CHAIR —I welcome you on behalf of the Trade Subcommittee. The subcommittee prefers that all evidence be given in public, but should you at any stage wish to give any evidence in camera, please let us know. I do not believe it will be necessary in this case. The subcommittee has received submission No. 3 from the embassy. I invite you to make a short opening statement before we proceed to questions.

Mr Bertoncelj —At the outset I would like to thank the committee for its inquiry. I think it is important to get this part of Europe back on the radar screen in Australia. On the basis of our submission, I would like to point out a few elements. I would like to start with the notion that Slovenia has an open economy. From the data, 60 per cent of our GDP comes from exports. Price and cost effectiveness are the main factors of this open economy. On one side, we have a commercially competitive economy; on the other side, we have economic and political stability, which again gives some sort of potential sustained growth.

CHAIR —Are most of the exports to the European Union?

Mr Bertoncelj —From the latest data, 60 per cent of the exports go to the European Union, 19 per cent goes to south-east Europe and around 10 per cent go to the countries of CEFTA—the Central European Free Trade Association. I would also like to stress that Slovenia is very active in obtaining access to markets, and this has now been made easier through the 33 free trade agreements which Slovenia has concluded.

CHAIR —What happens to your free trade agreements upon your accessing the European Union?

Mr Bertoncelj —These free trade agreements have been established before our accession to the European Union. Apart from the data which we have put in our submission, I stress once again that Slovenian GDP purchasing power is around $A29,000, which represents 72 per cent of the European Union average.

CHAIR —Are you saying GDP per capita?

Mr Bertoncelj —No, GDP per purchasing power—GDP per capita is around $A16,000. Sixty per cent of GDP comes from services, 31 per cent comes from industry and just three per cent comes from agriculture. Last year, total GDP was $US19 billion, with real growth of three per cent, which I think is quite a number. Our inflation was a bit higher than was perhaps expected or would be seen as favourable in the European Union. It was about 8.4 per cent. But unemployment is quite okay at 6.4 per cent. In Slovenia we have 67,000 students at university. So Slovenia offers a very well-educated work force in that sense. I also point out that we have an IT sector. I heard before that this is also quite an interesting point for Australia.

CHAIR —Before you move off the GDP figures and the economic base, what has the growth rate of your economy been in the last few years? Did you say three per cent?

Mr Bertoncelj —It was three per cent last year, but taking the data on a mid-term basis, over the last five, six or seven years the average would be around four per cent. Regarding the IT sector, e-government is already very much in practice. It is not just in some empty rooms. There are computers—which I say in response to hearing before that in some cases this may not be the case.

CHAIR —The last gentleman was talking about the further east you go. You are amongst the furthest west.

Mr Bertoncelj —Yes. I also point out that our government is very well aware of the need for the electronic conduct of business in the economy. One of the things which we have just put into operation is a new scheme called e-Slog, which stands for `electronic Slovenian economy'. To our knowledge, with other systems in Europe in mind, this will be one of the most advanced systems. To put Slovenia in the European Union context, in the enlarged European Union of 25 members, Slovenia will of course be a small member. We will have 0.4 per cent of the inhabitants, 0.3 per cent of the GDP and 0.7 per cent of the foreign trade. Nevertheless, our ambition with economic policy is very high—within 10 years we aim to become one of the 10 most developed European Union countries.

I will tackle two points in our submission—that is the European Union and NATO. We have advanced a bit from the data that I put in there last year. On 19 April, along with other candidates, Slovenia will be signing the Accession Treaty. We have also formally been invited to join NATO. This is connected with the question of a secure environment and a secure economy, and also some impetus which we expect from the investment programs out of that framework. In trade with Australia, in comparison with what Australia is trading with some big countries, the numbers are not much but still it comes to around $US30 million, so the total trade exchange is about $A50.7 million. Nevertheless, I looked at some data from the DFAT submission about the countries that are involved in this inquiry and Slovenia, although it is a small country, is actually in fourth place.

