Building More Competitive Regions in Slovenia

1. Assessment and recommendations

Regional development in Slovenia: Trends, challenges and opportunities

Since 2014, the Slovenian economy has been growing faster than the economies of most OECD Member countries. This strong economic performance has been coupled with notable improvements in the well-being of residents, including higher subjective well-being, increased life expectancy and lower poverty risk. However, the gains from growth have not been evenly shared across the country. Slovenia faces worsening regional economic disparities, driven by an increasing concentration of productive economic activities around Ljubljana. Recognising the need to boost competitiveness and continue improving well-being outcomes beyond the capital region, the government is developing a new national regional development strategy. This strategy offers an opportunity to take stock of the diverse challenges and opportunities across Slovenian territories, and can serve as a first step towards strengthening the government’s effectiveness in addressing them.

Regional output data highlight a large and widening gap in economic vitality between Ljubljana and the rest of the country. Osrednjeslovenska development region, which encompasses the capital, had a gross domestic product (GDP) per capita of EUR 44 567 (euros) in 2023, far above the national average of EUR 30 158. By contrast, several other development regions, including Zasavska, Primorsko-notranjska and Pomurska, have a GDP per capita that is less than half of Osrednjeslovenska’s. Between 2003 and 2023, Osrednjeslovenska’s GDP per capita increased relative to the national average while the GDP per capita of most other regions declined, pointing to a gradual widening of regional economic inequalities.

Differences in the size and complexity of Slovenia’s regional economies contribute to such inequalities, since a more limited diversity of businesses, industries and employment opportunities in smaller regions can inhibit their economic potential. For example, Primorsko-notranjska, Slovenia’s second-smallest regional economy, employs only 25 000 workers, primarily in non-service industries that offer few opportunities for those with tertiary qualifications. In Osrednjeslovenska, by comparison, over 261 000 workers are employed across a wide range of industries.

Despite large differences in the GDP per capita and industrial mix of different Slovenian regions, disparities in per-capita disposable income are lower. This reflects high levels of commuting between regions and, to a lesser extent, internationally. However, action is needed to promote economic activity in less-developed regional economies, which could help reduce existing territorial inequalities. Moving forward, the government should set a long-term, national-level objective to reduce regional disparities in economic activity. This objective, however, should also be partnered with complementary short, medium and long-term targets at the regional level aimed at increasing competitiveness, productivity and economic growth. These targets could be guided by priorities established in past regional development programmes, along with gaps in regional attractiveness or new place-based assessments of the infrastructure, innovation ecosystem, entrepreneurs and firms already established in the region. Further, the targets should be based on indicators that are measurable and publicly available, such as regional GDP per capita and household income. The targets should also include a mix of realistic short- and long-term milestones, such as the maintenance of a specific average growth rate or achievement of a particular absolute level by a specified year.

Regional disparities in competitiveness hinder balanced territorial development

Data point to a concentration of competitiveness in and around Ljubljana. In 2023, the Osrednjeslovenska region alone accounted for 58.9% of foreign direct investment (FDI) and 51.2% of national goods exports, underscoring its dominant role in driving internationally oriented economic activity. No other region in Slovenia accounted for more than 10% of FDI or exports. Although the growth and development of the capital region is positive for Slovenia overall, the large and growing pull of Ljubljana is a potential barrier to the development of Slovenia’s other regions.

A variety of factors could be contributing to Slovenia’s competitiveness divide. For example, the heavy concentration of research and development (R&D) expenditure in Osrednjeslovenska (58.4% in 2023) strengthens the capital region’s international attractiveness relative to other development regions. Skill gaps or mismatches may also contribute to differences in regional competitiveness and the pull of the capital region. High-performing regional labour markets are more likely to attract new investment, firms or entrepreneurs. Despite the good quality of Slovenia’s vocational education system overall and high rates of vocational qualifications, the limited available data point to skills disparities and mismatches within regions. For example, in 2023, the share of Osrednjeslovenska’s adult population reporting digital skills beyond a basic level was more than three times higher than in Primorsko-notranjska and Posavska. Moreover, regional variations in unemployment suggest a mismatch between the skills of regional workers and the needs of regional businesses in certain territories.

With the assistance of SPIRIT Slovenia Agency and other relevant business-support organisations (such as the Chamber of Commerce and Industry of Slovenia, the Chamber of Crafts, and their branches), regions should be encouraged to assess major barriers to their international competitiveness in future regional development programmes to support productivity growth. This can include undertaking research to help identify and rank the main regional barriers to foreign investment, export and R&D performance in different territories (e.g. insufficient infrastructure, skills gaps) in order to help guide the prioritisation of future projects. Regional barriers should be decoupled from national-level competences, where possible.

