Investment and Investment Finance in Slovenia Debora Revoltella - - PowerPoint PPT Presentation

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Investment and Investment Finance in Slovenia

Debora Revoltella Chief Economist European Investment Bank

Bank of Slovenia, European Investment Bank, European Commission Conference Ljubljana November 16, 2017

Investment decline has been strong, and persistent, particularly for corporates

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Investment dynamics by assets

The graph shows the evolution of total Gross Fixed Capital Formation. (in real terms); by institutional sector and asset type. The data has been indexed to equal 100 in 2008. For 2017 we use the forecast of the European Commission. Source: Eurostat, European Commission

Investment dynamics by sector

50 60 70 80 90 100 110 2005200620072008200920102011201220132014201520162017 Corporations Government Households 50 60 70 80 90 100 110 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Dwellings Other buildings/structures IPP Machinery & equipment

f f

Infrastructure investment is slowly regaining traction, but the effect of the EU cycle is visible

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Note: Annual infrastructure investment as a share of GDP, broken down by occupational sector. Source: EIB Econ calculations, Eurostat, national authorities Note: Annual infrastructure investment as a share of GDP, broken down by institutional sector. Source: EIB Econ calculations, Eurostat, national authorities

per cent of GDP per cent of GDP

Infrastructure investment in Slovenia (occupational) Infrastructure investment in Slovenia (institutional)

0.5 1 1.5 2 2.5 3 3.5 4 4.5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Corporate Government 0.5 1 1.5 2 2.5 3 3.5 4 4.5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Health Education Communication Transport Utilities

What can 12,000 firms tell us about investment trends in Europe?

EIB investment survey:

• 12,500 firms surveyed across EU28 (of which 400 in Slovenia)
• NFCs 5+ employees in manufacturing, services, construction &

infrastructure sector

• Information on:
• Firm characteristics and performance
• Investment needs and constraints
• Past investment activities and future focus
• Investment finance
• Representative of the economy (firms weighted by value-added)
• Data collected from April-July 2017

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Business investment activity is picking up in Slovenia, particularly for the manufacturing sector

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Note: Plots the share of firms with investment expanding/contracting relative to the share of firms investing, by sector or Member State; cross centred on EU average. Source: Econ EIBIS

Investment cycle

Large SME Infr Serv Constr Man SI EU ES SE UK AT BE BG HR CY CZ DK EE FI FR DE GR HU IE IT LV LT LU MT NL PL PT RO SK

• 7%
• 2%

3% 8% 13% 18% 23% 28% 56% 66% 76% 86% 96% 106% Firms expecting to increase/decrease investment in current financial year (net balance,%) Share of firms investing Low investment expanding High investment expanding Low investment contracting High investment contracting

Areas of investment Innovation activity

per cent per cent

Slovenian firms invest more in machinery and less in intangibles than the EU average

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Note: Average of responses for allocations by area in per cent: Q. In the last financial year, how much did your business invest in each of the following with the intention of maintaining

• r increasing your company’s future earnings?

Source: Econ EIBIS

Note: Average of responses in per cent: Q. What proportion of total investment was for developing or introducing new products, processes, services? Q. Were the products, processes or services new to the company, new to the country, new to the global market?

Source: Econ EIBIS 0% 20% 40% 60% 80% 100% EU 2016 EU 2017 SI 2016 SI 2017 Manufacturing Construction Services Infrastructure SME Large

Land, business buildings and infrastructure Machinery and equipment R&D Software, data, IT, website Training of employees Organisation/business processes

0% 20% 40% 60% 80% 100% EU 2016 EU 2017 SI 2016 SI 2017 Manufacturing Construction Services Infrastructure SME Large No Innovation New to the Company New to the Country New to the World

Perceived investment gap

per cent

The share of firms believing that they invested too little in the past is higher in Slovenia than in the EU

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Note: Share of responses in per cent: Q. Looking back at your investment

• ver the last 3 years, was it too much, too little, or about the right amount?

Source: Econ EIBIS 0% 20% 40% 60% 80% 100% Large SME Infrastructure Services Construction Manufacturing SI 2017 SI 2016 EU 2017 EU 2016 Invested too much About the right amount Invested too little Don't Know/refused

Future investment priorities

per cent of total investment

Capacity expansion is becoming the top investment priority

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Source: Econ EIBIS

Note: Share of firms by main purpose of investment, in per cent. Q. Looking ahead to the next 3 years, which is your investment priority (a) replacing existing buildings, machinery, equipment, IT; (b) expanding capacity for existing products/services; (c) developing or introducing new products, processes, services?

0% 20% 40% 60% 80% 100% EU 2016 EU 2017 SI 2016 SI 2017 Manufacturing Construction Services Infrastructure SME Large Capacity expansion Replacement New products No investment planned

Capacity utilisation (EIBIS)

per cent

Note: Average share of responses in per cent: Q. In the last financial year, was your company operating above or at maximum capacity attainable under normal circumstances?

