Standard Country Risk Assessment
...opulation. The following paragraph will explain these variables in greater detail. Societal Conflict Societal conflict measures whether or not the population is satisfied with the current situation, it involves strikes, and street violence. This variable was taken from the BERI model. Urbanization Urbanization is a consequence of economic development. However, when it happens too fast or if the movement is too concentrated on a single city, it might create difficulties. Crime rates could rise for example. This variable was taken from the Economist model. Ethnic Tension This component measures the degree of tension within a country attributable to racial, nationality, or language divisions. In countries where racial and nationality tensions are high because of opposing groups are intolerant and unwilling to compromise, the risk is perceived to be higher. Religious Tension Religious tensions might erect from the domination of society or governance by a single religious group that seeks to replace civil laws by religious law and exclude other religions from the political and/or social process. This results in suppression of religious freedom. Education Level of Population Education influences the way how people think about certain issues. The higher the education level the less likely it is that they are manipulated by influential people or mislead by propaganda. A higher educated population leads toward a more stable country and therefore reduced risk. Methodology For each of the variables listed above, points will be assigned on a 0-4 scale, which was subdivided as follows: 0 – very low risk 1 – low risk 2 – medium risk 3 – high risk 4 – very high risk Consequently, all points were added and the total score for each category will be multiplied by the corresponding weight (50% for political, 35% for economical and 15% for social). The resulting total score is then evaluated on the following scale: 0 6.4 12.8 19.2 25.6 32 very low risk low risk medium high risk very high risk Each variable is evaluated below. Political Factors Being Near a Superpower (1) This variable is linked directly to the possible admission of Slovenia to the European Union. Entrance would be the optimal situation, since they would actually be part of the biggest superpower. However, even if they do not join the EU, the risk for this variable is low, since the European Union is a political and monetary union, by far no military union. The benefits from joining the EU are additional for Slovenia, since their performance in recent years has been very good, even if there were trade barriers due to the fact that they we no part of the EU. Exports are still a large part of the economy (about ??%). However, the risk is not zero altogether if they do not join the EU, since they are still next to a large political unity. Therefore, we award 1 point to this variable, signifying low risk. Corruption/Transparency (2) The Slovenian government is not the most transparent in the world and corruption in an important variable for Slovenia and the business climate. This country is emerging from a communist rule and might still have some communist roots left, although most will be gone. Some risk however remain present, therefore we assign 2 points to this variable. Bureaucracy Quality (1) The government in Slovenia might not be very transparent, but it is relatively stable. A new president will not radically alter policymaking, and therefore the risk is low. Furthermore, in the event that Slovenia joins the EU, it has to adhere to EU requirements, which imply a stable government. Democratic Accountability (1) Again, we base our rating on considerations for the EU. The Slovenian people voted in a referendum whether or not to join the EU, and voted for entry. This shows that they are responsive to their people (as opposed to other certain European countries, who had no referendum whatsoever) and certainly are not trying what they think is best for their people. Government Stability (1) This variable is linked to the democratic accountability variable, and is given the same amount of points. In the 10 years of the countries independence, it has had 2 presidents and the current president was the prime minister from the start. The government appears stable from the outside, however it is unclear how many communist feelings are still present. Investment Profile (1) This variable is especially interesting to any company considering whether or not to invest in Slovenia, or any other former communist country. The attitude towards (foreign) investment can be crucial in obtaining licenses or assessing the market conditions. Competing against the government can be very hard. However, Slovenia has engaged on a policy to increase privatization of former government owned companies. The risk of expropriation is therefore low and taxation will be close to European taxation laws (both if they join and if they do not join the EU) for investment reasons. Therefore, a score of one point