% of GDP
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: 075 - (28/07/03)
Slovakia is totally involved in preparing for EU membership, of which it is now assured in May 2004. The key thing is to be an acceptable European.
But what does that consist of? Neither a communist nor a fascist should one be. To be non-communist is easy in Slovakia. It is associated with an execrable past, that of the forty years under Soviet domination from 1948 onwards. But fascism is a different story.
The Slovaks had a flirtation of sorts with fascism. This was for a peculiar reason. Slovakia can be seen as the only country genuinely to have been liberated by Hitler. On March 14th 1939, the day before the German occupation of the Czech lands, Hitler agreed to the establishment of a separate Slovak state, under the leadership of Josef Tiso, a Slovak nationalist and a Roman Catholic priest. Slovakia became independent for the first time in its history, but with a puppet government of the Germans.
It all ended in tears of course in 1945. But the memory of Tiso lived on throughout the communist years of repression. Hence, amongst other reasons, the popularity of the demagogue, Vladimir Meciar.
Meciar is the negative centre of Slovakian politics. He represents everything the intelligent Slovakians do not want to be. He is a populist nationalist, intent on keeping Slovakia out of Europe.
Relief in Brussels
The Slovaks have a shrewd operator in their premier, Mikulas Dzurinda, who won re-election for himself and his centre-right coalition government last year. He kept the prospect of Vladimir Meciar returning to power at bay, the previous ruler until 1998, an arch thug and autocrat.
The two organisations based in Brussels; NATO and the EU, were mightily relieved at Dzurinda's success. They would have opposed Slovakia's entry into either organisation if Meciar had won.
But problems aplenty remain. It is far from clear that Slovakia is really ready to join the EU. Indeed, it is evident that in many ways it is not.
The country is infested with criminals. Its institutions are rooted in communist practices and networks of power. Corruption is rife. There is no proper judiciary above the fray. Privatisation is conducted in a shady fashion. Basically there is no rule of law in a Western sense.
Nevertheless, it is probably best for Slovakia to join the EU and be pulled up by its bootstraps, as it were. Serious security issues would arise if it were left out, bordering Poland, the Czech Republic and Hungary, three certain to join, Austria already in and also neighbouring the porous Ukraine. Interpol could not tolerate a Schengen border - one without checkpoints and controls - along this stretch of Central Europe. So Slovakia is to enter.
Meciar still a menace
Meciar may not have won the election, what with the West so clearly disapproving of him. But he has not gone away. His Movement for a Democratic Slovakia gets 15-20% of the vote, the highest score in a fractured field, and is strongly entrenched locally with 384 mayors.
Once in NATO and the EU, the population might feel like having him back, knowing that the country would scarcely be evicted if he returned in a democratic election. After all, he left in a democratic way in 1998, belying his image as a dictator. The possibility remains so long as the economy fares poorly, which is exactly what is happening. GDP growth of under 3% per year is leaving the general bulk of the population with around US$5,000 per capita income, scarcely enough to make ends meet. And they know that many of those in power are crooks. An incendiary situation.
Meciar has his murky side himself of course. The intelligence services were prone to Byzantine scandals in his day, involving the kidnapping of the president's son and the murder of an opponent. But he is a populist for all that, giving the right impression to the elderly and the rural voters. The better-educated population of Bratislava despises him, naturally. But he has his supporters.
Robert Fico, leader of the left-wing opposition Smer Party, put it as follows: there has been progress in the international agenda for Slovakia, obviously, but little has changed in the domestic arena: "On corruption, social questions and the rule of law there is no difference. There are dozens of scandals, over share privatisation and government cronyism." The last point is crucial. There is little that even Dzurinda, doubtless an honest man himself, can do about it.
Slovakia used to be ruled by Vienna, then Budapest, then Moscow, then Prague. Soon it will be Brussels. That might erode the structures of government cronyism in time. Or not, as the case may be.
Drought leaves farmers and crops parched
For several weeks there has been no rain across the country of Slovakia and farmer and their crops are beginning to feel the effects, according to the Slovak Spectator.
"It hasn't rained since May 10th when just 10 millimetres of rain fell. The effects are beginning to show on the crops. I estimate that there will be 40 per cent less wheat than we had forecast, and there will also be reductions for other crops," Stefan Juhasz, from the Gemer Chamber of Agriculture was quoted as saying.
Also worried are wine producers, whereas the drought will take its toll on their crops as well. "We are waiting for rain, and concerned that when it does come, it will be a cloudburst. In vineyards that can cause more damage than drought," said Milan Parkany, head of the Priblec farm cooperative.
