Interview: Radovan Žerjav, MA, Minister of Economic Development and Technology
Following the government’s recent approval of austerity measures and the rebalancing of the budget, the eyes of the public arenowfocused on the Ministry of Economic Development and Technology which it expects to boost the Slovenian economy. We discussed with the Minister, Radovan Žerjav, MA on the day the government adopted the second package of growth measures, about how the government formulates growth measures, what is feasible at the moment, what the priorities are and the biggest issues facing the government.
For starters, what is your assessment of the government after the first few months, their focus on savings at the beginning with which they have done a relatively good job and how it will approach the issueof growth? The measures presented to date are somewhat more systemic in nature and are not likely to give results in the short-term considering the stagnation of the entire European economy, and they are probably unable to do so.
Firstly, it should be said that the initial measures adopted by the government focused precisely on growth and touched on tax legislation. The corporate income tax rate had already been reduced to 18% this year and will continue to be reduced 1% each year until 2015, thereafter it will stay at 15%.We have also adopted two important tax incentives, an indefinite 40% tax credit for investments and a 100% tax relief for research and development. With these measures, the government has clearly signaled that the priorities areinvestment, research and development and of course indirectly, new jobs. It is clear what the underlying base on which we can build economic growth and balance public finances is. The issue was addressed through the supplementary budget and package of savings measures. Although it was not easy, we nevertheless achieved a basic consensus with the unions, representing a good basis for the future. Following the so-called savings package, measures to boost the Slovenian economy are needed and are included in the second package of measures. This package envisages the amendment of 16 laws, encompassing 75 different measures and 10 public tendersfor EUR 377m, of which EUR 148.5 million will be allocated to subsidies, EUR 50m for guarantees and EUR 179m of funds are earmarked for public investment. The second package should be finally realised, at the July meeting of the National Assembly. We have also adopted some extremely important measures in the areas of spatial planning, environmental law and agriculture, the areas where Slovenia possesses the majority of the so-called “administrative barriers” for investors to obtain permits. The government estimates that the removal of these additional administrative obstacles will indirectly save the Slovenian economy EUR 400m- 500m. Our ambition is to bring all of the aforementioned under one roof before the holidays, and we are continuing at the same pace so we can achieve a third package of measures after the holidays which will be significantly more complex as they will require very effective social dialogue. The proposed reforms deal with pension law, labour law, grey economy ... for these are essentially the greatest issues hampering Slovenia’s competitiveness. These are the areas where no major changes have been made since the era of socialism, therefore a great deal of work is required and we are aware that it will not be easy.
Obviously, many people expected somewhat simple and rapid action in terms of government investment, particularly in infrastructure, as these were pre-election promises by some parties. Do you have this in mind? Where would the money for such development come from, some apparently believe it will come from the budget?
Certainly overnight growth cannot be encouraged because we are caught up in the European and international environments which have a direct impact on Slovenia.This does not however mean that we are sitting idle. Of course, the government has limited financial means. The easiest solution would be to take a billion or two and invest it in the banks and projects to kick-start the economy. As the Economic Minister, I would of course liketo do this but unfortunately it is just not possible. Debt has brought us to the point where further borrowing is not possible. In recent years, Slovenia incurred additional debt of EUR 2 billion annuallywhich is not feasible in the long-run. Those who argue that economic growth can be encouraged by further indebtedness are wrong in my opinion. This is unsustainable in the long term, the best proof of this beingthe countries that have borrowed too much. The first step is to stabilise public finances to enable the state and the economy to get finance at normal prices. Only then can healthy economic growth be realised. The government wants to create the conditions for a competitive business environment, primarily through horizontal measures that will enhance competitiveness and thus the attractiveness for foreign investment.I see two major opportunities: one being European funds and the other foreign investment. With these two sources much more can be achieved in the next two to three years.
Will the government’s next step, in addition to these systemic measures, be to adopt some clear and developmentally more aggressive sector policies, a clear planfor managing state assets, a strategy for transparent disinvestment in certain parts of the public sector and a strategy to attract foreign investment for Slovenian companies, which are critically undercapitalised, with no clear development strategies at the national level?
These are the key strategic issues. Regarding the management of state property, we wish to unify and centralize the management within a single agency and not have an agency on each corner in Ljubljana dealing with the management of state resources. Within this we would like to organise the management of investments which have become stranded in the banking system in one manner or another. Without a refinement of bank balance sheets, the credit crunch and related problems will not be resolved. Foreign investors are, of course, also welcome. A key priority for the government is therefore to get the banking sector back on its feet so that it will be able to perform its basic functions. Foreign strategic partners in individual companies owned by the state are, of course, also welcome. We have clearly stated how much we are prepared to disinvest in individual areas or sectors. For the Ministry of Economic Development and Technology, tourism plays a particularly important role when it comes to sector policy. Tourism is one of the few industries that can also grow in times of crisis. There is also the question of sector policy in an area of enormous potential, forests and timber. Slovenia possesses enormous, untapped potential in this sector and needs to take a step forward. Wood is our strategic advantage, we have to do something to prevent timber from only being sold abroad cheaply and to purchase and import products; it is necessary to organize some type of wood processing industry, with higher value added in Slovenia. The key document is, in my opinion, extremely clear and not a complex industrial policy.
