Friday, November 16, 2007

SLOVENIA GOING SLOW ON PRIVATIZATION

Here is a note from Economist on Slovenia:

Slovenia was already economically advanced by regional standards when it gained independence, so that it has experienced slow growth rates relative to other central European economies, and has adopted a more complacent attitude towards privatisation and economic reform... The main economic policy issues include the privatisation process and attempts to improve the business environment. Progress on both is made difficult by the consensus-based nature of policymaking.

Source: Economist, Country Briefings: Slovenia (link)

The empirical argument in favor of privatization is that the allocation of scarce resources is more efficient in private economy than in public sector regardless of the economy's sector. The only argument that could speak against privatization is the establishment of natural monopolies in case if competitive code is not fully enforced. In this case, control over natural monopolies is needed to prevent price speculations that could occur at the expense of consumer welfare.

The quality of Slovenia's business environment is restrained by administrative burden, restrictive labor regulation and high tax burden which disables the creation of productive behavior. The total number of reforms in Slovenia regarding the ease of doing business is zero (link).

The product quality of the country's business environment is, by competitive analysis, as any other market product. Higher the quality supplied (the number of implemented reforms to improve business environment), higher the demand for the product (the number of investors going for business in Slovenia and the growth of start-ups, spin-offs, and wanna-be's) and higher the reputation of the country as an investment location.

2 comments:

Anonymous said...

So why is the government taking so long to create better incentives for attracting FDI?

Rocks said...

The reason, I believe, is that Slovenia's constitution and legislation have prolonged the discrimination of foreign direct investors to the fullest possible extent. In Slovenia, the privatization process is slow subject to chauvinistic economic nationalism propelled by political parties, powerful domestic business lobbies and media's propaganda directed against greenfield investment and other forms of foreign direct investment. The ownership share in Slovenian enterprises where government owns a significant stake, is limited to foreign direct investors as strategic investors.

I believe, that the legislation is ought to be changed as well as obstacles impeding the inflows of foreign direct investors, such as discriminatory tax system, restrictive labor regulation and extensive and burdensome administrative code making Slovenia's business environment uncompetitive and unfriendly to foreign direct investors.

Regards,
Rocks