was awarded. Law and Order (1) One point was awarded for this variable, which is based on the social variables discussed below. The legal system seems to work well, and the law is respected, comparable to any developed country. It is however difficult to assess the strength of the government in any major event. The government is relatively inexperienced and has not had any opportunities to prove itself in 10 years of independence. International Disputes (1) The most important international dispute is the access to the Gulf of Venice. Slovenia only has a small strip of land to access the sea, an area very attractive to tourists. If more access is needed for import or export, neighboring countries need to allow Slovenia to pass through their countries. However, this “dispute” is not very important, especially since Slovenia has the prospect of joining the EU. One only point was awarded to this variable. Military in Politics (0) The current government seems to consist primarily of economists. There is no sign of military in the Slovenian government, nor are there influential extreme left political parties. Therefore, the score is zero for this variable. Economic Factors GDP per Head (1) Average GDP per head is between 9 and 10 thousand dollars over the last 10 years. It has decreased slightly, but remained in these limits. The population of Slovenia is stable, indicating decreasing GDP. However, it is still relatively high for a former communist country, therefore it was assigned only 1 point. Real GDP Growth (1) Real GDP has been increasing, but it is unclear whether that is due to a decrease in inflation or an increase in actual GDP. As indicated above, GDP per head has slightly decreased while population growth has remained stable. Real GDP growth therefore was awarded with 1 point, to indicate possible decreases in GDP growth. Annual Inflation Growth (2) Inflation is one of the most critical economic variables. Right after independence, inflation sky rocketed, and has been decreasing ever since. The last 5 years, inflation has averaged 8%, which is still high, but a lot better than 10 years ago. Access to the EU will greatly depend on this variable, and Slovenia has to bring its inflation down to be allowed in. Monetary policy in Slovenia has focused on this criteria and inflation is going down. It will average 3% in the current year. However, inflation could be a problem in the near future, especially if they do not join the EU. Therefore, we assigned medium risk to this variable. Budget Balance as a Percentage of GDP (2) One main concern for the government has been to have a balanced budget. Spending has exceeded revenues for many years, and has consequently created a large government deficit. Like inflation, the budget balance is an important criterion to be allowed into the European Union. However, two points have been assigned to identify the risk Slovenia is not allowed in. Current Account as a Percentage of GDP (2) The current account has been very volatile over the last 10 years. The last 3 years the current account has been severely in deficit, implying exports exceeding imports. Estimates for the current year indicate a positive current account, showing the volatility of the current account. Therefore, 2 points were assigned. Exchange Rate Stability (1) The Tolar has slightly depreciated against the dollar in the last 5 years. However, the depreciations have not been very drastic, and entry into the EU will completely eliminate this risk. For the time being however, we assigned one point to this variable, indicating low risk. Foreign Debt as a Percentage of GDP (2) This variable is related to the current account variable, and therefore receives the same amount of points. Moreover, problems with keeping a balanced budget might be another influence on a possible higher foreign debt in the future. Unemployment (1) Unemployment has been decreasing over the last 8 years and accounts for about 115,000 people out of a population of 2 million. The risk associated with this variable is very low, hence 1 point was awarded. Social factors Societal Conflict (0) As was shown in the introduction, the composition of the population in Slovenia proved to be very homogeneous, and we therefore do not expect any social conflicts. Therefore, 0 points were assigned. Urbanization (1) This is the only variable in this section that is important in considering Slovenia. Urbanization is very dense, as more than 45% of the population lives in the big cities, such as Ljubljana. However, this is not a large city in itself, which can be explained by the fact that only 2 million people live in Slovenia. So, even though urbanization is high, this variable is still given only 1 point, indicating a low risk. Ethnic Tension (0) Most of the people in Slovenia are Slovenes by birth. The biggest minority are the Croats who make up only 3% of the population. Furthermore, Serbs and Yugoslavs constitute only 2.6% of the population. There is no reason to expect ethnic tension in