A large part of the problem in recent years has been the untenable positioning of projects abroad-we sold something that we realize later we did not want to sell or potentially good projects are poorly prepared. We obviously secretly cross our fingers, a fact which foreigners clearly realise and essentially avoid us. What will be different in the future that will enable Slovenia to regain at least some of its lost credibility?
This is a very important step.Unification of the concept for the representation of the Slovenian economic strategy towards all potential foreign investors and overseas in general. Apparently the Public Agency of the Republic of Slovenia for Entrepreneurship and Foreign Investments (JAPTI) is doing this now; all the various existing agencies will be combined into a single agency to achieve a greater critical mass and to enable a clearly identifiable point of contact for the Slovenian economy. With the establishment of the Strategic Council for Economic Cooperation with foreign countries, which has beencreated together with the Ministry of Foreign Affairs, we will define the strategic target markets and the conditions for effectively implementing foreign investment. Such uniformity is very important, currently we have a lot of information available from a number of points: JAPTI, the Ministry of Foreign Affairs, the Chamber of Commerce and Industry of Slovenia, the Directorate for Internationalisation at the Ministry Economic Development and Technology, economic diplomacy, etc. all of whom more or less deal with the same questions without a single concept.
It is precisely the question of credible information and the country’s behavior that will be of paramount importance. So far foreigners have often demonstrated a sincere interest in investing, but become lost in the bureaucratic system of Slovenian administration and politics, at both the local and national level.
The new agency will be the only one to transparently support foreign investors from the beginning to the end of a project. Simply, when a foreign investor comes with a project and transparent location, the agency will provide him with all the necessary administrative and substantive support, licenses, etc. This will mean the investor will not need to go from office to office, municipalities, agencies, etc. and lose his nerves and interest for investing. The point is that all of the relevant documents will be available from this agency within an adequate and reasonable time period. It is envisaged that this agency will be set up by the end of 2012.
How will you ensure that this is not just another organisational, cosmetic modification without actual substantive change?
The agency will combine all the segments, on the one hand promotional work and on the other administrative support and innovative technology. What is important is that projects will not simply be placed in a drawer. Currently we have a number of projects that have guaranteed funding and locations which are only waiting for some official to move some paper from his bottom drawer. The goal is to make this agency operational so that it will be able to identify problems in the process of obtaining permits and carry out projects to their implementation. This is a significant change.
You mentioned tourism as an economic factor, with a new strategy for tourism also adopted. How will you ensure that this strategy becomes operational and not only another qualitative paper of which many have been made in the past. Additionally, contrary to expectations, you reduced funding for tourism promotion and so are the objectives of the strategy consistent with the actual funds intended for this area?
Things are already different in the tourism industry with a lot of things from previous strategies realised. I believe that the objectives of the current strategy are realistic. Even now, in times of crisis, tourism is showing good results. This is an area where we can also expect some positive effects from the crisis because people largely vacation in their own country and do not travel abroad. It is true that we currently have slightly less funds for promoting tourism, but in comparison with 2011 which was an unrealistic year as we spent EUR 2bn more than we had available in the budget. If we compare the amount with figures from previous years, such as 2008 when the budget was balanced, the reduction is not at all radical. The reduction is simply a responsible response when dealing with the crisis. We can take a step back in all areas, perhaps simplify some matters, do it for less money and the effect can be identical to the previous one. This also requires innovation. It is easiest to ask for more money every year and thereby manage it uneconomically. Personally, I think that the issue is not as black as people seem to think, the indexes are comparing to 2011, an unrealistic year.
With your Croatian counterpart, you recently announced increasing the cooperation forpromoting tourism in remote markets. Would you also like to attract Hungary, Austria and Italy to this project and what can we actually expect?
We have cooperated with Croatia in the most remote markets with extremely good results so far. The idea of a joint appearance with several other countries, Austria, Italy and perhaps Hungary, predominantly in overseas markets such as Japan, India, China, etc. therefore originated because of this. The idea is to attract tourists who are coming to Europe for a second time.Their first visit is generally to the centres such as Paris, London, Venice, etc. We offer those coming for a second time something more. When they visit Venice, for example, we can offer them Bled, take them to Dubrovnik, etc. Synergies in this area undoubtedly exist.