Address by the President at the FDI Summit Slovenia 2010

Bled, 21.10.2010  |  speech

Address by Dr Danilo Türk, President of the Republic of Slovenia, at the FDI (Foreign Direct Investment) Summit Slovenia 2010
Bled, 21 October 2010


Thank you,

Mr Brane Krajnik, the director of Slovenian Times,
Ladies and Gentlemen,
Distinguished participants,

It's a great pleasure and privilege to be here, to take part of the Foreign Direct Investment Summit Slovenia 2010 and to address some of the issues which are central to the current Slovenian debates on development and, more broadly, on our economy and on our future destiny.

The paper, which was prepared for this occasion, the introductory note, starts with a rather harsh judgement. It says that Slovenia finds itself in "a period of stagnation" and that it has entered that period of stagnation about two years ago. So the last two years Slovenia is allegedly in a period of stagnation.

One can have different views on that diagnosis. Is it correct? Is it too harsh? But whatever approach is taken, we have to understand that this is a time for self-reflection, a reflection about our economic outlook, about our visions for the future and about the necessary change. This is a period of change. And irrespective of how harsh we are with regard to judging our current condition, we all agree that change is necessary.

But in order to define the current situation properly and to find proper way towards improvement in the future, we have to understand the determinants of the economic and social situation of Slovenia as regards direct foreign investment. It’s also important to understand the historic context which has created a relatively conservative mentality in Slovenia with regard to direct foreign investment.

It’s important to understand how has Slovenian economy developed in the past decades and why it requires very careful examination when it comes to the question of steps to be taken for the future. In my opinion it is important to understand that for a number of decades Slovenia lived as a part of an economic system, which was based upon the principle of import substitution. Import substitution was the order of the day throughout the entire period of former Yugoslavia and it has had important implications both in economics and in politics. It has created a certain mentality of suspicion and mistrust vis-à-vis direct foreign investment.

For Slovenia the development model, which was based on import substitution, was not necessarily a bad model, because it offered us a large market in Yugoslavia. It offered opportunities for Slovenian industries, which were developing fast and which were leading in the former Yugoslavia. In the last two decades of Yugoslavia it offered also more and more export opportunities. Yugoslavia was developing towards an export-oriented economy and Slovenia was at the helm of that export orientation. And all that helped that at the time of Slovenia’s independence two decades ago, Slovenia was able to adjust to the new reality of the country relatively easily. It has had relatively high development of its economy compared to other parts of former Yugoslavia and other countries in transition. It has had a cadre of managers who were familiar with business practices in Europe and in other parts of the world so it was able to adjust to the new situation relatively quickly and painlessly.

In the period after independence Slovenia has opted for what was called a gradualist approach. Slovenia explicitly and deliberately rejected any idea of shock therapy. That was our choice. This was not by coincidence. People, the economic doctrine, the political leadership, everybody agreed that shock therapies have to be avoided and that a gradualist approach has to be taken. That choice was historically understandable and has important implications. They have to do with the gradualist slow motion, slow passes of change and on the other hand with maintenance of a rather conservative mentality with regard to direct foreign investment which has existed from before. So gradualist approach was a factor and continues to be a factor of our economic and political thinking.

Another contributing factor to the situation, which we now have, was the fact that Slovenia spent much of its energy in the period, in the immediate aftermath of its declaration of independence to the adjustment to the European Union. Slovenia immediately defined its membership in the European Union as an objective and much of its further work was subordinated to the implementation of tasks, which stemmed from that candidature.

Obviously, the questions of acquis communautaire were of priority importance. In addition, there was an important by-product of this process, which I think is also important to keep in mind today. And that by-product was that Slovenia somehow started to rely on the European Union as a source of solutions. It was felt very largely that once Slovenia enters the European Union the system itself will provide an environment and incentive to further change in a gradualistic sense and that further change will take care of all the problems that we were unable to solve ourselves before as candidate and even earlier.

So that heavy reliance on the European Union was another factor, which I think one has to keep in mind. And obviously, today with all the difficulties, which characterised the European Union, its monetary situation, its development model also contributed to the period of uncertainty in which Slovenia finds itself and in which such harsh judgements as stagnation are being used.

We are at a period of self-examination, we have some important tasks ahead of us. And now I would like to say a few words about the tasks which I think are of critical importance for the future.

Some of them are fairly general. We have to be better able to define our national interest with an appropriate sense of common purpose and proper procedure. In Slovenia we have had the discussion on national interest, which has been very unfortunate and in many ways wrong. At the time when there were options related to direct foreign investment in various types of industry in Slovenia, including brewery, there was a debate which divided the public opinion, especially specialists and people who determined the debates on economics in Slovenia into two rather strictly opposing camps. One camp believed that any investment, any purchase of our breweries by foreign investors would amount to denial of national interest of Slovenia. That, of course, was an exaggeration, but it was a very firmly and very clearly expressed opinion. While the other opinion, which was also extreme, was that there is no such a thing as national interest when it comes to the question of economics and direct foreign investment.