Slovenia, therefore a 0 score. Religious Tension (0) The same reasoning applies here. The majority (71%) is Roman Catholic and the biggest minority (22.9%) represents all other religions besides Roman Catholic, Muslim and Lutheran. Again, there is no reason to expect actions of religious violence, and therefore we assign a zero score. Education Level of the Population (0) Slovenia has a literacy rate of about 99%, implying a highly educated population. Furthermore, most people in Slovenia have at least attended high school, and a large portion has even attended higher education. There is no risk in this category. Total Scores Political: 9 *50% = 4.5 Economic: 12 *35% = 4.2 Social: 1 *15% = 0.15 Total 8.85 The total of 8 points places Slovenia in the low risk category. This is a remarkable result, since this model has attempted to display the weak spots of Slovenia, particularly politics. This does imply however that even when accounted for the major weak spots in the country, the country is still rated as a low risk country. The Telecommunications Industry in Slovenia The organizational and legislative framework of the telecommunications industry in Slovenia has evolved over time. In its initial stages, most of the telecommunications services were under the monopoly of PTT organizations. In order to operate in the country, telecommunications businesses were required to have a type-approval from a PPT. On January 1, 1995, the united enterprise PPT split into Posta Slovenije and Telekom Slovenije. In proclaiming its independence from Yugoslavia, Slovenia’s telecommunications industry took a large hit. Apart from Yugoslavia, Slovenia did not have its own telecommunications bodies. Additionally, it lacked experience of telecommunications policy creation and management. Although the new country established the Ministry of Transport and Communications, the promotion and development of the telecommunications industry has not been a top concern of the Slovene Government. In May of 1997, the National Assembly passed the new Law on Telecommunications and it came into full effect by the end of June 1999. This law was an important step towards creating a more open and competitive environment. However, for Western Wireless International and for all other companies attempting to gain entrance into the Telecommunications industry in Slovenia, the largest concern remains competition in the Slovenian mobile market. According to the General Director of Vega, Julien Coustaury, “the difference in on- and off-net tariffs with on-net calls being too low. This is in conjunction with the fact that, the lead player has some 80 percent market share, makes competition almost impossible.” (See Appendix D, III) Coustaury recently met with the European Union Directorate of Telecommunications representatives during their official visit in Ljubljana. He cited that articles 75 and 77 of the Telecommunications Act had been breached by Agency. High ranking EU officials have reviewed the matter and have called for overnight changes to achieve effective regulation of the Slovenian telecommunications market. With the Slovenian government working diligently to enter the EU, this issue should be resolved within the next few years. However, until that occurs, the lack of competition remains a chief concern. Conclusion Despite the issues concerning competition in the telecommunications industry, the communist history of the country, inflation and corruption, Slovenia remains a country with enormous potential for profit for international businesses. Even if we apply a model that emphasizes the weak spot in Slovenia – the political situation- it still remain in a low risk category. We firmly believe that this country’s rating of “low-risk” is accurate. We also believe that the risk in the country will continue to decline until Slovenia officially enters the European Union. The advantages of entering will outweigh the disadvantages and the mere fact that they will be part of an institution such as the European Union should already provide investors the necessary confidence to invest in this country. It is therefore our recommendation to Western Wireless International to remain in the country, as we anticipate that future profits will be good. Considering the other countries Western Wireless is active in countries, such as Hungary, Croatia and Austria, keeping a subsidiary in Slovenia might yield some additional network benefits. We furthermore recommend that other international wireless countries should review Slovenia as a potential market to explore. Appendix A Slovenia Basic Facts I. Map of Slovenia: II. Geography a. Location: Central Europe, eastern Alps bordering the Adriatic Sea, between Austria and Croatia b. Geographic coordinates: 46 07 N, 14 49 E c. Area: i. total: 20,273 sq km ii. water: 122 sq km iii. land: 20,151 sq km iv. comparative: slightly smaller than New Jersey d. Land boundaries: i. total: 1,334 km ii. border countries: Austria 330 km, Croatia 670 km, Italy 232 km, Hungary 102 km