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SLOVAKIA


 

 

In-depth Business Intelligence

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 31,868 23,700 20,500 59
         
GNI per capita
 US $ 4,920 3,950 3,760 73
Ranking is given out of 208 nations - (data from the World Bank)

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REPUBLICAN REFERENCE

Area (sq.km) 
48,845

Population
5,423,567 

Capital 
Bratislava 

Currency 
Koruna 

President 
Ivan Gasparovic

Private sector 
% of GDP
60%


 
Update No: 100 - (25/08/05)

The uneasy balance of power
Since October 1998, the SKDU's Mikulas Dzurinda has led a coalition government that included the Christian Democratic Movement (KDH), the Party of the Hungarian Coalition (SMK) and the New Civic Alliance (ANO). Dzurinda won a second term as prime minister in September 2002. 
In July, Dzurinda survived a no-confidence motion after only 60 members of the National Council voted in favour of the SMER-sponsored proposal-short of the 76 required to actually topple the government.
The next parliamentary election is tentatively scheduled for September 2006.

Opposition party in clear lead in polls
Slovakia is doing very well (see below). But there are always losers in a transition economy, bitter at paying the price of progress.
Consequently, the opposition Party Direction - Third Way (Smer) remains the top political organization in the Slovak Republic, according to a poll by UVVM. The vote for Smer would be 31.7 per cent in the next parliamentary election, if it were held today.
The Movement for a Democratic Slovakia (HZDS) is second with 12.3 per cent, followed by SMK with 10.9 per cent, and the Slovak Democratic and Christian Union (SKDU) with 10.6 per cent.
Support is lower for the Slovak National Party (SNS), the KDH, ANO, the Slovak Communist Party (KSS), the Free Forum (SF) and the Movement for Democracy (HZD).
In August, HZDS chairman and former Prime Minister Vladimir Meciar said the party would not select candidates based on name recognition alone, saying, "We are not taking this risk today. Instead, we will choose candidates who have been with the party for years." 

World Bank: Slovakia's GDP growth 5.1 per cent this year
The Slovak economy is outpacing that of any other EU country. According to estimates from the World Bank, the economy will reach a GDP growth rate of 5.1 per cent this year, and remain unchanged over the next year, the SITA news agency has reported.
The World Bank's opinion matches that of the Slovak Finance Ministry's estimates. The ministry updated its prognosis for GDP growth in June from the previous 4.9 per cent to 5.1 per cent. 
According to a World Bank quarterly report monitoring Central European and Baltic countries, the inflation rate in Slovakia should reach 2.8 per cent in 2005. In 2006, inflation should slow to 2.5 per cent. 
The public finance deficit is predicted to reach 3.4 per cent of GDP this year. The current account deficit should reach 4.7 per cent of GDP in 2005 and decrease to 4.4 per cent next year.
"After an initial rise in investments, exports, growth of production, and prices in the first half of the year 2005, the economic performance of the EU8 states, including Slovakia and the Baltic countries has slowed down," said Thomas Blatt Laursen, chief economist for Europe and Asia for the World Bank. 
The EU8 states include Slovakia, the Czech Republic, Hungary, Poland, Estonia, Latvia, Lithuania, and Slovenia. 