As you are probably aware—and you can see from the data—Slovenia is not a big market per se for Australian exports, but I stress the importance of being an open economy. The other fact is that we are strategically positioned geographically in Europe and that means we can offer to be a hub for selling to customers in the European Union and to the fast-growing markets of central and south-eastern Europe. Something was said earlier about confidence in the market. In respect to this, I would like to point out that we have two bright examples of how opportunities from the Australian side can be seized. One has been around for quite a few years, a company called Impact International in Sydney, and the other is perhaps more well known, the retailer Harvey Norman which opened its first store in Europe last year in the Slovenian capital Ljubljana. This is also one of the arguments for Slovenia: it is possible to see that there are big opportunities behind doors which have been closed for some years.

CHAIR —How has Harvey Norman been going there?

Mr Bertoncelj —To my knowledge, they are doing very well. Of course, they have some competition from Slovenian companies, but as a newcomer they are doing very well. This will bring this company closer to some markets in the vicinity of Slovenia, which I think was also the idea. The fact that they chose Slovenia is one of the elements that we would like to point out.

CHAIR —What was the other firm that you mentioned?

Mr Bertoncelj —It is Impact International. It is owned by a Slovene who came to Australia many years ago. Part of this company is a factory in Ljubljana which was owned by his family before the Second World War.

The last thing I would like to point out is perhaps an attractive opportunity from the Australian side—that is, the port of Koper. We have already mentioned this in our submission. We would like to stress that this port could be a south European gateway for Australian goods. This port could serve very well as a logistic distribution centre in the heart of Europe. From the Australian side, that would mean you would save time and money. It also serves a region with huge economic potential. We are to become a member of the European Union and Slovenian business has knowledge of the south-eastern European region. I would like to point out that the transit time between Sydney and the port of Koper is about 37 to 40 days. This compares well with the transit time between Sydney and Rotterdam, in northern Europe, which is 50 days. I think this is quite important in today's framework of how business is conducted.

Again, the port is less than 24 hours from all major central European markets and the journey is about 500 kilometres shorter. This is not much perhaps compared to the vastness of Australia, but it is quite a distance in European circumstances. The port of Koper, with its specialised and well-skilled personnel, would be able to offer some real opportunities, not just as a distribution centre for Australian goods—which I think we would put first—but also for possible investment in joint venture operations, in cooperation with Australian logistic operators working with the port of Koper for the Australian market. I would like to point out that last year foreign direct investments in Slovenia grew significantly, and I think this is also an area in which we can upgrade our relations.

CHAIR —Thank you for your review. Have you had the vote on accession to the EU yet?

Mr Bertoncelj —No, we will have a referendum on 23 March. There will be a referendum on the same day on European Union accession and on joining NATO. We are quite confident that it will go positively. There is always a debate in terms of public opinion and the level of support, but we are quite confident that this will be the case.

Mr PRICE —As politicians, we are always interested in polls. What is your estimate of the positive vote?

Mr Bertoncelj —Of those who turn up, about 60 per cent will be for the European Union and a bit more than 50 per cent will be for NATO. It will not be overwhelming, but it will still be quite an important yes vote.

CHAIR —You talked about the IT area being a potential area in which we could work. You have had the advantage of sitting through the recommendations from Mr Keogh as to how we could work in providing advice on structuring government IT et cetera, and opportunities could develop from that. What did you think of his proposal?

Mr Bertoncelj —It might be that differences exist between countries in this region. I mentioned that e-government is already in place in Slovenia. Not many governments and government sessions in western Europe operate with computers. Another thing is that some of the services which are very important to citizens are in place. They are quickly within hand's reach—for example, there is electronic book lending, which is very important for our people. I again point out the significance of the IT sector. Wherever it is possible to get connected with businesses in this segment, the government is doing so. Businesses already do 70 per cent of their business with the European Union electronically. We are very much up to the standard of the European Union countries. In this respect, we do not expect big problems or anything like that with our accession to the European Union. I will point out one more thing. Something was said earlier about the capacity of the market. In terms of being a future member of the European Union, I think Slovenia is already the only country which is in a position to absorb all the financing which is now available from the European Union, in the sense of structural and cohesion funds. That shows what kind of development has been done in the 12 years since independence.