e. Coastline: 46.6 km f. Climate: Mediterranean climate on the coast, continental climate with mild to hot summers and cold winters in the plateaus and valleys to the east g. Terrain: a short coastal strip on the Adriatic, an alpine mountain region adjacent to Italy and Austria, mixed mountain and valleys with numerous rivers to the east h. Elevation extremes: i. lowest point: Adriatic Sea 0 m ii. highest point: Triglav 2,864 m i. Natural resources: lignite coal, lead, zinc, mercury, uranium, silver, hydropower, forests j. Land use: i. arable land: 11.48% ii. permanent crops: 2.68% iii. other: 85.84% (1998 est.) k. Irrigated land: 20 sq km (1998 est.) l. Natural hazards: flooding and earthquakes m. Environment - current issues: Sava River polluted with domestic and industrial waste; pollution of coastal waters with heavy metals and toxic chemicals; forest damage near Koper from air pollution (originating at metallurgical and chemical plants) and resulting acid rain n. Environment - international agreements: i. party to: Air Pollution, Air Pollution-Sulphur 94, Biodiversity, Climate Change, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Marine Dumping, Nuclear Test Ban, Ozone Layer Protection, Ship Pollution, Wetlands ii. signed, but not ratified: Air Pollution-Persistent Organic Pollutants, Climate Change-Kyoto Protocol o. Geography - note: despite its small size, this eastern Alpine country controls some of Europe's major transit routes III. People a. Population: 1,932,917 (July 2002 est.) b. Age structure: i. 0-14 years: 15.7% (male 155,989; female 147,707) ii. 15-64 years: 69.8% (male 684,354; female 663,884) iii. 65 years and over: 14.5% (male 103,790; female 177,193) (2002 est.) c. Population growth rate: 0.14% (2002 est.) d. Birth rate: 9.27 births/1,000 population (2002 est.) e. Death rate: 10.07 deaths/1,000 population (2002 est.) f. Net migration rate: 2.24 migrant(s)/1,000 population (2002 est.) g. Sex ratio: i. at birth: 1.05 male(s)/female ii. under 15 years: 1.06 male(s)/female iii. 15-64 years: 1.03 male(s)/female iv. 65 years and over: 0.59 male(s)/female v. total population: 0.96 male(s)/female (2002 est.) h. Infant mortality rate: 4.47 deaths/1,000 live births (2002 est.) i. Life expectancy at birth: i. total population: 75.29 years ii. female: 79.37 years (2002 est.) iii. male: 71.42 years j. Total fertility rate: 1.28 children born/woman (2002 est.) k. HIV/AIDS - adult prevalence rate: 0.02% (1999 est.) l. HIV/AIDS - people living with HIV/AIDS: 200 (1999 est.) m. HIV/AIDS - deaths: less than 100 (1999 est.) n. Nationality: i. noun: Slovene(s) ii. adjective: Slovenian o. Ethnic groups (1991 Estimate): i. Slovene 88% ii. Croat 3% iii. Serb 2% iv. Bosniak 1% v. Yugoslav 0.6% vi. Hungarian 0.4% vii. Other 5% p. Religions: i. Roman Catholic (Uniate 2%) 70.8% ii. Lutheran 1% iii. Muslim 1% iv. Atheist 4.3% v. other 22.9% q. Languages: i. Slovenian 91% ii. Serbo-Croatian 6% iii. Other 3% r. Literacy: total population: 99% IV. History: a. 6th century AD: The Slavic ancestors of present day Slovenia first settle in the area in the 6th century AD. b. 7th century: The Slavic Duchy of Carantania, the first Slovene state. c. 745: Carantania becomes part of the Frankish empire; the Slavs convert to Christianity and gradually lose their independence. d. Around 1000: The Freising manuscripts, the first known writings in the Slovene and Slavic dialect in Latin script. e. 14th century to 1918: All the Slovene regions pass into the possession of the Habsburgs, later the Austro-Hungarian monarchy. f. 1550 and 1584: The Reformation brings literacy, the first printed book in 1550 and in 1584 the first Slovene translation of the Bible. g. 1918: Formation of the Kingdom of Serbs, Croats and Slovenes. h. 1945: Federal Peoples' Republic of Yugoslavia (officially declared on 29 November 1945). i. April 1990: First democratic elections. j. 23 December 1990: 88.5% of voters at the referendum vote in favor of an independent Slovenia. k. 25 June 1991: Slovenia officially declares its independence. l. 15 January 1992: The EU officially recognizes Slovenia's independence. m. 22 May 1992: Slovenia becomes a member of the UNO. n. 1 February 1999: Association Agreement with the EU comes into effect. o. 23 March 2003: i. 89.6% vote in favor of joining the ii. 66% vote in favor of joining NATO V. Government: a. Country name: i. conventional long form: Republic of Slovenia ii. conventional short form: Slovenia iii. local short form: Slovenija iv. local long form: Republika Slovenija b. Government type: parliamentary democratic republic c. Capital: Ljubljana d. Administrative divisions: i. 182 municipalities (obcine, singular - obcina) ii. 11 urban municipalities* (mestne obcine , singular - mestna obcina ) e. Independence: 25 June 1991 (from Yugoslavia) f. National holiday: Independence Day/Statehood Day, 25 June (1991) g. Constitution: Adopted 23 December 1991, effective 23 December 1991 h. Legal system: based on civil law system i. Suffrage: 18 years of age; universal (16 