Central Europe vies for Hyundai car plant
Slovakia got a psychological leg up in the four-way race with the Czech Republic, Poland and Hungary to host a planned Hyundai Motor car plant when PSA Peugeot Citroen CEO, Jean-Martin Folz, laid the cornerstone for a new plant in the west Slovakian town of Trnava.
The €700m (Kc22bn) plant - for which the Czech Republic also competed - is Slovakia's biggest foreign investment. The PSA plant will have an annual production capacity of 300,000 small cars and employ some 3,500 people by 2006.
The new plant - and recently proposed corporate tax cuts - may help shift the Slovak bid to attract Hyundai Motor into a higher gear.
The race appeared to be heating up, but country representatives were tight-lipped about their efforts to take the lead. The Korean company has reportedly held meetings with city officials from Ostrava, in economically depressed northern Moravia. The Interfax News Agency in June cited a Hyundai Motor executive as telling the online version of Korean newspaper 'Chosun Ilbo.'
Martin Jahn, head of CzechInvest, the government agency charged with attracting foreign investments, would not say whether Ostrava was one of the potential sites offered to Hyundai. "At this stage I cannot comment on anything," he said.
Ostrava City Council officials, however, denied such a meeting took place. "There was no such meeting since the new city hall was elected at the local council elections," Ostrava City Hall spokesman Petr Kudela told the Prague Business Journal.
Meanwhile, a mission from CzechInvest's Polish counterpart, the Polish Agency for Foreign Investment (PAIZ), travelled to South Korea in the first week of June to push the Polish case. Wojciech Drzewiecki, the head of Samar, a Polish company that monitors the automobile market, said Polish chances were hurt by high taxes and labour costs. Failed negotiations with Hyundai in the mid-1990s on building a Polish factory may also affect its chances, the Interfax News Agency reported in early June.
Hyundai Motor is expected to make a final decision on where to locate its Central European plant in the first half of 2004. Site and feasibility studies should be completed by the end of this year. Hyundai's planned European plant will also house its sister company, Kia Motors, which operates outside of South Korea. Two plants already exist in Beijing, China; one each in India, Turkey and the US state of Alabama.
Slovak Minister of the Economy, Robert Nemcsis told PBJ at the PSA plant launch that the country thought its chances to win the Hyundai investment were good, based on the fact that it started its economic reforms earlier than its local rivals, including the Czechs. The corporate tax burden in Slovakia, at 19%, will also be lower than the Czech Republic can offer. "These reforms have a real meaning for the business community," he said. "We will complete with the lowest possible tax burden in the region and it is lot better and effective than to argue with an investor over various tax adjustments, which are not always transparent," Nemcsis added.
He said that there were other car manufacturers interested in investing in Slovakia. "There is an interest and it is enhanced by the presence of the PSA Peugeot Citroen in Trnava," Nemcsis said. He refused to give any names but hinted that potential investors were from Europe as well as "ones that have their roots in Asia."
After the application of the tax reform in 2004, the Slovak government will no longer offer tax holidays to businesses but it can still offer a package of other incentives according to the economic situation of the region where the project would be based, as well as the size of the investment.
The Slovak government agency responsible for attracting foreign investments, Sario, would not disclose details about talks with Hyundai officials nor comment on where a potential plant could be built.
But Sario officials did say that around eight industrial parks have been prepared for foreign investment and that the agency has some localities earmarked for an investor like Hyundai. The government would prefer to direct new investment to east Slovakia, where unemployment is at its highest. But Michal Mrnik, who heads the regional department at Sario, said eastern Slovakia was not adequately prepared to absorb such an investment because it lacks a developed highway network.
CzechInvest's Jahn told PBJ that tax holidays of up to 10 years would continue to be part of the agency's arsenal. Essentially, the four competing countries have some leeway as to which incentives to offer as long as the overall aid package stays within the framework agreed with Brussels by EU candidate countries and for after accession for member states.
Neither the Slovak town of Trnava nor the Czech Republic's Kolin (the site chosen for the joint venture Toyota Peugeot Citroen Automobile car plant) are seen as having much chance of attracting a new car plant to their doorsteps. The reason, said PSA's Folz, is that it would be unwise to build two huge car plants so close to each other, as qualified staff would be hard to find in the immediate area and wages and other cost would rise.
Slovakia currently offers some tax benefits to Volkswagen Slovakia's Bratislava plant but Ministry of Economy officials wouldn't disclose details because of their confidential character. The Volkswagen plant is the biggest operational investment in the country so far and cars produced there account for around 15% of the country's sales abroad. Volkswagen announced plans in mid-June to increase production at its Slovak unit by around 20% from this year to next, with a further rise probable in 2005, an official from Volkswagen Slovakia told Reuters. Wolfgang Rohroff, manager of the company's supply division, told the news agency that plant output was expected to increase from the about 280,000-290,000 cars this year to 340,000-350,000 cars in 2004.