Slovakia: Has economic reform gone too far, too fast?
Slovakia is becoming a talking point in reformist circles in 'New Europe'-In a recent television debate between Czech Prime Minister Jirí Paroubek of the Social Democrats and Mirek Topolánek, the leader of the opposition Civic Democrats, Slovakia was cited as an example 22 times. 
For the former, the so-called Slovak tiger serves as a cautionary tale; for the latter, it is an economic model. So what is life like in a country that has embarked on reforms in many critical areas of life, reforms that seemingly await the Czech Republic in the not-too-distant future? 
Czech society is in a state of apprehension, knowing it cannot avoid fundamental reforms forever and yet aware that they will hurt. It has now been two years since Slovakia began its struggle to curb unemployment and health-care costs. The European Union and the World Bank both praise the government of Slovak Prime Minister Mikuláš Dzurinda. The Slovak finance minister, Ivan Mikloš, was named "Finance Minister of 2004" by the U.K.-based Euromoney magazine, which cited his tax reforms, including the introduction of a flat corporate and income tax, as successes. While the Czech Cabinet recently approved more money for the ailing health sector, Slovakia's health-care reforms have halved its recent Sk 9 billion, (Kc 7 bin/232m Euro) public-health debt. 
With the Czech political right eyeing power - the ODS currently leads opinion polls and a general election is slated for next year - it increasingly looks to Slovakia for inspiration. In early May, Topolánek organised a conference on the theme of flat taxes - and one of the lecturers was the Slovak finance minister. The head of the reform team in the health ministry in Bratislava, Petr Pazitný, is advising the ODS on its health-reform program, Blue Chance. 
When it embarked on its reforms, Slovakia was in a unique situation. Years of poor governance under former Prime Minister Vladimír Meciar led to a coalescing of opposition forces. Most had had enough of state coercion, corruption, intimidation and the country's increasing international isolation. A center-right coalition led by Dzurinda formed a government following a 1998 general election. The government enjoyed 60 per cent approval ratings, a level not seen since the first post-independence Meciar government. Today, after two years of reforms, only one-third of the population says it trusts the government, according to polls. Its supporters praise it chiefly for successful EU accession and its foreign policy. In contrast, a poll by the Institute for Public Affairs shows that two-thirds view the government's economic and social reforms negatively. 
"I sided with the reforms and with this government for a very long time," says the editor in chief of the largest Slovak daily, Sme, Martin Šimecka. Since the introduction of the new 19 per cent flat income tax, Šimecka's net monthly salary is some Sk 5,000 higher. Even so, his initial enthusiasm has evaporated. "I acknowledge that, without the reforms, we would long since have been up the creek. But I also see the price that we are paying for them. It seems too high." 
The hopes that united people against Meciar and behind the new government have been replaced by apathy, disillusionment and frustration. The reforms have produced the greatest societal changes since Slovakia gained independence in 1993. The reforms truly affect everyone, but not all are benefiting. "Entrepreneurs and richer people are making money from them. The lower strata of society, however, are paying for them," Šimecka says. "They were imposed too harshly and insensitively."

Youth exodus
"Thanks to the flat tax, my family and I are better off. I estimate that my [net monthly] salary has risen by Sk 8,000," says Jaroslav Gocaltovský, the mayor of Revúca, a small town of 14,000 people where Gocaltovský has served three terms. But he hastens to add: "One-tenth of the population is truly rich. Another 20 percent are, like myself, earning decent money. One-third has no problem. But [the rest] now live in poverty." 
It is busy at Revúca's unemployment office. The head of the office, Ondrej Kvetko, is one of the few people here who is unequivocally happy both with the current government and its reforms. "I think that they're good, that they are heading us in the right direction," he says. The flat tax has raised his net income by about Sk 3,250 a month. His office has 6,700 people listed on its books as unemployed, exactly one-third of the district's labour force. The number considered to be in material need - those who are eligible for social benefits on top of their unemployment benefits - is 3,500, close to half. This group consists mainly of Roma, whose living standards have fallen drastically since the reforms. 
"Social policy used to be based on mass handouts … the system motivated no one to find work: a family with children lived better on benefits than if one member of the family had a job with average pay. That isn't the case anymore; any form of activity is better than being on benefits," Kvetko says. At the same time, he sees the downside of the reforms. "That isn't, however, the case in our district, which has an unemployment rate of 28 percent. There really isn't any work here." The workforce of the largest company in the region, Slovenské magnezitové závody (Slovak Magnesite Works) in Jelšava, has shrunk by two-thirds since the early 1990s. New investors are not rushing to this poor region. Revúca is, then, a prime example of what many in central and eastern Slovakia say: the reforms are good mostly for those in Bratislava, the wealthy capital. 
The combined pressure of the social reforms and minimal opportunities has given rise to an unwelcome trend: people are leaving en masse to find work in the Czech Republic, Austria, Germany and Britain. 

