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SLOVAKIA


 

REPUBLICAN REFERENCE

Area (sq.km) 
48,800

Population
5,415,000 

Capital 
Bratislava 

Currency 
Koruna 

President 
Rudolph Schuster

Private sector 
% of GDP
60%

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Background:
In 1918 the Slovaks joined the closely related Czechs to form Czechoslovakia. Following the chaos of World War II, Czechoslovakia became a communist nation within Soviet-ruled Eastern Europe. Soviet influence collapsed in 1989 and Czechoslovakia once more became free. The Slovaks and the Czechs agreed to separate peacefully on 1 January 1993. Historic, political, and geographic factors have caused Slovakia to experience more difficulty in developing a modern market economy than some of its Central European neighbours. 

Update No: 071 - (27/03/03)

The Slovaks are in an edgy mood. They voted back a coalition led by Premier Mikulas Dzurinda at September's general election. This was largely to keep out opposition leader, Vladimir Meciar, virtual dictator in 1993-98, but who did go quietly on defeat at the previous elections.

Economic uncertainties
The general public are torn by conflicting emotions. They want the general economic situation to improve. But 60% believe that it will deteriorate further. Inflation at 7.3% last year was a worry, while food price rises are feared.
Sluggish growth has led to rising unemployment and greater regional disparities. Bratislava and areas around it to the west are faring far better than those to the east, the stronghold of Meciar. He has not lost hope of a comeback, which is quite reasonable in the tense economic situation, but is still not deemed likely by commentators. Dzurinda, the darling of the West, is widely seen as inevitable for now.

Political stability
With all their woes, Slovaks are not expecting an imminent change. Some 50% of them expect the government to survive its four-year term to 2006. By then Slovakia will be in the EU and probably NATO, raising confidence in the future.
The issue of NATO membership is raising controversy. On the constitution 350,000 signatures are needed to force the government to hold a referendum. Some 250,000 were already available in February. But the government denies a referendum is necessary. A mounting opposition is partly connected to the Iraq war, which is unpopular with the general public, even while the government is supportive of the US on Iraq, having signed themselves the 8-plus-10 documentation to that effect. Nevertheless, entry into NATO will probably go ahead. Slovakia wants to join the West, which NATO entry symbolises.
The Slovaks are going through a painful transition and problems abound, especially in the areas of business transparency and official corruption. But enough of the population see Dzurinda as the mascot of their future success to see his government pull through.

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AVIATION

Budget airline gets capital injection


SkyEurope, Central Europe's first budget airline, received a €3m capital injection from an international consortium of investors, the company said recently, reports the Budapest Business Journal.
The new investors in the Bratislava based airline include the Slovak Post-Privatisation Fund and Euroventures Danube BV, in both of which the European Bank for Reconstruction and Development (EBRD) holds stakes. Euroventures Danube is advised by Budapest-based Euroventures Capital and partly owned by ABN Amro Bank NV and the EU/EBRD SME Finance Facility.
"The new capital infusion is very important for the company," said Christian Mandl, CEO of SkyEurope. "The quality of the firms that invested in the airline will also open the way for further financing in the future."
In its one year of operations, SkyEurope has become Slovakia's biggest regular air carrier by flying nearly 60,000 passengers to 11 destinations throughout Europe, including Prague, Zurich, Venice and Berlin. Ticket prices begin at €25 one-way for all domestic and international destinations.
"People with very high income in London have access to the lowest fares, but people with low income in Eastern Europe only have access to the highest fares," Mandl said, in reference to the high air fares that still prevail in much of the region.
He added that the cash injection will allow the company to double its fleet, open up a new base in Kosice, eastern Slovakia, expand its destinations and increase the frequency of its flights. This year SkyEurope will begin offering services from Bratislava to the Croatian cities of Split, Zadar and Dubrovnik on the Adriatic Sea, as well as to Stuttgart, Germany.
Ivan Halasz, investment manager at Euroventures, said SkyEurope's central location in Bratislava means it can attract customers from the entire region.
"The company has big growth potential," Halasz said. "Its base is very close to Vienna and western Hungary."
SkyEurope runs a regular shuttle service between Vienna and Bratislava. It plans to expand this service to Brno, in the eastern part of the Czech Republic, and to the west Hungarian town of Gyor. For those going by car to Bratislava, free parking is provided.
Though SkyEurope is a pioneer of low-cost flying in Central Europe, it may not be alone in the skies for long.
As the region's countries join the EU, West European budget airlines such as Ryanair and Virgin Express are reportedly in talks to create a new regional airline. Meanwhile, British firm, EasyJet, is already operating five daily flights to the UK from Prague.
Even so, Mandl is confident that SkyEurope can maintain its competitive edge by building on its niche in the region. He said the competition is looking to connect Eastern and Western Europe, but SkyEurope will continue to strive to connect different parts of Central Europe.
If the worst comes to the worst, Mandl said the lower operating costs in Slovakia will allow SkyEurope to flourish in a more competitive market.
"That is a great advantage we have in Slovakia," he said. "We will be able to price out the competition.