In addition to identifying barriers to (international) competitiveness, regions should also assess their skills assets and shortages comprehensively, focusing on reinforcing labour-market capacity to meet future employer needs. Assessments should look beyond formal qualifications (e.g. diplomas) to actual skills possessed by the regional labour force and should include both quantitative and qualitative evidence from local businesses, unions and industry associations. These assessments could then be used to develop appropriate courses with educational institutions, help attract investment in industries with specific skills needs, and support collaboration with the national government to develop targeted programmes aimed at boosting education and skills.

Well-being outcomes are uneven among Slovenia’s regions

Quality of life is generally high overall in Slovenia, although regional disparities in well-being outcomes can be observed, including with regard to health, social exclusion, life satisfaction and loneliness. While Slovenia ranks high on average life expectancy compared to OECD and EU countries, life expectancy for both men and women in the four regions of the Cohesion region West Slovenia is significantly higher than in the eight regions of the Cohesion region East Slovenia. Moreover, while only 8% of Slovenian residents report being in bad or very bad health, rates of reported ill health are higher in certain eastern regions, such as Koroška and Pomurska.

Clarifying and addressing the drivers of territorial health disparities has important implications for regional economic development, since poorer health outcomes can reduce labour-force participation and productivity while increasing subnational expenditure on healthcare and social services. Slovenia’s existing subnational health data are insufficient to explain in-country variations. However, expanding the annual survey on living conditions to include more detailed questions on healthy and harmful behaviours could help better identify the underlying risk factors driving regional disparities in health outcomes.

A further territorial cleavage in Slovenia relates to levels of social exclusion. For example, while rates of poverty and exposure to crime are relatively low by international standards, they are unevenly distributed among regions. Addressing such challenges requires a place-based approach that targets the specific conditions contributing to them. Regional strategic planning can play a key role by identifying underperforming areas and vulnerable groups, and supporting them through tailored initiatives. Furthermore, the national regional development strategy can guide this process by establishing clear, long-term targets aimed at boosting the inclusiveness of Slovenian regions. For example, the strategy could provide a definition of inclusiveness in relation to regional development and establish common benchmarks of success – such as reducing the risk of poverty – that could help improve the consistency and focus of social objectives in subnational strategic documents.

A final area where national-level well-being indicators in Slovenia mask a more complex regional picture concerns life satisfaction. While Slovenia performs well in international comparisons of life satisfaction, including the OECD Better Life Index, subnational data reveal a modest but meaningful regional divide in life satisfaction. Developing more comprehensive and regular citizen surveys could help pinpoint specific factors undermining regional well-being and clarify the underlying regional variations in life satisfaction. Factors that might be considered could include negative economic well-being (i.e. limited disposable income) or negative social well-being (i.e. cyberbullying). The resulting insights could then be used to refine and better target place-based policies to improve well-being outcomes across all regions.

Structural constraints on Slovenian economic development have a regional dimension

Structural development challenges – for example with respect to demographic change, housing and infrastructure, and the environment – are unevenly distributed across Slovenian regions. Some face greater infrastructure deficits, faster demographic change and higher adjustment costs from the net-zero transition than others. These structural challenges undermine regional development while perpetuating the concentration of economic activity around Ljubljana and the cross-border movement of Slovenian workers.

Demographic trends in Slovenia point to a growing concentration of development around Osrednjeslovenska. In 2024, for example, regions such as Pomurska and Primorsko-notranjska attracted fewer new residents than other regions on average, and lost a higher share of their current population. Demographic change can create different challenges in different areas, requiring a place-based approach to manage it effectively. While population growth risks adding pressure on public services and infrastructure in Osrednjeslovenska, a decline of resident populations in other areas risks limiting workforce availability and shaping long-term growth potential. Developing a national regional attractiveness methodology would enable regions with declining populations to identify and address the causes of outmigration, attract working-age residents and reduce the long-term pressures associated with demographic change more effectively.

Another structural challenge is ensuring high-quality housing and supporting infrastructure. These are critical to maintaining the competitiveness and attractiveness of regions, and can help attract skilled labour and foreign investment. Territorial disparities in the quality of infrastructure provision exist, particularly in housing. Addressing these infrastructure gaps will require close alignment between national and regional strategic planning and spatial-planning processes, which will greatly influence what types of future regional activities will be achievable.

Slovenia’s environmental commitments and the transition to net-zero will also have asymmetric regional impacts, with adjustment costs on regions reliant on carbon-intensive sectors such as energy, manufacturing and agriculture likely to be particularly significant. For example, the region of Savinjska, where the country’s only operating coal mine and coal-fired power station employs 1 800 full-time workers, will be directly affected. Analysing the economic and social impacts of new environmental policies and legislation at a regional level is therefore needed to identify territorial impacts and prepare mitigating actions through strategic planning.