Which way to market?
While a recent increase in Slovak value-added tax (VAT) means that the cost of basic foodstuffs in Slovakia is now comparable to the Czech Republic, the average Slovak earns one-third less than the average Czech. Unemployment is twice the rate of the Czech Republic's. Within Slovakia the dichotomy deepens: life in the Bratislava region - in terms of pay and job opportunities - is completely different than life in central and eastern Slovakia. The situation in the regions is exacerbated by the sizable - 30,000-strong - Roma community, whose chances of making a living for themselves are much diminished. 
Last year, the Slovak government's chief initiative was to launch its tax reform. In essence, its first goal was to shift the tax burden away from direct taxes (on income) to indirect taxes (on consumption). Secondly, it exchanged a progressive income tax ranging from 12 to 38 per cent to a flat 19 per cent corporate and income tax. According to Finance Minister Mikloš, the reform's chief contributions are that those who benefit most are those who earn the most and those who earn the least (roughly Sk 7,250 per month in income is tax-free). The tax system is simpler, and tax remittance has increased. And, importantly, foreign investors are showing more interest in Slovakia as a result of the flat tax. 
The reforms' basic maxim - that net income from employment should outweigh social assistance benefits - sounds ideal. But people without an education and without any prospect of finding work were driven into poverty by the changes. The income of a four-member family consigned to living off state support of approximately Sk 9,000-11,000 a month was reduced by half. And people find it difficult to secure work in districts where every third person is without a job. Moreover, despite the tax reforms, unemployment has not fallen. Indeed, at 18.1 per cent, the national jobless rate is now one percentage point higher than before the reforms' introduction. 
The most common billboard along Slovakia's roads and city streets these days promises a "carefree old age": pension reform. Since January, Slovaks can send half of their mandatory 18 per cent deductions for pensions to private pension companies. The level of public interest is surprisingly high: 850,000 people have taken this option and five of eight companies now have the 50,000 or more policy holders that they need to operate. 
"The reforms are for the elite, not for us," a worker says, casually, as he exits the gates of the Jelšava factory. A whole shift of workers is, like him, clocking out. They certainly aren't a communicative bunch, either waving their hands without a word or snapping: "I won't talk to you about work nor pay." Perhaps they have good reason to keep quiet since security guards immediately appear. "No interviews or cameras here," they tell us. Only one says how the flat tax has affected him: "I used to [take home] Sk 15,000; now I get Sk 12,000." 

Idol of reform
While the Czech and international media are praising the Slovak changes, the domestic press is increasingly critical. And the criticism is far from being restricted to the left-of-centre Pravda newspapers. Stories of people who are worse off than before (mainly Roma, the handicapped, pensioners and low-income earners) also feature in Šimecka's Sme, a right-of-centre paper. 
"The only thing that matters now is money. The guarantor of the reforms is Finance Minister Mikloš, but he sees the world too much through economic indicators," Šimecka says. "At our paper, we too have a lot of young fellows - economists - who only notice GDP (gross domestic product), the budget deficit, and how real wages have risen. But where's the life in all of that? Reform should only be a way of ensuring that people live better. But in Slovakia, it's become a false idol. I sometimes have the feeling that the politicians are pushing through these reforms not so much for the people, but for themselves, for their reputations in the world." 
Nevertheless, he says, "When I criticize the reforms, I'm not criticizing their essence - theoretically, they are OK - but they shouldn't be imposed so toughly. But there's no danger of that happening with you lot (Czechs)," he says. "Your starting position is much better. But be careful about one thing: Reform, but don't go crazy about it. We have gone crazy."

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AUTOMOBILES

Getrag Ford active in Kechnec 

The foundation stone for the Getrag Ford Transmissions (GFT) Slovakia plant was laid at Kechnec industrial park on July 7th. 
GFT is investing a total of 345m Euro (13.2bn Slovak crowns) in Slovakia. It will build a modern transmissions production plant and create around 750 direct jobs, TASR news agency reported.
The company expects its annual turnover to reach 300-400m Euro. All of the plant's output will be for export. GFT is the eighth investor in the 330-hectare Kechnec industrial park. 