In my opinion both of these extreme views are wrong. Every country, every nation has to have a capacity to define its national interest with a proper sense of precision. On the other hand, it has to know that national interest cannot be served without involvement of foreign capital, without foreign investment. The key question here is how to reconcile the needs of a country with the needs of foreign investors. We have not been able to develop a proper framework for discussion of this kind of issues and we remain, sadly, unable to discuss these issues today. We are still unable to discuss them in a meaningful way, in a way which would bring us together, which would allow us to agree on certain priorities, to define where exactly we would like to stimulate foreign direct investment and where we would like to retain our sovereign decisions.

This I think is a very basic policy requirement, which we still need to fulfil. We haven’t done it so far. I hope that we’ll be able to progress in that regard.

I would also like to mention three further large questions. The first is the quality of corporate governance. Slovenia has had discussions with OECD in the past years and those discussions were useful because they identified some priority tasks of Slovenian economy for the future. One of them was to improve the quality of corporate governance. Obviously, for foreign investors it’s important to know what is the quality of corporate governance in the country, in which investments to place. Our government has taken steps, there was a new law adopted last May and I believe that the new legal situation leads us towards improvement in that regard.

But it would be interesting to hear what our partners think on this matter. How big is this problem? Is this a problem of the magnitude, which we in Slovenia properly understand? Is this a larger problem or not? I would like to invite you to be rather precise and honest. Obviously we in Slovenia – like everybody else – like to be told that we are very good. And I don’t want to discourage you for telling us that we are very good. We are very good. But we need to improve as well. And if corporate governance is something that has to change, where improvement is necessary and what kind of improvement, tell us.

The next large issue is public administration. Is the quality of our public administration adequate? Are various permits that are necessary, for example, construction permits, various environmental permits and so forth, are the processes governing this kind of decisions adequate? Are we perhaps too slow? Are our procedures perhaps too cumbersome? We need to discuss this quite frankly and see whether further improvements in our system or in the practice of our public administration is necessary.

Secondly, our capacity to develop projects. As President of Slovenia I am very often visiting our local communities, municipalities, I discuss various issues locally and I see that in some places there are people who are capable of articulating good development projects in their environment. In others they are not so successful. We have some big problems in certain basic areas, such as the development of our railway system, our port, our logistics. I think in certain large areas we haven’t been able so far to develop credible and exciting projects, which would invite foreign investors to participate.

Again, an invitation to prepare better projects is easy to make. A formulation of a credible project is much more difficult to do. I know that and that’s why I’m suggesting this as a fairly general theme.

And third and final, I would like to mention that we also have to learn from our own experience in some areas where we haven’t done sufficient homework. One of them is a fairly paradoxical area. Slovenia has joined the new tendency, which has been prevailing in the international cooperation for last two to three decades, the tendency of concluding the agreements on promotion and protection of foreign investment. That practice of international agreements has existed before but it was really the last three decades that it became massive and that it has determined international legal framework, which stimulated private foreign investment much more intensely than was the case before.

We have concluded quite a few of those agreements and we relate to them as model agreements. But have we studied all the implications? Have we studied the implications related for example to the local content of private foreign investment? In other words an investor comes to a country and then it is necessary and natural to agree on a proper balance between local content and the foreign content of investment. Have we studied those balances properly? Do we have sufficient understanding of what would be credible and what would be necessary for Slovenia at this point? I would like to invite your comments on these questions.

And finally I think that we need to know, we need to tell ourselves once again that nothing succeeds like success, so we have to look at the success stories, which we have a few in Slovenia. I know that many of you have worked on various investment projects in Slovenia, some of which are very successful. I’m not going to mention any particular project because that would mean that I have excluded many others. But I think it would be useful to study some of the projects in the areas of manufacturing industries, in the banking and in other services. We have had some positive examples, which are worth studying and then also seeing to what extent and in which direction we have to move forward.

Ladies and Gentlemen,

I have spoken about questions, which relate to our inherited mentality, to our current shortcomings and to our needs for the future. As you have seen, my remarks were not diplomatic. I didn’t want to come to you today with a prepared statement and nice and ironed out views. What I wanted to do is simply to share some thoughts with you and contribute to your debate. I know that you are highly experienced and that you have precise knowledge of where the problems are and what is needed.

I would therefore like to thank you for participating at this summit on foreign direct investment and I hope that it being fourth in the row, this meeting will contribute to our development and to international cooperation of Slovenia with other countries and various actors internationally. Let us hope that Slovenia will be able to take advantage of its unique geographical location and of a particular moment in history, in which we have to open up and in which we have to find new models, new forms of cooperation for the future. As I look around the hall I see many experienced people and I have no doubt that you will succeed in that. And therefore I’m grateful to you for your contribution.

Thank you very much.