years of age, if employed) j. Executive branch: i. chief of state: President Janez DRNOVSEK (since 22 December 2002) ii. head of government: Prime Minister Anton ROP (since 11 December 2002) iii. cabinet: Council of Ministers nominated by the prime minister and elected by the National Assembly iv. election results: Janez DRNOVSEK elected president; percent of vote - Janez DRNOVSEK 56.5%, Barbara BREZIGAR 43.5%; Anton ROP elected prime minister; National Assembly vote - 63 to 24 v. elections: president elected by popular vote for a five-year term; election last held 10 November and 1 December 2002 (next to be held in the fall of 2007); following National Assembly elections, the leader of the majority party or the leader of a majority coalition is usually nominated to become prime minister by the president and elected by the National Assembly; election last held 6 December 2002 (next National Assembly elections to be held NA October 2004) k. Legislative branch: i. unicameral National Assembly or Drzavni Zbor (90 seats, 40 are directly elected and 50 are selected on a proportional basis; note - the numbers of directly elected and proportionally elected seats varies with each election; members are elected by popular vote to serve four-year terms) ii. election results: percent of vote by party - LDS 36%, SDS 16%, ZLSD 12%, SLS/SKD 10%, NSi 9%, SMS 4%, SNS 4%, DeSUS 5%, other 4%; seats by party - LDS 34, SDS 14, ZLDS 11, SLS/SKD 9, NSi 8, SMS 4, SNS 4, DeSUS 4, other 2 note: the National Council or Drzavni Svet is an advisory body with limited legislative powers; it may propose laws and ask to review any National Assembly decisions; in the election of November 1997, 40 members were elected to represent local, professional, and socioeconomic interests (next election to be held in the fall of 2002) iii. elections: National Assembly - last held 15 October 2000 (next to be held NA October 2004) l. Judicial branch: Supreme Court (judges are elected by the National Assembly on the recommendation of the Judicial Council); Constitutional Court (judges elected for nine-year terms by the National Assembly and nominated by the president) m. Political parties and leaders: i. Democratic Party of Retired (Persons) of Slovenia or DeSUS [Janko KUSAR] ii. Liberal Democratic or LDS [Janez DRNOVSEK, chairman iii. New Slovenia or NSi [Andrej BAJUK, chairman] iv. Slovene National Party or SNS [Zmago JELINCIC, chairman] v. Slovene People's Party or SLS (Slovenian People's Party or SLS and Slovenian Christian Democrats or SKD merged in April 2000) [Franc ZAGOZEN, chairman] vi. Slovene Youth Party or SMS [Peter LEVIC] vii. Social Democratic Party of Slovenia or SDS [Janez JANSA, chairman]; United List of Social Democrats (former Communists and allies) or ZLSD [Borut PAHOR, chairman] n. International organization participation: ABEDA, ACCT (observer), BIS, CCC, CE, CEI, EAPC, EBRD, ECE, EU (applicant), FAO, IADB, IAEA, IBRD, ICAO, ICC, ICRM, IDA, IFC, IFRCS, ILO, IMF, IMO, Interpol, IOC, IOM, ISO, ITU, NAM (guest), NSG, OPCW, OSCE, PCA, PFP, UN, UNCTAD, UNESCO, UNIDO, UNMIK, UNTSO, UPU, WEU (associate partner), WHO, WIPO, WMO, WToO, WTrO, ZC o. Diplomatic representation in the US: i. chief of mission: Ambassador Davorin KRACUN ii. consulate(s) general: New York and Cleveland iii. chancery: 1525 New Hampshire Avenue NW, Washington, DC 20036 p. Diplomatic representation from the US: i. chief of mission: Ambassador Johnny YOUNG ii. embassy: Presernova 31, 1000 Ljubljana iii. mailing address: P. O. Box 254, Presernova 31, 1000 Ljubljana; American Embassy Ljubljana, Department of State, Washington, DC 20521-7140 q. Flag description: three equal horizontal bands of white (top), blue, and red, with the Slovenian seal (a shield with the image of Triglav, Slovenia's highest peak, in white against a blue background at the center; beneath it are two wavy blue lines depicting seas and rivers, and above it are three six-pointed stars arranged in an inverted triangle which are taken from the coat of arms of the Counts of Celje, the great Slovene dynastic house of the late 14th and early 15th centuries); the seal is located in the upper hoist side of the flag centered in the white and blue bands VI. Economic Data a. Economy - overview: Slovenia, with its historical ties to Western Europe, enjoys a GDP per capita substantially higher than that of the other transitioning economies of Central Europe. Privatization of the economy proceded at an accelerated pace in 2002, and steps were taken to bring down the budget deficit from 2.9% of GDP in 2002 to 1.2% in 2003. Despite the economic slowdown in Europe in 2001-02, Slovenia maintained 3% growth. Internal structural reforms to improve the business environment, encouragement of direct foreign investment, and measures to curb inflation are needed to prepare the way for EU membership. b. GDP - purchasing power parity: $36 billion (2002 est.) c. GDP - real growth rate: 3% (2002 est.) d. GDP - per capita: purchasing power parity - $18,000 (2002 est.) e. GD...