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BANKING

SLSP says many interested buyers for UBP emerged

Slovenska Sporitelna, a Slovak savings bank, announced that many bidders have submitted preliminary offers for the UBP insurance company, wherein 46% of the company is controlled by SLSP, New Europe reported.
UBP's shareholders structure is comprised of SLSP, Slovenska Konsolidacna with 30% and Postova bank with 10%. The bidders were due to start due diligence audits of UBP at the end of February.

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CREDIT RATINGS

International agency upgrades Slovakia's foreign, local currency rating

Fitch international credit ratings agency on 3rd March upgraded Slovakia's long-term foreign currency rating from BBB- to BBB, and the long-term local currency rating from BBB+ to A-, TASR News Agency has reported. 
The short-term rating was affirmed at F3 and the outlook on the long-term rating remains stable, the agency reported. According to a Fitch statement, the move reflects recent improvements in Slovakia's public and external debt and the government's programme to reduce fiscal deficit and complete crucial economic and social reforms. 
The agency also appreciates government's plan to cut the budget deficit to 5 per cent in 2003 and 3 per cent in 2006 as well as to improve public sector governance, reform public services and the tax, benefit and pension system, along with completing the privatisation process and reforming both the energy and labour market. 
Though there may arise problems in implementing this ambitious agenda, including limited administration capacities, high unemployment and political tensions inside the ruling coalition, the agency expects a substantial progress, though with some delays. 
Further up-rating will mainly depend on the government's success in reducing the fiscal deficit, Fitch says. Fitch last improved Slovakia's rating in November 2002, upgrading the long-term foreign currency rating to BBB-.

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ENERGY

Slovakia may consider joint energy sell-off with Czechs - minister

Preliminary bids for privatisation of Slovenske elektrarne (SE [Slovak Power]) power utility seem not to be fulfilling expectations, Slovak Economy Minister, Robert Nemcsics, told TASR News Agency on 4th March. 
"I have no mandate to assess the bids as to whether they are good or bad, but they do not seem very likely to fulfil our expectations in term of privatisation revenues," Nemcsics explained. 
The Slovak government officially announced a tender to sell 49 per cent in SE in September 2002, and eight potential investors subsequently made preliminary bids. All of them however, are interested in buying only the non-nuclear part of SE. 
The government's original proposal was to either sell SE as one company, or as a holding company with two daughter companies (one of them running SE's two nuclear power plants) that could be entered by different investors. 
Given the nature of the preliminary bids, Nemcsics said that the government should also consider carrying out privatisation of the energy sector together with the Czech Republic. But this would probably lead to the cancellation of the current tender, he added. A further move should be proposed by a selection commission chaired by the Economy Ministry State Secretary, Eva Simkova. The commission has already asked the privatisation adviser, PriceWaterhouse Coopers (PWC), to provide further analysis by 12th March. The date of drafting a short list of investors that will be allowed to perform due diligence in the company has not been set yet. 
Though only a 49 per cent stake is currently being offered for privatisation, this could even be raised to 100 per cent following an amendment to the law on large-scale privatisation, which has support from all four ruling coalition parties. An impact analysis of the amendment should be presented by the Economy Ministry in the next few weeks.

