An automated production line. Photo: Katja Kodba/STA
Slovenia has dropped three spots in the latest global competitiveness rankings by the Swiss IMD institute, placing 49th among 70 countries. While the country does best in infrastructure and worst in business efficiency, the ranking was most affected by poor government efficiency.
As the country's biggest challenges the report identifies an unpredictable business environment, the need to boost productivity, improve public service delivery and reduce administrative burdens, safeguard fiscal sustainability and improve the quality of public spending, as well as to address housing affordability.
"The key message of this year's IMD report is that strong institutions and the ability to manage uncertainty and shocks are crucial for economic success. A country's competitive advantage also increasingly depends on institutional credibility, adaptability, and resilience," said Sonja Uršič of the Institute for Economic Research (IER), which conducted the survey in Slovenia in collaboration with the Ljubljana School of Economics and Business and the SPIRIT Slovenia agency.
The IMD survey ranks countries' ability to maintain an environment that supports competitiveness. The overall index is based on 262 indicators across four pillars: economic performance, government efficiency, business efficiency, and infrastructure. About two-thirds of the indicators are based on statistical data, while one-third are based on a survey among senior managers conducted in Slovenia ahead of the March general election.
Relocation concerns
In economic performance, Slovenia lost five rungs to finish 42nd, mainly due to a drop to 56th place in the domestic economy sub-area, caused by a slowdown in economic growth and the economy's reduced resilience to cycles. It added two spots to 8th in international trade and held on to 58th place in international investment.
"The level of foreign direct investment is significantly lower than in neighbouring countries or the Visegrad group, and companies have significantly downgraded their assessment of the risk of business activities being relocated from Slovenia; where the country fell 30 places to 65th," Uršič said.
Due to hikes in housing and commercial property rental prices and fuel prices, the country also lost five spots in the prices sub-category to 22nd.
Inadequate government efficiency
Slovenia recorded the largest drop in government efficiency, falling seven places to 55th. It ranked lower in all area except for tax policy. The biggest drops were recorded in business legislation (down 10 spots to 61st), the employment of foreign nationals (55th), and government protectionism (50th).
Labour legislation remains a competitive weakness (67th) with Uršič explaining that company assessments of this indicator were likely affected by last year's introduction of a mandatory Christmas bonus and the increase in the minimum wage. In terms of how companies view AI investment incentives, it ranked 51st.
The second-largest decline in government efficiency was recorded in terms of public finance (down 8 spots to 53rd) due to an increase in the public finance deficit. The country also lost three places to 48th for its institutional framework.
Productivity major issue
In business efficiency, Slovenia is down one spot to 56th. According to Mateja Drnovšek of the Ljubljana School of Economics and Business, the nine-spot drop in productivity and efficiency indicates that Slovenia has fallen behind the leading economies.
Managers' perceptions regarding the availability of a skilled workforce have deteriorated significantly (55th). A persistent weakness is the poor effectiveness of supervisory boards in overseeing company management (69th). Just like in the past 10 years, Slovenia's ranking in the business efficiency category is being dragged down mainly by managers' assessment of attitudes and values within the company (65th place).
In infrastructure, Slovenia gained one spot to 38th. The greatest improvement was seen in basic infrastructure (up 7 spots to 48th); the ranking stagnated in health and the environment (30th), while it deteriorated in technological (50th) and scientific (35th) infrastructure and education (31st).
The need to boost productivity, lower labour costs to attract in particular high-skilled staff, make government more efficient and the country more attractive for foreign investment was also underscored by business representatives in response to the report.
The Chamber of Commerce and Industry sees the country's slide in rankings as a reminder that Slovenia "needs a development response, a stable and predictable business environment and systemic measures". It urged the government to reduce the tax burden on labour and companies, ensure more competitive energy prices, accelerate employment of foreigners, and cut procedures short.
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