At the beginning of this new millennium, regional economies are confronting momentous changes. The globalisation of trade and economic activity is increasingly testing their ability to adapt and maintain their competitive edge. There is a tendency for income and performance gaps to widen between and within regions, and the cost of maintaining social cohesion is increasing. Rapid technological change and greater use of knowledge are offering new opportunities for local and regional development but demand further investment from enterprises, reorganisation of labour and production, more advanced skills and environmental improvements.

The OECD Secretariat would like to thank the Slovenian authorities at the national and sub-national levels for their co-operation and support during the review process. Special thanks are given to Mr. Gorazd Jenko, Mr. PeterWostner, Mr. Igor Strmšnik and Ms. Zlata Ploštajner, from the Government Office for Local Self-Government and Regional Policy (GOSP), for the overall co-ordination of the project, as well as to the other experts from the Slovenian team. The OECD is also grateful to the authorities of Dolenjska and Bela Krajina, Gorenjska, Južnoprimorska and Pomurska for hosting on-site OECD study missions.

Overall, Slovenia’s regions have experienced strong growth since the mid-1990s. While there has been some increase in inter-regional disparities in both growth performance and levels of GDP per capita, the increase in disparities was driven largely by the dynamism of the capital region, and even the worst-performing regions have been growing faster than the OECD average. The widening of interregional disparities during the period of strong growth before 2009 was in any case typical of economies in transition, and inter-regional disparities remain relatively low by OECD standards. Nevertheless, two regions stand out as chronic under-performers, with per capita GDP levels falling further and further below the national average. They represent a cause for concern, as their poor performance could, unless reversed, impose significant long-term costs in the future. While the recent crisis hit Slovenia hard, its aggregate impact on labour markets has been in line with the OECD average; the unemployment rate rose from 4.4% in 2008 to 5.9% in 2009. However, the spike in unemployment was geographically quite concentrated: more than half of job losses (60%) occurred in only two of Slovenia’s twelve regions.

Slovenia is a small open economy experiencing strong growth since the mid- 1990s. As in many economies in transition, inequalities have been widening; nevertheless, they remain below OECD standards. Despite its small size, Slovenia’s economy is very heterogeneous with low levels of demographic and economic concentration. During the past years concentration has been rising, driven mainly by the capital region’s economic expansion. Population density and urbanisation levels remain relatively low by OECD standards, indicating the productivity benefits of agglomeration in the capital region are far from exhausted. National growth depends on the capital region, but six-non capital regions still account for the bulk of aggregate growth. All Slovenian regions but one are growing faster than the average for OECD TL3 regions. The impact of the recent crisis was quite concentrated geographically: more than half of job losses (60%) occurred in only two of Slovenia’s twelve regions. Labour productivity growth appears the key driver of regional growth closely linked to improvements in educational attainments and innovation performance.

In any analytical study conducted at sub-national level, defining the territorial unit is of prime importance, as the word region can mean very different things both within and among countries. In order to have a measure that is comparable, the OECD has developed a regional typology for classifying regions within each member country.

This annex extends the analysis of regional Beveridge curves presented in the chapter. Section 1.A4.1. divides Slovenia’s 12 TL3 regions into four overlapping geographic groups – the north-east, the centre, the south-east and the western regions – and compares both the level relationships and trends over time. Some regions are included in more than one group, since the aim to assess the relative efficiency of labour markets in contiguous regions. These scattered examples provide strong evidence of different efficiency levels in labour markets between neighbouring regions as well as different trends over time, suggesting that these markets are highly segmented.

Slovenia has in recent years achieved impressive economic performance, while maintaining a consistent concern to ensure balanced regional development, notably by allocating subsidies to lagging regions. Since EU accession, additional funding from Structural Funds has created an opportunity to invest in projects that will enhance Slovenia’s endogenous growth potential. Yet in a relatively small country with no elected regional tier of public governance, there has been increasing municipal competition for regional policy funding. Slovenia needs to avoid scattering scarce resources across large numbers of small-scale sectoral projects and diluting the overall impact of Structural Funds. It also needs to help regions undergoing structural adjustment and to build their own capacity to fuel sustainable development. This chapter starts with an overview of regional policy reforms in Slovenia. It then turns to how regional policy reforms can help improve physical infrastructure, including spatial planning, the management of Natura 2000 areas, and transport networks. Finally, it assesses how regional policy can contribute to upgrading human capital, regional innovation capacity and the business environment.

Slovenia is shifting the focus of regional policy from “passive” redistribution to a more pro-active emphasis on enhancing sustainable growth in all regions. However, much remains to be done in terms of translating this shift into policy instruments and institutional arrangements. Many of these challenges have become more acute as a result of the crisis and the need to balance fiscal consolidation against support for a still-fragile recovery. The recently adopted Law on Balanced Regional Development addresses some of these issues, but much will depends on how the law is actually implemented. This chapter starts by identifying three key challenges to effective multi-level governance: capacities for regional policy, municipal fragmentation and relevant scale for regional policy, and the lack of information for regional growth. Section 3.2 assesses how Slovenia should address these challenges and proposes concrete steps to be taken in a number of areas.

The Law on Local Self-governance divides municipal competences into original and transferred ones. Original competences include those which are set by municipal statutes and other acts and are a standard element of local self-governance (communal utility services, local public services, etc.) and local competences of public importance set by local legislation in municipalities. Transferred competences include those which the state transfers to municipalities to perform them on behalf of the state. The state must provide the required funding.