Reinforcing Slovenia’s multi-level governance system for regional development

Slovenia has several important multi-level governance arrangements in place that support the government’s commitment to place-based regional development. These mechanisms include a legislative framework for subnational governance and regional development that establishes roles, responsibilities and resources, and regional-level bodies – such as regional development agencies (RDAs) – which work with national and subnational governments to implement development programming. New mechanisms are also being developed to encourage national and subnational actors to “wear their regional glasses” more regularly. For example, the government’s forthcoming national regional development strategy can play an important role as an umbrella framework to help guide and achieve development aims that are inherently cross-sector.

However, Slovenia’s multi-level governance arrangements could be reinforced to serve regional development objectives even better. Doing so will entail overcoming a number of systemic constraints. These include territorial fragmentation, which risks undermining the cost-efficiency of investment and service delivery; limited resources to realise regional development initiatives; few incentives and means for cross-sector co-ordination and multi-level co-operation; and gaps in performance-measurement practices that make it difficult to measure progress. Ultimately, the successful implementation of the forthcoming national regional development strategy will hinge on the government’s ability to remove or mitigate these systemic constraints.

Creating a stronger territorial basis for action at the municipal and regional levels

Slovenia’s fragmented territorial landscape challenges the ability of national and subnational actors to meet costly or complex development needs. For example, public investment in health, transport infrastructure or certain public utilities is often undertaken more efficiently at a larger territorial scale. Likewise, support for the innovation ecosystem is often more effective when organised across wider territorial networks.

At the municipal level, more than half of the country’s 212 municipalities have fewer than 5 000 inhabitants. Combined with the tight fiscal reality of many municipalities, this fragmentation presents a challenge to the national regional development strategy’s implementation, requiring resource pooling that extends beyond individual municipal boundaries. Fortunately, Slovenia has solid arrangements in place to promote inter-municipal co-operation. Financial incentives from the national government have encouraged municipalities to provide jointly certain types of services, contributing to a gradual uptick in co-operative arrangements across the country. Reinforcing this practice by extending it to other service areas could be valuable. Developing more standardised local-level data on the cost, quality and accessibility of municipal services could help local governments assess more effectively where further inter-municipal co-operation may be needed. Territorial fragmentation at the local level could also be addressed through municipal mergers. While legislation facilitates this, the existing financial incentives to promote mergers have failed to encourage any territorial amalgamation to date. Revisiting the mix of financial incentives on offer, for instance by offering one-off merger bonuses, could help sway local communities to support additional territorial consolidation.

Addressing matters of territorial scale at a regional level, for example to promote economic development and undertake public investment, is as important as promoting local-level co-operation. To do so, Slovenia could strengthen the planning and implementation capacities of its development regions, for example by experimenting with the use of national-regional contracts to guide investment at both regional and local levels.

Strengthening local and regional capacity to invest in and implement regional development programming

Implementing the national regional development strategy successfully will depend on sufficient financial resources being made available for regional investment in relevant programming. Currently, regional development programming is predominantly funded through line ministry budgets for sectoral initiatives, municipal spending and EU funds. However, OECD data show that subnational public investment as a percentage of total public investment in Slovenia (37.3%) is significantly lower than the OECD (55.1%) or EU (54.9%) averages as of 2023. Subnational public investment in regional development is also significantly dependent on EU funds, especially Cohesion Policy funding. While this is not unusual among EU Member States – particularly the newer ones – it poses a series of risks. For example, territories whose investment needs or capacities do not align with Cohesion Policy objectives or eligibility criteria may be left underfunded. When subnational regional development priorities cannot be funded through EU funding, they will need to be funded by other means. Filling any such funding gaps will require mobilising national or subnational funding mechanisms.

At the national level, options to expand the mix of investment-funding sources include requiring line ministries to channel a portion of their existing budgets to fund projects that clearly support regional development objectives. They also include allocating additional national-level resources through a government fund for territorial development, which could provide municipal governments with (competitive) funding for project proposals with a clear regional impact. In terms of mobilising subnational funding mechanisms, the national government could opt to bolster municipal financial autonomy as a means of increasing the investment capacity of local authorities.

Beyond the financial capacity to invest in regional development programming, there is also a need to boost institutional capacity to implement, especially in support of the objectives contained in the forthcoming national regional development strategy. Local authorities are important investors, but they are often limited in their administrative capacity and project-management capabilities. Slovenia’s RDAs carry out strategic planning-related tasks. They also design and manage territorial projects in development regions, and assist other actors within the regional ecosystem (such as municipalities and the private sector) with their own territorial initiatives. However, limited and unstable resources constrain their ability to perform these roles effectively.