Mr PRICE —As I understand it, Slovenia has always been the more industrialised part of the former Yugoslav federation. You have always had a history of being a highly industrialised country. Is that correct?

Mr Bertoncelj —Yes. Economic data shows that about 25 per cent of the former Yugoslavia's GDP was developed by Slovenia although it had a small number of inhabitants in proportion to the other parts of Yugoslavia.

Mr PRICE —What will be the challenges for Slovenia in terms of entry into the EU?

Mr Bertoncelj —I think entering the European Union is a very natural step forward for Slovenia. After gaining independence for our country, joining the European Union and NATO is the second most important step in our development. In a way, it is a natural step. It is something that is inevitably coming to us, as all the companies and industries are already so connected with European Union countries.

Mr PRICE —In some ways it would then be fairly seamless. I would have thought that there would not be too many difficulties for Slovenia as opposed to, say, Poland, which has to restructure its agricultural industry et cetera.

Mr Bertoncelj —That is one of the more problematic issues for the European Union. But agriculture for Slovenia represents a bit less than three per cent of the GDP. Our difficulties—and I see perhaps some possibility for cooperation here—will be more a question of sound environmental development and protection.

Mr PRICE —What are the reasons for the opposition vote to EU membership?

Mr Bertoncelj —It is not so much economic, I would say, as perhaps a fear that, with accession to the European Union, Slovenia will lose some of its national identity. However, I think that is not a factor, as we can see from the members who are in the European Union now. The national state will go on.

Mr PRICE —Is it more about independence?

Mr Bertoncelj —On this, perhaps there is more—I don't know how to put it—resentment. But the agricultural sector—farmers who are traditionally linked with the soil—have quite good political representation and that is how it then comes to this effect.

CHAIR —You were a part of the former Yugoslavia, weren't you?

Mr Bertoncelj —Yes. Slovenia was one of the republics of the former Yugoslavia.

Mr PRICE —It gained independence with bugger-all bloodshed. Pardon my ignorance, but does Slovenia have a merchant fleet—ships that carry goods?

Mr Bertoncelj —Yes; we have our own company.

Mr PRICE —Is it a national or a government owned company?

Mr Bertoncelj —Yes, it is a national company. I do not know exactly what the government's stake in it is and what might be owned by the private sector. To go a step back with regard to the privatisation process in Slovenia, this process is a bit different from that in other countries. It was perhaps a bit slower in the eyes of foreign investors, but I think that our economic data shows that we made the right decision in 1991. In recent years, ahead of the European Union accession, the government has put programs in place to go more in this direction—there were some big privatisation projects with some of the banks, insurance companies are still to be dealt with, and probably some energy systems.

CHAIR —I have a couple of questions. You have now been in Australia for a few months. Is that right?

Mr Bertoncelj —It will be nine months soon.

CHAIR —That is a significant amount of time. From where you sit at the moment, where do you think Australia has got the best opportunities in terms of trading with your country?

Mr Bertoncelj —There are possibilities to use the links which we already have and to find some new ones. On this very basis, representing major imports or exports, I think it shows a good grasp of what the market is after. As I said, the other thing is that Australia should really use Slovenia as a hub to go to this part of Europe. It is this that I think we can offer. It would also be a political and economic niche in Slovenia and the European Union, with the knowledge of south-eastern Europe.

CHAIR —One thing Rotterdam boasts about is the high rate at which it can move containers. How does your rate compare to Rotterdam's? I have forgotten the figure, but I understand they can move about 17 or 18 containers per hour.

Mr Bertoncelj —I would have to provide that data later; I do not have it in my head now.

Mr PRICE —We are shocked!

CHAIR —The container rate is a key factor people look at when deciding whether to use a port, and it is one of Rotterdam's big attractions, in terms of its overall efficiency. What about education services—that is an area that has been identified by DFAT. Were you at the DFAT presentation yesterday?

Mr Bertoncelj —No.

