Saturday, 1 May 2010

Slovenia: the best-kept secret of Central Europe

This article is quite different from my normal stories as it deals with a country rather than with a specific financial market or asset class. But please allow me the freedom to share this information with you as Slovenia is such a delightful country and also presents some unique investment opportunities for the international entrepreneur. Enjoy the read.

“… another town, another train …,” goes the Abba song. Not that this is a hardship at all when the itinerary is as fascinating as I have been experiencing over the last two weeks. Concluding my visit to a trilogy of European cities was a stop-over in a new destination, namely Ljubljana, the capital of Slovenia. And what a very pleasant discovery this delightful city turned out to be.

What is it that sets Ljubljana (pronounced “Loob-li-yana”) apart from other cities and capitals and makes it a great place to visit? Here you will not discover world-renowned sights, such as the Eiffel Tower or the Big Ben, but there are other very appealing attractions. Due to its compact size Ljubljana is a walking and environmentally friendly city, with a lot of green spaces. It is also one of the best-preserved Baroque quarters in Europe that blends harmoniously with the younger Art Noveau buildings.

A young and vibrant spirit prevails in Ljubljana, possibly because one-fifth of the population of 276 000 are university students. “Lean back and relax” is a motto of the city that seems to prevail – strolling around or enjoying refreshments in one of the numerous cafes along the river banks or in the Old Town is a good way to observe and feel the pulse of Ljubljana.

Guess what the meaning of this charming city’s name is? “The beloved” – how entirely appropriate!

Visitors will encounter a vibrant city characterized by beautiful architecture, an abundance of cultural events (10 000 a year!), and inhabited by educated and multilingual people (just about everybody has an excellent command of English).

Ljubljana has been compared by travel writers to a smaller Prague (another favorite business and leisure destination of mine) in terms of appearance, but this is inaccurate as it has its own unique character and appeal, and, importantly, still lacks the mass tourism Prague draws.

Slovenia gained its independence from the former Yugoslavia 16 years ago and has, as aptly described in Slovenia Life (March 2007), ”a culture of self-reliance, industriousness and individualism”. This has resulted in the country being classified as the most affluent of the new countries to be accepted into the European Union (which it joined in May 2004, followed by joining the European Monetary Union in January 2007).

Slovenia is a compact country, around half the size of Switzerland and is situated between Austria (280 km from Salzburg and 370 km from Vienna), Croatia (135 km from Zagreb), Hungary (440 km from Budapest) and Italy (220 km from Venice and 470 km from Milan), in the very centre of Europe.

Although it is a small country of only 20 273 km2, it is very diverse with areas of outstanding natural beauty ranging from rugged Alpine mountains to fairytale forests to valleys with lush vineyards and even a stretch of beautiful coastline on the Adriatic. The country’s “wooded” area amounts to 63% of the total, making it a clear leader in this category among all European countries (even beating Sweden). Moreover, all this can be experienced in a single day – after all, it only takes three to four hours to drive across the entire country.

The Slovenian economy has been showing strong growth, expanding at an annual real GDP growth rate of 7.2% during the first quarter of 2007 and forecast to grow at more than 5% for the calendar year. This represents a GDP per capita of €14 811 – higher than an “old” Western European state such as Portugal and only marginally behind Greece.

Also, the growth has come about while containing inflation at an average annual rate of 2.7% for June 2007. The current account deficit for 2006 was a manageable 1.4% of GDP and public debt 27.8% of GDP. It is therefore not surprising that on the 185-country risk ranking list published by Euromoney magazine in 2005, Slovenia was ranked 28th, thereby considered the least risky of all new EU members. A wealth of economic and other statistics are provided by the Statistical Office of Slovenia.

With solid economic growth, which investment opportunities should one pursue?

For starters, the property market is worth considering on the back of strong demand for quality housing that is evidenced in Ljubljana, and also other areas. Prices vary from approximately €3 000/m2 for a one-bedroom apartment to about €2 300/m2 for an individual house. These prices equate to rental yields of less than 5% and are therefore not exactly in bargain-basement territory, especially when compared with prime city centre apartments in the likes of (and somewhat riskier) Bucharest in Romania (€2 300/m2), Budapest in Hungary (€1 800/m2), Bratislava in Slovakia (€1 300/m2) or Sofia in Bulgaria (€1 050/m2) (see Global Property Guide).

However, given the compactness of the capital, land development laws are stringent and are curtailing the supply of property in and around Ljubljana. Prices are therefore rising in response to short supply and increased demand (owner-occupier statistics are in excess of 70%). It is therefore not surprising that some observers are forecasting returns of approximately 15% per annum over the next decade (see A Place in the Sun). Higher returns may be possible by investing in smaller towns.

Moving beyond property, the selling off of a variety of companies owned by two state pension funds also offers a number of investment propositions.

A variety of opportunities for importing goods from Slovenia exist, amongst other the following: recreation sportsware (Elan skis and Alpina ski boots); aircraft (Pipistrel microlight and ultralight aircraft); nautical engineering (Seaway yacht and motorboat design and Elan Marine yachts); motorhomes and caravans (Adria Mobil) household appliances; and crafts (glassware, lacework, cast-iron products and earthenware). A very useful database of Slovenian exporters is provided by SloExport.

In addition to the obvious opportunities presented by tourism to Slovenia, many other possibilities for inward investment also present themselves. Products and services would typically include those associated with an increasingly affluent society.

I will gladly assist anybody wishing to obtain more information on Slovenia, but also want to recommend the websites of InvestSlovenia, the Chamber of Commerce, the Slovenia Tourist Board, Slovenia Life and Ljubljana Life as excellent information providers. (These websites also served as sources for this article.)

Whatever business opportunity one decides to engage in with Slovenia, you have the sense of comfort that you are dealing with a country of educated and motivated people who strive to contribute to overall growth and, by way of this, to longer-term prosperity.

If the above is not enough to wet any potential visitor’s or entrepreneur’s appetite, have a look at the following video clip (courtesy of the Ljubljana Tourist Board) providing a more visual presentation.


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