Slovakia to recover almost US$200bn of Russian debt this year
A Finance Ministry proposal for settling the remainder of Russia's Soviet-era debt to Slovakia, worth US$295.7m, was approved by the Slovak cabinet on 2nd July, TASR web site has reported.
Under the proposal, US$198.3m of the sum should be settled by the end of 2003. Of this, US$130m should be cleared by a payment in cash of US$43.55m, and US$68.3m by payment in goods. The debt has fallen from a level of US$1.735bn in 1994, and should be repaid in full between 2003 and 2021.
Last year, Russia settled a record US$795m, largely through discounted cash payments. In previous years, payments were made almost entirely in goods.
Figures on foreign direct investment in Slovakia released
Slovakia in the first quarter of 2003 had foreign direct investment (FDI) of 10.75bn korunas (257.7m euros), the vast majority of which was headed to Bratislava region, according to the central bank (NBS) data published on 30th June TASR web site has reported.
As for other regions, Nitra [western Slovakia] took 287m korunas of the total, Presov [eastern Slovakia] 82m korunas, while Kosice [eastern Slovakia] experienced a net 370m korunas in FDI leaving the region.
By industry, the production and distribution of electricity, gas and water attracted FDI's largest amount of 9.36bn korunas, ahead of financial brokerage on 1.07bn korunas, transport, posts and telecoms, 170m korunas and raw materials (mining) 110m korunas.
In terms of investor countries, Germany was the largest on 9.40bn korunas, followed by Hungary 1.01bn and Switzerland and the Netherlands both investing for the period more than 200m korunas.
As of 31st March 2003, the country's cumulative FDI stood at 304.79bn korunas (725m euros). FDI leaving Slovakia amounted to 495m korunas for the first three months of 2003 for a cumulative 16.73bn
South Korea's Samsung Electronics opens plant in Slovakia
South Korea's Samsung Electronics Slovakia officially opened a plant to manufacture monitors for television sets and computers in Galanta (Trnava region) on 7th July, TASR web site has reported.
The first Korean manufacturing plant ever in Slovakia, the firm is aiming this year to produce more than 2 million pieces and employ over 1,100 people. Prime Minister Mikulas Dzurinda praised the investor for having breathed new life into the abandoned and dilapidated facilities originally belonging to the now-defunct West Slovak Furniture Works.
"Samsung decided for Galanta last year in May before starting production in November," he said. Galanta Mayor Alexander Mezes praised Samsung's contribution to regional employment. In anticipation of launching production, the jobless rate is moving from 14 per cent to 9 per cent, and will eventually reach 5-6 per cent when the plant is running at full capacity.
To date, Samsung Electronics Slovakia has invested some 540m korunas (13m euros), including 170m korunas in lands and buildings.
FOREIGN LOANS & AID
Visegrad Four receive development aid funds from Canada
The Visegrad Four states including Slovakia will receive from Canada 15m Canadian dollars under the five-year programme Official Development Aid for Central Europe (ODACE), TASR web site has reported.
Canadian Ambassador to Slovakia Margaret Huber and Foreign Minister, Eduard Kukan, signed a memorandum of understanding for the project in Bratislava on 10th July. The funds should help Slovakia, the Czech Republic, Hungary and Poland provide development aid to third countries. Huber and Kukan also opened a regional coordination office in Bratislava, which should be led by Canadian expert on development aid, David Chaplin.
The funding is earmarked to create structures through which Slovakia will in future provide development aid, Kukan told journalists afterwards.
Slovakia has made the Balkans, especially Serbia and Montenegro, a priority for its aid. The money should contribute to the reform of military forces and creation of regional structures to help the recipients make progress towards joining the European Union.
Kukan also pointed out that the government already had a programme for development aid. Slovakia will provide developing countries in 2003 aid totalling 140m korunas, rising to 156m korunas next year. According to Kukan, Slovakia has a responsibility to provide aid under its membership of the OECD. "Slovakia will be positively perceived in the areas where help is provided. This will be our contribution," he said.
Czech pharmaceutical company to take over Slovakofarma
The Czech Anti-Monopoly Office (UOHS) has given the green light to the takeover of Slovakia's leading pharmaceutical company, Slovakofarma, by the largest Czech pharmaceutical, Leciva, Zentiva BV, according to Interfax News Agency.
The transaction must still be approved by the Slovak Anti-Monopoly Office. If approval is given, Leciva could indirectly hold about 70 per cent of the Slovak company.
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