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Investing in Slovenia: Russia in Focus

Investing in Slovenia: Russia in Focus

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Of the former Yugoslavian countries, Slovenia was the least penetrated by Russian businesses – a result of mutual caution on both sides. 

The financial crisis of 2012 froze most international investments and the introduction of EU sanctions against the Russian Federation due to the Russian invasion to Crimea, Russia’s support of the illegally armed groups in the Ukrainian East, and the flow of weapons and militants across the border in 2014 resulted in further cooling of Russian-Slovenian economic partnerships.

However, those EU sanctions apply by and large only to the military industry (including dual-use products and technologies and related services and assistance), some financial instruments, and certain entities related to the political and military sector. Thus, private businesses not engaged in military and political activities are, in general, not affected.

Russian and Slovenian governments, however, along with their respective business communities, have lately shown increased interest in promoting and reinforcing mutual investment. Although at the moment the investment inflow from Slovenia to Russia outpaces the investments going the other way, the Slovenian market, as one of the best-performing newcomers to the EU, offers solid business opportunities for Russian investors.

For instance, Slovenian market opportunities are largely tied to the state-owned assets offered for privatization (as listed on the website of the Slovenian Sovereign Holding), particularly in such sectors as banking and finance, tourism, the metal/machinery industry, etc.

Naturally, private enterprises which find themselves stagnant following the financial crisis of 2012 could overcome the recession and regain the competitiveness of their products and services by way of fresh investment.

Foreign investors coming to the Slovenian market should be aware not only of the local legislation governing mergers and acquisitions, but also, as the country is n EU member state, with EU umbrella legislation. The sphere of foreign direct investment (FDI) as part of the common commercial policy is in the EU’s level of competence. Therefore, a foreign investor should consider, along with Slovenian legislation, the possible implications of the EU acquis communautaire. 

In this respect the European Commission plans to introduce new FDI screening requirements that are likely to affect EU interests, particularly in sensitive sectors such as critical infrastructure, technologies, supply, and sensitive information, where the foreign investor is in any way backed up by his/her government (the EU’s list of screening factors is not exhaustive and shall be determined by the Member State concerned). 

A draft Regulation establishing a framework for screening FDI was launched by the European Commission on September 13, 2017 (the “Regulation”). This Regulation is not designed to establish one EU-level mechanism for FDI screening, but rather would oblige the Member States to follow the same standards (including transparency, non-discrimination, setting up the grounds for screening, timeframes, judicial redress, and so on) for screening while coping with FDI in sensitive sectors within national screening processes and to ensure the right of the European Commission or another affected Member State to express their concerns and to obtain a relevant response from the State of investment. 

It is also planned, moreover, that by the end of 2018 the European Commission will undertake an in-depth analysis of FDI flows into the EU focusing on strategic sectors and assets.

Although the adoption of the Regulation is rather controversial and some claim it improperly restricts the freedom of investment, it is most likely that a screening process will be introduced in the EU and thus will be added to the M&A legal “to do” checklist.

In the absence of a valid Bilateral Investment Treaty between Slovenia and Russia (one was signed in 2000 but did not enter into force) and due to the high level of connection between Russian businesses and their government the screening process may become an important legal constraint Russian investors should take into account when considering M&A in Slovenia. 

By Katarina Kresal, Partner, and Anastasiia Poels, Legal Counsel, Miro Senica and Attorneys 

This Article was originally published in Issue 5.2 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Miro Senica and Attorneys at a Glance

For over 35 years Law firm Senica has been building trust and providing top legal services to companies, international corporations and individuals. It is due to its expertise, global-mindedness and business-oriented approach that the firm has grown to become one of the biggest and most prominent law firms in Slovenia and the region of Western Balkans.

Law firm Senica has 6 partners and more than 30 experts specializing in various legal fields. It provides comprehensive and tailored legal advice in all areas of law in Slovenia as well as cross-border. The firm is constantly developing new approaches in its working practice as invention and creativity in resolving complex legal questions is why clients come and stay with the firm for many years.

In September 2019 Law firm Senica marked an important milestone by entering into collaboration agreement with Andersen Global. The firm was chosen for exclusive collaboration in Slovenia after Andersen Global completed a detailed analysis of Slovenian law firms. Andersen Global is an international association of legally separate and independent firms which enables clients first class legal and tax advice anywhere in the world. By joining Andersen Global Law firm Senica expanded its range of tax service and is now providing clients with specialised services such as transfer pricing, tax consultancy and tax compliance. Within Andersen Global the firm also serves as a regional coordinator for the Western Balkans.

For further information about Miro Senica and Attorneys Law Firm, please visit our website at https://www.senica.si/en/.