Books on Slovakia
% of GDP
Update No: 092 -
The Slovak phenomenon
Bertrand Russell, the well-known British philosopher and mathematician, was an
intrepid opponent of the First World War. He was said to have been astonished at
its occurrence because everything seemed to depend on who was a Slovak and who
was a Slovene and personally he could never tell the difference.
There was a certain legerdemain here because such an educated man knew his
geography enough to know the differentia specifica all right. He was exhibiting
a certain disdain for small countries characteristic of big ones, and a mighty
disdain for the minutia that lead to wars.
Actually there is an interesting parallel to draw between Slovakia and Slovenia.
Slovakia broke away from Czechoslovakia in 1993, largely for the trivial reason
that Vladimir Meciar, its dictatorial leader, wished to be independent of
Prague. It might have seemed to be a retrograde step. But it has paid off
handsomely. Slovakia is on track to emulate Slovenia as a highly successful
This is mainly because Meciar has had a worthy successor in Mikula Dzurinda, an
outstanding figure in the post-communist firmament. As premier, he has been
relentless in pursuing reform before immediate popularity. He, nevertheless, won
the key election last year, pushing Meciar into the wilderness.
FDI to the fore
His key strategy has been to make the Slovak economy as attractive as possible
to foreign investors. There's no way of calculating how much investment Slovakia
.has siphoned from its neighbours in the past year. Yet data shows Slovakia's
Foreign Direct Investment (FDI) growth - 222 per cent this year, according to
figures from ING Bank - is much higher than that of neighbours Hungary, Poland
and the Czech Republic. Czech FDI growth, in second place, is expected to
double, according to ING Bank.
Economists credit a series of reforms, especially tax reform, with turning
Slovakia, dubbed a black hole by one U.S. diplomat in the 1990s, into one of the
most business-friendly economies in Europe.
The World Bank named Slovakia its 2004 reformer of the year. The OECD called
Slovakia the best reformer in Central and Eastern Europe. And Ford Motor Company
announced Dec. 2 that it would build a 300 million euro (9.3 billion Kc/US$399
million) factory in the country's underdeveloped east.
"It used to be that any investment in Slovakia was front-page news,"
said Anton Marcincin, economist at the World Bank's Bratislava office. "Now
Slovaks are used to new companies opening factories practically every day. It's
Slovakia's economy is expected to grow by five per cent over the next two years,
according to the OECD. Other analysts say growth on that scale looks sustainable
well into the next decade.
What is a flat tax?
Flat tax replaces sliding tax scales with one fixed rate. In Slovakia, that
means income tax for the poor, formerly 10 per cent, and the rich, formerly 38
per cent, are now both 19 per cent. Taxes on goods and services, known as
value-added tax (VAT), formerly 20 and 14 per cent respectively, are now 19 per
cent. Corporate tax was reduced from 25-19 per cent.
Because taxes are mostly lower, entrepreneurs have less incentive to hide income
and profits, which means tax evasion decreases, economists say. At the same
time, investment increases and the economy grows. Both effects widen the tax
base and make up for some money lost from reduced rates on the highest brackets.
So far, both effects are evident in Slovakia. The number of new firms
registering in Slovakia is up by 12 per cent. And the government has collected
10 per cent more income tax than it expected this year.
On the downside, some middle class workers now pay higher taxes, and increased
VAT, and construction has driven inflation to 7.8 per cent.
Zdenka Kamiacova, 58, who lives in Bratislava, said flat tax reform hasn't
helped her. "On Jan. 1, I lost 800 Sk [630 Kc/US$27] from a pay check of
6,300 [Sk]," she said. "And the prices of everything have gone up. I
don't have money to do anything but sit at home and watch TV."
The government and economists argue the long-term benefits outweigh short-term
pain to workers such as Kamiacova.
"Many people who lost a few hundred crowns in taxes will see their wages go
up as the economy grows," the World Bank's Marcincin said. "But
there's a bigger question here. Every generation has to ask itself, what do we
do for our children? If we were talking about planting trees, everyone would be
for it. Of course it's different with taxes, but there's no question tax reform
is a big plus for Slovakia's future."