Source: Econ EIBIS

0% 10% 20% 30% 40% 50% 60% 70% 80% EU SI Manufacturing Construction Services Infrastructure SME Large 2017 2016

average share in per cent average share in per cent

The quality of the capital stock scores relatively well in European comparison

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State-of-the-art machinery and equipment Share of high energy efficiency buildings

Note: Average of responses in per cent: Q. What proportion, if any, of your machinery and equipment, including ICT, would you say is state-of- the-art? Source: Econ EIBIS Note: Average of responses in per cent: Q. What proportion, if any, of your commercial building stock satisfies high or highest energy efficiency standards? Source: Econ EIBIS 0% 20% 40% 60% 80% CY GR AT DE HU IT LU ES FI SI SE NL LV MT EE IE LT BE HR DK CZ PT RO UK FR SK PL BG State-of-the-art machinery and equipment 0% 20% 40% 60% 80% GR CY AT DE ES HU HR SI PT IE MT IT DK LU RO NL BE BG EE UK CZ SK LV SE FI PL FR LT High energy efficiency standards

Investment barriers by size/sector Long-term barriers to investment

per cent per cent

Availability of skilled staff has become the key concern in most sectors

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Note: Share of responses in per cent: Q. Thinking about your investment activities, to what extent is each of the following an obstacle? Is a major

• bstacle, a minor obstacle or not an obstacle at all?

Source: Econ EIBIS Note: Share of responses in per cent: Q. Thinking about your investment activities, to what extent is each of the following an obstacle? Is a major

• bstacle, a minor obstacle or not an obstacle at all?

Source: Econ EIBIS 0% 20% 40% 60% 80% 100% Uncertainty about the future Availability of finance Adequate transport infrastructure Business regulations Labour market regulations Access to digital infrastructure Energy costs Availability of skilled staff Demand for product or service EU 2017 SI 2017 2016

35 71 40 17 57 63 34 18 65 46 76 55 12 56 61 46 48 74 40 59 48 21 67 61 32 37 67 22 46 49 23 57 60 38 35 59 42 64 52 23 64 62 37 38 67 22 59 36 15 54 61 33 18 62

Uncertainty about the future Availability of finance Adequate transport infrastructure Business regulations Labour market regulations Access to digital infrastructure

Manufacturing

Energy costs Availability of skilled staff Demand for product or service

Construction Services Infrastructure SME Large

Source of investment finance

per cent per cent

Finance is mostly internal finance and bank loans

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Type of external investment financing

Note: Average of responses in per cent: Q. What proportion of your investment was financed by each of the following? Source: Econ EIBIS Note: Q. Approximately what proportion of your external finance does each of the following represent? Source: Econ EIBIS

0% 20% 40% 60% 80% 100% EU 2016 EU 2017 SI 2016 SI 2017 Manufacturing Construction Services Infrastructure SME Large External Internal Intra-group

0% 20% 40% 60% 80% 100% EU 2016 EU 2017 SI 2016 SI 2017 Manufacturing Construction Services Infrastructure SME Large Bank loan Other bank finance Bonds Equity Leasing Factoring Non-institutional loans Grants Other

per cent per cent

Certain firms still face financing constraints, but satisfaction with the financing offers improved

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Share of finance constrained firms Dissatisfaction with external finance

Note: Proportion of firms considering themselves finance constrained: Finance constrained firms include: those dissatisfied with the amount of finance obtained (received less), firms that sought external finance but did not receive it (rejected) and those who did not seek external finance because they thought borrowing costs would be too high (too expensive)

• r they would be turned down (discouraged)

Source: Econ EIBIS Note: Average share of responses, in per cent Q. How satisfied or dissatisfied are you with ….? Source: Econ EIBIS 0% 2% 4% 6% 8% 10% 12% 14% Large SME Infrastructure Services Construction Manufacturing SI 2017 SI 2016 EU 2017 EU 2016 Rejected Received less Too expensive Discouraged 0% 5% 10% 15% 20% Type of finance Collateral Length of time Cost Amount obtained Slovenia EU 2016

Transport infrastructure development is the key public investment priority for Slovenian firms

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Note: Proportion of responses in per cent: Q. From your business’ perspective, if you had to prioritise one area of public investment for the next 3 years, which one would it be? Source: Econ EIBIS

Perceived public investment priorities

per cent

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% AT BE BG HR CY CZ DK EE FI FR DE GR HU IE IT LV LT LU MT NL PL PT RO SK SI ES SE UK Transport infrastructure Transportation ICT infrastructure Energy Childcare/schools Prof training/HE Hospitals Social housing Other Refused

Municipality infrastructure – gaps exist and impediments related to budget and procedures

• Add-on survey module for 2017: 555 municipalities were interviewed in all 28 Member States.
• Central Europe (Czech Republic, Hungary, Slovakia, Slovenia)

Key results:

• In Central Europe, municipalities see a smaller investment gap than the rest of the EU: 75 per cent

believes they invested enough in the past years (vs around 50% in the EU). Still 20% of municipalities believe they invested too little.

• Perceived infrastructure quality at municipal level is slightly above the EU average. The main areas

where gaps should be closed in the future are health and housing.

• Ex ante assessment of projects is more wide-spread than in the rest of the EU. Still, the coordination
• f projects among the various stakeholders (central level, region, neighboring municipalities) could

be improved.

• Main obstacles for investment: budget, but also length of approval, technical capacity and

political and regulatory stability.

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Conclusions

• The crisis resulted in a sizable investment gap, but the recovery of corporate

investment has begun.

• The manufacturing sector is particularly dynamic in expanding its capital

stock.

• Capacity expansion is becoming an important investment objective for firms.
• While investment is shifted towards tangibles, the manufacturing sector is

shifting towards R&D.

• The perceived quality of the capital stock is good by EU standards.
• The key barriers to investment are the shortage of skilled staff, uncertainty,

and regulatory constraints.

• Certain firms still face financing constraints, but satisfaction with the financing
• ffers improved.
• Municipalities could strengthen the coordination between the various

stakeholders when it comes to infrastructure planning.

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Thank you

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