The regional-level development projects implemented by RDAs are primarily funded through EU Cohesion Policy funds. This EU project funding accounted for more than half their revenues, on average, in 2024. RDAs’ experience with EU resources has strengthened their expertise in managing EU projects and navigating competitive EU funding mechanisms. However, it also has also limited their capacity to carry out other essential regional development tasks, such as supporting smaller or less experienced municipalities (or other potential beneficiaries) in applying for EU-funded programmes.

Enhancing the financial sustainability of Slovenia’s RDAs is essential if they are to serve as genuine territorial development partners for national, regional and local actors. Options to achieve this could include expanding RDAs’ market-based service revenues, increasing municipal contributions, or providing additional national funding. While each approach has distinct advantages and trade-offs, a more predictable and diversified funding model is needed to help ensure that all RDAs can fulfil their mandate across Slovenian regions.

Establishing a stronger mandate for regional development co-ordination

Co-ordination is at the heart of multi-level governance. Successful implementation of Slovenia’s forthcoming national regional development strategy will depend on strengthening and possibly expanding the horizontal and vertical co-ordination mechanisms used to support regional development activities. This will be essential to ensure coherent and co-ordinated action, a more efficient use of resources and a partnership approach to regional development.

At the national level, cross-sectoral co-ordination for regional development is challenged by an absence of mechanisms that encourage ministries to integrate regional considerations into sectoral policy design. This can reinforce a “place-blind” approach, wherein sectoral policymaking risks overlooking the diverse development needs of Slovenia’s regions. Underpinning this challenge is the lack of a steward to guide and co-ordinate regional development efforts across government. In other OECD countries, such as France and the United Kingdom, this role is anchored at the highest political level, either within the Prime Minister’s Office, through a cross-ministerial committee, or via high-level delegation to a line ministry responsible for regional development. Equally important will be strengthening mechanisms to support regional policy coherence, for instance by developing standards or guidelines on how line ministries should incorporate regional needs in national planning exercises, effectively helping line ministries apply a “regional lens” to their sector programming.

Slovenia’s vertical and multi-stakeholder co-ordination mechanisms for regional development could also be reinforced. In practice, co-ordination on regional development issues among different levels of government remains limited. In particular, the Working Group on Local Self-government, the main forum for multi-level dialogue, currently lacks participation from line ministries whose sectors strongly influence regional development. It also lacks representation of important regional actors, such as RDAs and non-governmental actors (i.e. academic experts, the Chamber of Commerce and Industry of Slovenia, the private sector). The body’s effectiveness in aligning national and subnational regional development priorities could be strengthened by expanding its membership to include these actors. Additionally, developing technical working groups to address specific regional development policy and implementation challenges could help ensure multi-level dialogue is translated into more concrete actions and solutions.

Reinforcing performance measurement practices to support regional development

Monitoring, evaluation and reporting processes help governments and citizens identify how regional development policy aims are advancing, what may need adjusting and how to adapt programming in the future. At present, however, these processes are unevenly developed across and among levels of government.

At the national level, line ministries do not systematically report on the implementation of their sectoral strategies and programmes, limiting the government’s ability to monitor progress on cross-sectoral issues such as territorial development. At the subnational level, although RDAs prepare annual monitoring reports, their performance indicator frameworks are too narrow to capture progress toward strategic priorities. With regard to evaluation processes at both national and subnational levels, moreover, there is room for Slovenia to evaluate more effectively which regional initiatives are contributing to achieving territorial development objectives and to understand the reasons behind their success or failure. Furthermore, with respect to reporting, the use of monitoring and evaluation results to support policy learning at all levels of government remains limited.

Territorial data gaps persist across multiple policy domains, including innovation, the green transition and mining, hampering the ability of Slovenia’s national and subnational actors to monitor and evaluate performance on regional development. Data accessibility is also an obstacle. For example, RDAs face barriers in obtaining relevant datasets, as fees are sometimes required to access statistics below the level of the development region. Strengthening the measurement of regional development performance will require steps to improve the availability and accessibility of data. Of particular importance will be ensuring regular consultation among the Ministry for Cohesion and Regional Development, the Statistical Office of the Republic of Slovenia, RDAs and municipal governments to identify and address regional data gaps. Another important step would be to guarantee that RDAs have free access to all national-level databases containing territorial indicators.

Human resource constraints further affect performance measurement. Both line ministries and RDAs report gaps in their technical skills and expertise for monitoring and evaluation. Developing practical, action-oriented guidelines could be a helpful way to guide and standardise monitoring and evaluation activities for all levels of government. Organising trainings to upskill national and subnational officials in areas where they may lack knowledge or skills could also be valuable.