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Foreign Capital in Slovenia
by Neven Borak, Zarko Lazarevic, Joze Princic


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).

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

Neven Borak: PhD Econ., PhD Hist., Assist. Professor of Economics Autocommerce, d.d., Baragova 5, 1000 Ljubljana, Slovenia

Zarko Lazarevic: PhD Hist., Senior Research Counsellor Institute for Contemporary History, Kongresni trg 1, 1000 Ljubljana, Slovenia

Joze Princic: PhD Hist., Senior Research Counsellor Institute for Contemporary History, Kongresni trg 1, 1000 Ljubljana, Slovenia joze.princin©