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AVIATION

Slovakia mulls airport sales 

The Slovak government unveiled its plans to sell up to 66 per cent of the country's two main airports, Bratislava and Kosice, in a public announcement, New Europe reported.
Interested investors were invited to register their interest at Meinl Bank, which is advising the Slovakian government on the share sale. 
"Investors have an opportunity to take part in the privatisation of 66 per cent of the capital of one or both of the airports," the announcement said. The operation is scheduled for completion before the end of the year, according to information published by the Slovak government in June. A deadline of August 15th was been set for potential bidders to submit the necessary documentation to government privatisation advisor, Meinl Bank AG. Potential investors had to submit company data as well as details of any experience in running an international airport.
The potential bidders will receive the tender rules and sign a confidentiality agreement. They will then submit their preliminary bids for one or both of the airports.
The Slovak state, which currently holds 100 per cent of both airports, will retain 34 per cent after the privatisation. Of this, it plans to cede a 10 per cent stake to the regional governments and a further 10 per cent to the towns of Bratislava and Kosice. The statement said investors might decide whether to seek to buy the two airports together or separately. It added that expressions of interest should come from investors experienced in operating international airports, or from consortia which include such a strategic partner. The transportation ministry has said it wants to complete the airports sale by the end of 2005. Bratislava Airport, the largest in Slovakia, has seen a sharp increase in passenger traffic in the past few years, mainly thanks to new routes operated by low-cost airlines. Bratislava is only around 50 kilometres from Vienna Airport, and it has been posing increasing competition to the main Austrian airport. The biggest Slovak air carrier is low-cost airline SkyEurope Airline, which carries more than half of the total number of passengers transported in Slovakia while easyJet and Ryanair have regular flights from Bratislava. Britain's easyJet launched services to Slovakia at the end of 2004. Further carriers include Czech Airlines, Austrian Airlines, Deutsche Lufthansa as well as domestic airlines Slovak Airlines and Air Slovakia.
The number of passengers almost doubled to 893,614 in 2004 from 480,011 in the previous year, and the airport expects to handle more than million people this year. The number of passengers at all the country's airports rose by 66 per cent in 2004 compared with 2003 to a total 1.3 million. The airport in Kosice was used by 230,000 travellers in 2004, an increase of 23 per cent compared with 2003.

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ENERGY

Enel investment plan extension 

Italian utility, Enel, agreed with the Slovak cabinet on an extension to the deadline for submitting its investment and development plan for Slovakia's electricity utility, Slovenske elektrarne (SE), the Slovak Economy Ministry said recently, New Europe reported.
Enel now has until the end of August to submit its plan. The plan was originally due in at the end of June. Preparing the SE investment plan is one of the conditions set before Enel can definitely take control of a 66 per cent stake of SE shares. "The August date is a result of mutual agreement. We understand the situation in Enel, the management of which changed recently, and that's why they need more time," said Economy Ministry spokesman, Maros Havran.

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FOREIGN INVESTMENT

Hankook deal still possible 

Slovakia wants to renew talks with South Korean tyre producer Hankook Tire. Economy Minister, Pavol Rusko, was expected to meet with the Hankook vice president to discuss the issue, The Slovak Spectator reported recently, citing the daily SME. 
Economy Ministry spokesman, Maros Havran, said that the two parties were going to try and reach an agreement over an acceptable amount of investment incentives. The Slovak cabinet rejected the originally required incentives for Hankook. The Korean company was due to invest 500m Euro into a new plant in the town of Levice, Slovakia, and hire 1,600 people.

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MANUFACTURING

MAN Steyr to open Slovak plant 

Austrian truck producer MAN Steyr will start producing parts for trucks in the Slovak town of Banovce nad Bebravou, in the region of Trencin, in the autumn of this year, The Slovak Spectator reported. 
The plant in Banovce nad Bebravou will start out with 25 employees, but within three years this will increase to 300, the report said. The Banovce plant will be producing parts for MAN's plants in Vienna and Steyr.

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MINERALS & METALS

Swedish SAPA eyes Alufinal 

Swedish firm SAPA is to acquire Alufinal, the largest unit of the ZSNP aluminium smelter complex in Ziar nad Hronom, if the anti-trust authority (PMU) approves the takeover deal, The Slovak Spectator reported recently. 
Alufinal specialises in the production of aluminium profiles for electrical and mechanical engineering as well as the furniture industry. SAPA is one of the leading aluminium profile producers, with operations in Europe, Asia, and North America, and a turnover of 14 billion Swedish crowns (1.49 billion Euro).

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TOURISM

Tourists flock to Bratislava 

More and more tourists are visiting Bratislava, the Hospodarske noviny daily reported on July 8th. 
While in 2003 around 304,000 tourists came to the Slovak capital, the figure rose to 380,000 in 2004. During the period January-April 2005 there was a 12 per cent year-on-year increase in tourists. The increase is partly attributed to the February 2005 US-Russia summit that was held in Bratislava. 

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