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FORESTRY

Lesy gets retooled under ministry plan

Slovakia's wood processors are welcoming the transformation of state forestry company Lesy, saying the reform measures will increase transparency and help revive the struggling sector, the Slovak Spectator reported recently.
Starting late last year, Agriculture Minister, Zsolt Simon, initiated a number of reforms in the state business, including sacking former director, Blazej Mozucha, establishing increased ministerial control over Lesy, and transforming the state company to a state-owned publicly listed corporation.
Ministry officials say the changes should bring more effective management and improved economic performance to Lesy, as it is weaned from government subsidies. Until now, Lesy management has resisted calls for change.
"State control over Lesy was only partial and aimed at determining only the most marked problems. I would like experts to look into every area to see if the problems are about accounting, procurement and so on," said Simon.
Restructuring Lesy was included in the government programme announced after the ruling coalition assumed office following elections last September. Simon also pledged to address complaints by wood processors that Lesy had unfairly arranged contracts that were detrimental to domestic businesses.
"I think that one of the biggest problems has been that Lesy was directed as a public institution and as such it did not need to keep laws on public procurement. It sold and was able to buy for however much it wanted," said Simon.
"I will not hesitate to bring criminal charges where they are warranted," he added.
According to officials from the Association of Wood Processors (ZSD), the state forest company has traditionally sold wood at different prices and under different conditions to domestic and foreign buyers, often offering advantageous prices and payment periods to buyers abroad.
"Slovak firms have to pay 7% more for their wood than foreign buyers do. The difference is around Sk300m (€7.2m) per year," said ZSD president, Peter Lispuch.
In addition, said Lispuch, a lack of oversight at Lesy has allowed gaping loopholes for corruption and secretive deals in Slovakia's forestry sector.
"Up until now the state company has been absolutely uncontrollable, even less so than under communism when the director had to answer at least to the party secretary," he said.
The result of this, said Lispuch, is that Slovak saw mills and processing facilities have been running far below capacity, while too much Slovak wood is sold and processed abroad.
"The whole forestry-wood processing complex makes up around 5% of the country's GDP. If we had the chance to process all our wood at home and make meaningful investments into the wood-processing industry, this share could grow to 20%," he said.

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TRANSPORT

ANO presents highway plan

Discussion about Slovakia's highway plans has been reopened with a proposal by the coalition New Citizen's Alliance (ANO) party to build an east-west corridor in the country's south, financed by private investors, the Slovak Spectator reported recently.
According to ANO officials, the southern route - running from Bratislava to Kosice through Nitra, Zvolen, Lucenec and Roznava - could be built in five years for Sk50bn to Sk55bn (€1.19bn-€1.3bn), and would allow investors to recoup finances through tolls.
The Transport, Post and Telecoms Ministry has reacted positively to the plan. Ministry officials said they may seek up to Sk8bn (€190m) in EU funds to aid the construction. However, they said work on Slovakia's northern route, connecting Bratislava and Kosice via Trnava, Trencin, Zilina, Poprad and Presov would press ahead.
That route, say ANO officials, will cost Sk80bn (€1.9bn) to complete, while their planned southern route could be finished sooner and boost economic development in neglected pars of the country.
"We look at economic differences in individual regions as a key obstacle to improving living standards for all citizens. The proposed southern highway route goes through districts with the highest unemployment rates and connects seven of Slovakia's eight regional administrative centres," said ANO head, Pavol Rusko.
The plan has already won the backing of regional governments in Kosice and Banska Bystrica, where most construction would be done. They say the proposed route would bring a faster and more direct connection between the country's two largest cities.
In addition, say the plan's backers, construction in the relatively flat south of the country would be easier than completing the northern highway route, which still requires the construction of a number of tunnels and bridges.
Slovakia has been spending on average Sk10bn (€238m) per year since 1997 constructing the northern highway, but many of the most difficult sections remain to be built.
Completion of the 5km Branisko tunnel between Poprad and Presov has been pushed back to the summer 2003, and the mountain pass between the Vel'ka and Mala Fatra mountain ranges east of Zilina has challenged engineers and slowed construction.
Many of Slovakia's industrial facilities lie along the northern route, however, and the road is much easier to connect to trunk roads in neighbouring countries than a southern highway would be.
"The northern route connects to international corridors, going north-south and east-west. It is also meaningful in developing the Povazie region, west of Zilian, and the eastern Tatre and Spis regions, which would have an impact on tourism," said Peter Mihok, chairman of the Slovak Chamber of Commerce and Industry.
Completing the northern highway should remain the government's top priority, he said, although he added that a southern road paid for by road tolls or other non-budget recourses is an idea worth pursuing.
ANO officials included the southern highway plan in a statement of party goals released on February 17th, and said they had already been in contact with several possible investors.
According to Jaroslav Kling from the Mesa 10 think tank, constructing a highway in the country's south will augment the northern route after it is completed and could bring needed economic benefits to some of Slovakia's most impoverished districts.
"In terms of connecting existing centres and manufacturing facilities, completing the northern route first makes sense.
"But if the purpose of the highway is development, it makes more sense in the south, which has been economically neglected for a long time. Existing industries and agricultural enterprises have collapsed there, unemployment is high, and the number of citizens in the post-productive age has been growing," he said.
If ANO is able to raise the money, said Kling, the party will have no trouble finding support for the southern highway, but attracting willing investors may not be so easy.
"It's a big difference if the money comes from loans or from private investors. But I don't see a short-term return on an investment into building a highway," said Kling.

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