Slovenia: Europe’s green jewel


bled1

Introduction

Slovenia is known as the last green jewel of Europe. It has spectacular mountains, lush thick forests, crystal clear lakes and rivers, a short Adriatic coastline, and Tuscan style vineyards. It is only 20,273 km2, and measures approximately 240 km east to west, and 130 km north to south. The population is a little over two million, of whom 350,000 live in the capital city of Ljubljana.

Slovenia is situated to the north of the Adriatic sea, bordered by Italy to the west, Austria to the north, Hungary to the east and Croatia to the south.

The country became part of the Federal People’s Republic of Yugoslavia in 1946, before declaring independence in 1991 and moving to market capitalism.

Slovenia is the most affluent of the accession states with Income per capita forecast at €18,473 for 2015, according to Unicredit Bank.

Home ownership is high almost 80% and because many homeowners acquired their properties during transition to a free market economy at low prices.

Slovenia recorded a Government Debt to GDP of 83.56 percent of the country’s Gross Domestic Product in January 2015 reaching an all time high. Many luxury and mid level brands have good market penetration.

Slovenia is considered an attractive investment destination for the following reasons:

It was the first of the 10 EU accession countries to join the Euro zone, having adopted the currency on 1st January 2007.

Slovenia joined the Schengen zone on 21st December 2007, and there are now no borders with Italy, Austria and Hungary.

Tourism is the third largest sector of the economy and is predicted by the World Travel & Tourism Council to grow at an estimated 5% per annum 2008-2018, versus 3.5% EU and 4.4% annual global growth.

Corporation tax was reduced from 21% to 20% in 2010.

Slovenia is a member of NATO and the OECD.

 

Economic Context

Key economic indicators prepared by Unicredit Bank are shown in the table overleaf. The perceived strengths and weaknesses of Slovenia are as follows:

Strengths – Recovery in export growth, manufacturing activity picking up and Government embarks on structural reform program.
Weaknesses – Private consumption remains weak and wage trends potentially exceed productivity gains.

While the headline fiscal deficit is expected to be above the targets due to the significant expenditures related to bank recapitalisation in 2013 and 2014, the deficit is also projected to exceed the target in 2015 under a no-policy-change scenario.

Slovenia entered recession later than western European markets, and suffered only one year of economic decline during 2009. The economy was originally predicted to contract by only 2%, but the year ended up worse than anticipated at -4.7%. Economy is slowly catching up, but remains subdued due to weakened domestic consumption. A recovery is only expected in 2015, supported by strong net external demand and growing investment activity.

Industrial production and merchandise export are the main positives in Slovenia. Signs of increasing recovery have been visible recently with 2% year-on-year increase in GDP.

Pay in Slovenia rose by about one percent year-on-year in November, though it was significantly higher over the month before due to end-year bonuses.

The average gross wage rose was 1% over the year, while the average net wage increased by 0.8%.

Compared to the previous months net wages rose 4.6% and gross wages by almost 6% in nominal terms.

The inflation rate in Slovenia was recorded at 0.20 percent in December of 2014. Inflation Rate in Slovenia averaged 5.69 percent from 1994 until 2014, reaching an all time high of 22.60 percent in August of 1994 and a record low of -0.60 percent in July of 2009.

Slovenia recorded a Current Account surplus of 102 EUR Million in November of 2014. Current Account in Slovenia averaged -10.68 EUR Million from 1996 until 2014, reaching an all time high of 345.80 EUR Million in September of 2014 and a record low of -378.10 EUR Million in July of 2008.

The regional outlook in Croatia, Bosnia and Serbia is improving which will provide a boost to Slovenia’s exporters. Serbs can now travel to Slovenia without visas and this is expected to help increase tourism, particularly to coastal and mountain regions.

Market conditions have also improved significantly, while sovereign cash buffers remain large, allowing the sovereign to cover all of its financing needs.

Although the budget deficit in Slovenia has increased, it is moderate compared to most other European Countries.

 

Macroeconomic data and forecasts

2012 2013 2014F 2015F 2016F
GDP (EUR bn) 36.0 36.1 37.4 38.2 39.5
Population (mn) 2.1 2.1 2.1 2.1 2.1
GDP per capita (EUR) 17,517 17,550 18,115 18,473 19,086
Real economy yoy (%)
GDP -2.6 -1.0 2.5 1.8 2.8
Private Consumption -3.0 -3.9 0.3 0.6 1.0
Fixed Investment -8.9 1.9 5.8 2.8 3.8
Public Consumption -1.5 -1.1 -0.8 -1.4 1.4
Exports 0.3 2.6 5.5 5.3 6.0
Imports -3.9 1.4 4.6 4.5 5.3
Monthly wage, nominal (EUR) 1,526 1,523 1,539 1,554 1,562
Unemployment rate (%) 8.9 10.1 10.0 9.6 9.1
Fiscal accounts (% of GDP)
Budget balance -3.7 -14.5 -4.6 -3.3 -2.8
Primary balance -1.7 -12.0 -1.4 -0.1 0.8
Public debt 53.4 70.4 78.3 81.3 80.7
External accounts
Current account balance (EUR bn) 1.0 2.1 1.9 2.1 2.4
Current account balance/GDP (%) 2.8 5.8 5.0 5.5 6.0
Basic balance/GDP (%) 3.3 4.2 8.4 10.0 8.4
Net FDI (EUR bn) 0.2 -0.6 1.3 1.7 1.0
Net FDI (% of GDP) 0.5 -1.7 3.5 4.5 2.4
Gross foreign debt (EUR bn) 41.3 39.9 41.5 43.5 43.5
Gross foreign debt (% of GDP) 114.6 110.5 111.0 113.8 109.9
Inflation/Monetary/FX
CPI (pavg) 2.8 1.9 0.4 0.7 1.5
CPI (eop) 3.1 1.1 0.2 1.3 1.6
EURIBOR 3M EUR EUR EUR EUR EUR
EUR/USD (eop) EUR EUR EUR EUR EUR
EUR/USD (pavg) EUR EUR EUR EUR EUR
00

