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48 I Southeast Europe bne April 2021
European countries, this will still be a significant source of income. Ljubljana has indicated it is keen to direct the money into digitalisation and the green transition, which should put the country on a stronger footing for the future.
Measures of competitiveness, labour productivity, R&D spending and innovation show very clearly there are three frontrunners from the emerging Europe region – Czechia, Estonia and Slovenia – putting these countries in
a relatively strong position once the pandemic abates.
The World Economic Forum’s 2019 Global Competitiveness Report ranks Slovenia slightly below its two
So far Slovenia has one tech unicorn
– entertainment company Outfit7, the creator of Talking Tom and Friends, that was sold for $1bn in 2017 – to Estonia’s four. Slovenia is behind most of Western Europe but ahead of all the new EU members except Czechia when it comes to labour productivity. As a percentage of GDP it spends more on R&D than
any of the eastern EU members and is ranked tenth overall across the union.
Development across sectors has been somewhat uneven. Labour productivity continued to rise in the automotive and pharma segments, the main drivers of the country’s manufacturing sector, but performance was less strong in other parts of the economy. In the last few
“Creation of new companies, which represent the potential for the transfer of know-how and innovation into practice, picked up but remains low by international standards. Since productivity is a key long-term factor determining economic development and living standards, in particular against the backdrop of demographic change, systematic investments in the strengthening of innovation capacity and digitalisation represent a key development challenge for Slovenia.”
Moreover, as pointed out by the EBRD’s Cracan, “State involvement in the economy is still quite high. This state involvement, especially in the financial sector before some privatisation two years ago, is perceived as detrimental
to a more productive allocation of resources in the economy and affects the dynamism of the private sector.”
He adds that Slovenia’s small size was also a problem when it came to the development of the capital market: “The EBRD has been engaged in developing the financial sector, which lags behind advanced EU markets, especially the capital markets. This didn’t allow for investments in more innovative but riskier firms. In general, it’s a challenge for the small countries in the region to develop their capital markets.”
On the other hand, to continue to converge with the western EU members and to stop fellow eastern EU members drawing ahead, Slovenia has some serious issues to tackle in its labour market that in the long term threaten to act as a constraint on growth.
“The premises are there for convergence in future, but rely on addressing existing gaps. Probably the main challenge going forward is the labour market. Access
to labour and availably of employment is likely to decrease in the future, as demographics do not allow for a higher employment rate. This builds the case for a focus on increasing productivity and enhancing skills, among others,” says Cracan. Linked to that is the ageing population that is expected to increasingly burden the public finances, social care and pension system.”
“The trends in research and development and innovation, which should form the bedrock of sustainable productivity growth, have been mostly unfavourable"
main rivals from the region, but it still performs particularly well on macroeconomic stability, health and infrastructure.
On the Global Innovation Index co-published by Cornell University, INSEAD and the World Intellectual Property Organization (WIPO), Slovenia is again behind Estonia and Czechia.
years, R&D spending as a share of GDP has fallen slightly below the EU average, though it remains ahead of other countries in the eastern part of the bloc.
“The trends in research and development and innovation, which should form the bedrock of sustainable productivity growth, have been mostly unfavourable,” the IMAD report said.
The lakeside resort of Bled.
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