CHAIR —It was interesting, because they talked about education and bringing students to Australia. Did you say you already have 67,000 students studying. Are there opportunities there?

Mr Bertoncelj —This is one of the opportunities, although—to be accurate—the figures I have looked through show that Slovenia does not have a large proportion of students coming to Australia. But one of the things I believe is quite important is the fact that Slovenia is very much interested in an exchange—not just a one-way flow. Slovenia is interested in attracting Australian students to come to Slovenia too. Perhaps some development in the educational services that Australia has would be most welcome. I must also stress that there are a lot of direct connections between universities in Slovenia and Australia, going to very specific areas of cooperation that perhaps government is not always very well aware of. In some areas, such as biotechnology and electronics, we find that universities are cooperating very well. There is no formal, written arrangement, but that cooperation is going on. Interest in the exchange system will also be derived from that kind of cooperation.

CHAIR —Are there opportunities in the area of insurance as well?

Mr Bertoncelj —Yes, because insurance companies are on the brink of a privatisation process. As I explained earlier, that issue was until now part of the debate about national interest in Slovenia—which I found very similar to the one which goes on here, although it focused on some other aspects of the question. What proportion of companies should stay in the hands of Slovenians was one of the questions raised, for instance. I think that is now behind us and the merits of foreign direct investment have been seen in terms of economics, politics and public opinion. Since this sector is in an initial phase, I think it would be worthwhile for Australia to look at.

CHAIR —I have a final question related to Slovenia's inflation rate, which I understand has been an issue for you. Can you tell me what the rate is at the moment and what the average over the past few years has been?

Mr Bertoncelj —I am not an expert on the exact interpretation of data, but at the moment I think our macroeconomic institute measures the inflation rate at around 7.2 per cent. If you were to measure it over a longer period, it would be about eight per cent, although the figure varies from month to month because it incorporates the cost of energy and so on.

CHAIR —Why has your inflation rate been higher than the European average? Are there any factors for that? Are there any reasons for that?

Mr Bertoncelj —The question of why inflation is high is another of the more, if you like, scientific debates back at home. There are different explanations, but the Slovenian government's economic policy has given Slovenia a very sound base. One aspect is Slovenia's quite extensive social system, and in a way higher inflation is part of the price for that. But, as I said, since December last year when we got a new Prime Minister, inflation has been one of the main issues for the new government. Of course, inflation must also come down because of the European Union economic criteria.

Senator EGGLESTON —If Slovenia goes into the European Union, we will lose the potential for agricultural exports to your country. I suppose it is true to say that we will need to get into things like financial services, insurance and IT, which are clever things. But I noticed you also made some reference to environmental programs: I wonder whether there are any aspects of Australia's environmental policies which might particularly apply in your country and which you might like to enlarge upon?

Mr Bertoncelj —I am afraid I am not an expert on the environment but, as I think I already mentioned, this is becoming a more and more important issue for Slovenia as well. Since it is a small country, the potential risk from the effects of environmental pollution is high. In this respect, this will be one of the areas we will develop very much. There is already very good cooperation with some European Union members—Austria and Italy on our northern and western borders—and we have had some very good results. With the knowledge Australia has, it is very worthwhile to step into this area. I am sorry I am not expert enough to give you more concrete information on the programs that go on.

Senator EGGLESTON —That is quite understandable.

CHAIR —Thank you very much for coming today. We have now run out of time. We appreciate your input and look forward to continuing the dialogue. This committee is proposing to have a luncheon with the various representatives of the eastern European countries, and we will let you know the details. It will be an opportunity for more informal dialogue. We will undoubtedly be in touch with you as we proceed. Not all our members will be going; we will be splitting into two groups.

Mr Bertoncelj —We are looking forward to it too.

CHAIR —That will be great. I plan to go to Slovenia myself. I am looking forward to that.

Mr Bertoncelj —Thank you very much.

Mr PRICE —We will have to increase the security arrangements if the chair is going to Slovenia!

CHAIR —Exactly. That is what other people have said!

[11.51 a.m.]