VW Slovakia ups Q3 sales
Volkswagen Slovakia (VW Slovakia), a unit of German carmaker Volkswagen, posted
sales of 134bn Slovak crowns in the first three quarters of 2004, an increase of
3 per cent year-on-year, the firm's board Chairman, Jozef Uhrik, said, the CTK
News Agency reported.
The firm did not release profit figures for the third quarter. VW Slovakia
turned out 170,436 cars in the first nine months of this year, down from 202,754
units in the first nine months of 2003. The drop was due to a change in the
structure of the firm's production programme, according to Uhrik.
Slovakia reportedly close to deal with US car maker Ford
Slovakia is reportedly near a deal with the US carmaker, Ford, which is
considering building a plant in eastern Slovakia. The deal, worth up to 400m
euros or 16bn Slovak korunas, would be another major car investment in Slovakia
in the past few years, TA3 TV, Bratislava, reported.
Economy Minister, Pavol Rusko, has refused to comment on the news that the
carmaker is heading for Slovakia. He admitted, however, that the ministry had
entered into talks with Ford representatives.
The deal has so far not been confirmed by the Sario agency or Ford's German
SA transports 160,000 passengers
Airline company Slovenske Aerolinie (SA) transported 160,000 passengers in the
first nine months of 2004, about 40,000 less than in the same period of 2003,
SITA reported recently.
"This decline was caused by the airline company using less aircraft. While
in 2003 Slovenske Aerolinie flew four aeroplanes, in 2004 it only used two
Boeing 737-300s," airline spokesman, Marke Revilak, said. During the
reported period the airline made 620 flights.
Fitch Ratings upgrade Slovakia-based Dexia Bank Slovensko
Fitch Ratings, the international rating agency, upgraded recently the
Slovakia-based Dexia Bank Slovensko's (DBS) long-term rating to A+ from A. The
bank's other ratings are affirmed at short-term F1, individual C/D and support
1. The outlook is stable, New Europe has reported.
The upgrade reflects DBS' growing integration with, and support from Dexia
(rated long-term AA+). In addition to assistance with its core municipal finance
business, DBS has been able to draw on management expertise from Dexia group
banks in developing its retail franchise, resulting in a growing, albeit still
small, share of the retail deposit market. The individual rating reflects DBS'
leading position in the Slovak municipal banking market and good profitability
given its low risk profile.
ComArch opens Bratislava centre
Polish software house and systems integrator ComArch opened a development
centre in Bratislava, SITA reported recently.
Michal Hudoba, representative of ComArch sro Bratislava announced that ComArch
would offer solutions for the trade industry and services, financial and banking
sector, and to telecommunication companies and public administration in its new
branch in Bratislava. Founder and company Director General, Janusz Filipiak,
sees in the opening of the centre in Bratislava a further step towards
international expansion for ComArch. He added that computer programmers in the
Bratislava branch will be involved in the company's IT projects for clients in
Poland, Slovakia, western Europe and the United States. ComArch is one of the
biggest Polish IT companies.
MINERALS & METALS
Slovalco boosts 9-mo profit
Slovalco, the largest Slovak aluminium producer, made a 1.17bn Slovak crown
profit in the first nine months of 2004, up by about 121bn crowns, the company
said, Interfax News Agency reported.
The improvement was due largely to increased output, thanks to expansion
undertaken last year, the company said. Slovalco produced 137,000 tonnes of
aluminium, up by almost 22,000 tonnes year-on-year. The growth was also thanks
to higher aluminium prices on the London Metal Exchange. Sales added 1.04bn
crowns to 8.38bn crowns in the third quarter. Export revenues amounted to 7.07bn
crowns and accounted for almost 85 per cent of all sales. The company reported
an increase in exports to Poland, the Czech Republic and Hungary at the expense
of those to Italy, Germany and France.