 

Industry Overview

In the previous 15 years, the Slovenian tourist industry has registered an above-average growth; the number of foreign tourists has increased by 160%. Today, the tourist industry produces 3 million arrivals and 9 million overnight stays, and approximately €1.8 million of tourist revenues from outgoing tourism, which represents 40% of the export of services. Tourism is becoming an increasingly important industry, since it provides (directly and indirectly) jobs for every tenth employee, whereas its share in the GDP amounts to 12.3%. The ranking of Slovenian tourism in terms of global tourist competitiveness is also improving.

The largest source market for international tourists to Slovenia is Italy (36 %), followed by Austria(13 %)and Croatia (8 %). All of these countries border Slovenia and so ease of access to the destination is a key influencing factor. Indeed, two-thirds of tourists arrive by car indicating the strong demand from neighbouring countries.

Historically, the main attraction for Italian tourists visiting Slovenia was gambling. Over recent years this has become less popular as a result of the availability of on-line gambling and a loosening of the laws over gambling in Italy.

Slovenia’s tourism assets are diverse and attract a range of different types of tourists, and facilitate a relatively long tourist season. The main purpose of visit is for leisure, accounting for over 75% of arrivals. Tourists can enjoy a range of winter sports in the mountains, while the 48km coastline provides an attractive summer and Autumn destination. The graph overleaf summarises the different types of destinations available within Slovenia and the popularity (by volume of overnights). Mountain and health resorts are the most popular destinations, followed by the coastal resorts.

Slovenia’s coastal region gets 22% of all tourist arrivals to the country, ahead of Ljubljana with 9%, while most of arrivals are in the municipalities with Healt and Spa resorts, 32%.

The monthly occupancy on the coast is also different to other regions in Slovenia, following the typical Mediterranean pattern of high occupancy from April to October.

In 2012, for the second year running, tourist accommodation facilities recorded the most arrivals and overnight stays by tourists to date. Almost two thirds of overnight stays by tourists in 2012 were realised by foreign tourists.

The average length of stay for tourists to Slovenia is three nights, reflecting the short-break / long-weekend demand from neighbouring countries and the growing importance of the domestic market. The everage length of stay is 2.8 nights.

A significant focus over recent years has been on the promotion of health and wellbeing resorts and activities, and as a result, this has become one of the fastest growing sub-sectors within Slovenia fuelled by demand from Italians, Austrians and Slovenes. This sector has also fared better in the recession than conventional beach tourism and generates a longer length of stay than other types of tourism (4.0 nights in comparison to the national average of 3.0 nights).

Destination within Slovenia (overnights)
The number of tourist arrivals from key European markets in Slovenia
The number of tourist arrivals from other European markets in Slovenia

Slovenia has invested heavily in the development of hotels with good quality conference facilities and continues to attract an important market in terms of value.

Together with its indirect impacts, tourism contributes 13% of total GDP.

With it’s 40% export it is the largest exporter of services providing 12% of all jobs. This primarily reflects the economic activity generated by industries such as hotels, travel agents, airlines and other passenger transportation services.

The Slovene Tourist Board aims to increase tourism’s contribution to GDP to 15% by 2015, which will place Slovenia in the top 25 countries worldwide, up from 36th place at present. Much of this growth is anticipated to come from a range of significant investments in the countries tourism infrastructure.

Since 2007, approximately  €500 million has been invested, made possible through EU grants, and matched by local and regional government financing. This investment has helped modernise and improve quality and standards but the challenge has and continues to be the sustainability of these new operations within a declining tourism market, along with the impact upon existing operations in Slovenia which are having to reduce pricing to maintain market share.

 

Slovenian Hotel Market

Latest official data indicates that there were some 43,000 rooms provided within tourist accommodation in Slovenia.

The figure bottom right summarises the key categories of accommodation. As shown, between 2007 and 2008, there was a significant increase in the provision of accommodation, largely as a result of the EU grants and local government matched funding.

Hotels in particular witnessed a significant increase, from 15,221 rooms to just under 18,000 rooms over this period – an 18% increase.

There are 289 hotels in Slovenia registered with the national tourist office, broken down as follows:

  • Five-Star – 5%
  • Four-Star – 40%
  • Three-Star – 48%
  • Two-Star – 6%
  • One-Star – 1%

Most hotels are owner operated, and there are only two international operators present in Slovenia, the Austria Trend, with a property in Ljubljana, and Kempinski, operator of the Kempinski Palace Hotel in Portorož.

There are five hotel groups that dominate the hospitality industry:

  • Bernardin Group – owned by NFD Holding.
  • Hit Hotels – majority state owned gaming company with 11 hotels in Kranjska Gora, Nova Gorica and Bovec and one Resort & Casino development in Montenegro.
  • Sava Hotels – hospitality subsidiary of the Sava company that manufactures tyres (now owned by Goodyear), with 15 hotels near Lake Bled and in other locations in Slovenia.
  • Group Terme Čatež – owned by Terme Čatež d.d., with five spa hotels between Ljubljana and Nova Gorica.
  • Lifeclass Hotels – owned by Istrabenz Turizem, with 8 hotels on the Slovene, Croatian and Italian coastlines, including the Kempinski Palace Hotel.

Other hotel properties in Slovenia are typically owned by individuals, families or companies.

Supply of tourist accommodation (rooms)