percent control over the insurance market
held by foreigners (ACIC, 2001). Foreign owners are thus already
here. The increase in their presence in the future is not to
be doubted. The government wrote in its strategy of economic
development that the national interest »cannot be reached on
a long-term basis by closing and by protecting the national
producers and national culture« (SGRS, 2001). Therefore let
us conclude this review by a survey of movement of foreign investments
in Slovenia during the 1993–2000 period (Table 1).
Conclusion
After WWI, similarly as elsewhere in Middle and Eastern Europe,
harmonization of political and economic reality was taking place
in Slovenia, too. After years of national »euphoria« and the
processes of »nationalization/nostrification« of foreign property
the desire to remove the consequences of the »unjust past« was
expressed. The national euphoria calmed down and the attitude
towards foreign capital returned to normal. It became desired.
Slovenia turned out to be attractive for foreign investments.
All the time up until WWII, alien companies were regarding operation
conditions and state control, subjected to the same legislation
as domestic ones and there was no segregation on the status
level. In the twenties foreign capital was flowing into Slovenia
and Yugoslavia. After the outburst of the serious economic crisis
the flows turned in the opposite direction; foreign capital,
mostly financial was leaving Slovenia and Yugoslavia.
During the period of socialism attitude towards foreign capital
and foreign investments was negative regardless of the awareness
of the negative sides of economic self-sufficiency. The introduction
of the options for foreign investments after 1967 did not cause
foreign investments to »pour in«. Joint ventures were not ordinary
loans since they included risk and profit sharing. They were
not equity investments either. Neither Slovenia nor Yugoslavia
could get rid of the negative, dependent on ideology, attitudes
towards foreign direct investments; therefore their inflow in
the form of joint ventures was marginal, moreover joint ventures
became a mere instrument for avoiding import and foreign exchange
restrictions. In spite of such attitude Slovenia attracted more
joint ventures than the other parts of Yugoslavia.
Deep radical reforms going on in Slovenia after its independence
did away with ideological opposition to foreign investments
and aliens as owners of property in Slovenia. But not all of
the contradictions have been removed. The remaining ones are
demonstrated in the form of concern for national interest demanding
from the government an invigorated regulation of foreign investments
influx and aliens’ ownership of property. Data shows that foreign
investments doubled in the period from 1993 to 2000. There is
no doubt about the increasing influence of foreigners in the
Slovenian economy in the future. The more Slovenia amalgamates
with the European Union and NATO, what are its declared aims,
more foreign capital is to be expected. The problem thus arising
is also of an economic nature. There are quite a number of companies
and banks, which have a monopolistic or at least a leading position
on the Slovenian market and they are mainly owned by the state.
Since pressure is exerted for their privatisation and aliens
should take part in it, the government will have to face the
consequences of its own insufficiency as far as its competitive
market oriented policy is concerned. It might happen that the
state owned monopolistic companies become private. In such case
the feeling of national exploitation may increase. The opening
to the outside world may involve negative features as transfers
of the profits created in Slovenia abroad through transfer prices,
a bigger pressure on domestic economic policy by aliens and
bigger threats to domestic companies all of which may very soon
cause the feelings of exploitation.
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Prepared for:
The European Business History Association Annual Congress: Helsinki,
August 22nd to 24th 2002
Authors:
Neven Borak: PhD Econ., PhD Hist., Assist. Professor of Economics
Autocommerce, d.d., Baragova 5, 1000 Ljubljana, Slovenia neven.borak@autocommerce.si
Zarko Lazarevic: PhD Hist., Senior Research Counsellor Institute
for Contemporary History, Kongresni trg 1, 1000 Ljubljana, Slovenia
zarko.lazarevic@guest.arnes.si
Joze Princic: PhD Hist., Senior Research Counsellor Institute
for Contemporary History, Kongresni trg 1, 1000 Ljubljana, Slovenia
joze.princin©guest.arnes.si
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