Books on Slovakia
% of GDP
Update No: 097 - (26/05/05)
Buoyant outward-looking economy
Slovakia's economy is a massive success story, belying those who thought that
the country's separation from the Czech Republic in January 1993 was a great
mistake. It looked so for a while under the stewardship of Vladimir Meciar. But
he departed in 1998.
Slovak GDP posted year-on-year growth of 5.3 percent in the year to November
2004, the latest figure available. The coalition government of Prime Minister
Mikuláš Dzurinda intends to implement its approved reforms this year, aiming
at improving citizens' standard of living, he said when unveiling the
government's priorities for 2005 in early January. "We expect 2005 to be a
year of real-wage growth at more than 3 percent," he said.
Dzurinda has been doing very well in his job. He is a huge improvement on his
dictatorial predecessor, Meciar, who had at least the grace to leave office on
losing a parliamentary election in 1998. (There was speculation that he would
not surrender power).
But he is one of those figures who may well be better appreciated by history
than his contemporary compatriots. He is much esteemed in Brussels and
Washington for his sterling reforms, which have revitalised the Slovak economy
and made Slovakia a magnet for FDI. For instance, due to massive investments by
Citroen and KIA of South Korea, it will produce more cars per capita than any
other country in the world by 2008. This is having a knock-on effect, as car
component suppliers show interest.
Car component suppliers can drive Slovak economy
Car component suppliers are interested in investing in Slovakia as they are
aware that France's PSA Peugeot Citroen and South Korea's KIA are going to open
auto-manufacturing plants in the country, The Slovak Spectator has reported.
These investments will support small- and medium- sized enterprises (SMEs) and
develop diversity in the manufacturing sector. Though it includes small products
like car seats, textiles, steering wheels, cables, lights and various rubber and
plastic components but they build a healthy business environment and establish
Over the last year, several different component producers have announced plans
to set up production units in Slovakia. Spanish firm Cikautxo is planning to
start hose production plant for the automotive industry in the autumn of 2005.
Initially it plans to have a small beginning and will employ only 40 to 50
people. But as a systematic plan of growth, this number may increase to as many
Austrian engineering firm, Rubig is setting up a production plant and logistics
centre in Prievidza. By June 30th the company and the municipality are likely to
sign a binding contract. Around 220 jobs will be created with a total investment
of one billion Slovak crowns of which a major portion will be for the production
technology. A joint venture between Slovak tyre firm Matador and South Korean
firm DongWon Metal is on the cards and the two companies have already signed an
agreement towards that effect.
Australian leather products manufacturer for the automotive industry, Howe
Leather, is expected to launch production at its unit in Kosice by the end of
The company will employ 70 people and that number should double within two
months of a successful start. US company Johnson Controls plans to invest 20m
Euro in southern Slovakia. The company will create 350 jobs directly in Lucenec.
Analysts say the Slovak economy will further develop with these investments.
But all this Western interest is naturally in the western part of the republic,
adjacent to vast markets, not the depressed eastern regions. This is creating a
European Investment Bank for bridging the economic divide
The gap of economic disparity between Slovak's eastern and western regions
continues to grow, The Slovak Spectator said in a recent report. While
Bratislava in the western part and its environs enjoy lucrative foreign direct
investment (FDI), the east suffers some of the highest unemployment rates in the
European Union. The recent closure of several regional schools in Eastern
Slovakia has revealed just how desperate the situation has become.
The European Investment Bank (EIB) has a charter to help reduce regional
imbalances and disparities in European Union member states. "Quite simply,
we try to be present everywhere long-term financing is needed," said EIB
President Philippe Maystadt following a recent visit to Bratislava.
The EIB has been financing various projects in Slovakia since 1990. During this
period, EIB's lending in the country has exceeded 1.7bn Euro. Of the total
amount of the loans, almost one third of the funds have gone into infrastructure
Maystadt described to the Spectator the EIB's involvement with Slovakia and the
need for a multi-dimensional approach to investment. He emphasised that the EU
would be much more cohesive if big regional disparities were reduced. Of course,
there will always be difference - that is normal in economic life. But if the
gap becomes too big, if the rich regions continue getting richer and the poor
become poorer, it negatively affects the solidarity of the whole union.
One of the most important tools the EIB has is the so-called cohesion policy to
reduce regional disparities and inequalities. This EIB has a policy, which is a
form of solidarity that helps poor, and under-developed regions catch up with
their wealthier, more developed neighbours. However, these policies are a sort
of guideline and are voluntary in nature, so cannot be forced and they never
happen spontaneously. The EU needs a strong will to reduce disparities by making
investments in infrastructure and education.
The EU needs a multi-dimensional approach to disparities. Infrastructure
building alone will not solve the problems. If the EU invests only in
infrastructure without investing in education also, for example, such
one-dimensional support will not remove the regional disparities. More
importantly, without a multi-dimensional approach, the region will not benefit
from the support it has been given.
The eastern region needs a regional development strategy and that is very
crucial, the reported said. Financing is important but it can come only after
officials agree on an integrated development strategy. This is the reason Slovak
officials have to work closely with the European Commission. "We try to
ensure that the projects we finance are in line with the integrated development
strategy of the region," said EIB officials.
Dzurinda longest-serving PM
In April Dzurinda became the longest serving prime minister in
post-Communist Slovakia. Dzurinda overtook the former three-time PM Vladimír
Meciar, who was in power for 2,347 days. The PM's spokesman Martin Maruška said
that Dzurinda was probably not even aware of the fact.
Political analyst Pavol Abrahám thinks that Dzurinda is a charismatic and
ambitious leader. "He is a symbol of an absolute change that society
started in 1998 [when the first Dzurinda cabinet took power], but also of an
incomplete change. Meciarism was not rejected fully," Abrahám said.
Nevertheless, his term in office may well be coming to an end. There are always
losers in a transition economy, however successful; and if there is a democracy
they can vote against the powers that-be.
Fico's SMER Increases Lead
The opposition Party Direction - Third Way (Smer) holds a commanding
advantage, according to a poll by UVVM. 30.2 per cent of respondents would vote
for Smer in the next parliamentary election. The next election is tentatively
scheduled for September 2007.
The Movement for a Democratic Slovakia (HZDS) is second with 12.9 per cent,
followed by the Party of the Hungarian Coalition (SMK) with 12.2 per cent, the
Christian Democratic Movement (KDH) with 11.3 per cent and the Slovak Democratic
and Christian Union (SKDU) with 8.2 per cent.
Since October 1998, the SKDU's Mikulas Dzurinda has led a coalition government
that included the KDH, the SMK and the New Civic Alliance (ANO). Dzurinda won a
second term as prime minister in September 2002.
In March Smer leader Robert Fico tabled his party's economic proposals, which
contemplate scrapping the 19 per cent flat tax rate in exchange for two new
value added taxes. The plan also envisions a five-year scheme to increase the
The country's unemployment rate was 12.7 per cent in March. One can be sure the
unemployed are solidly against Dzurinda.
Slovakia is preparing for UN Security Council membership
Slovakia, indeed, is gearing up for UN Security Council membership.
The steering committee for membership of Slovakia in the United Nations Security
Council evaluated the current state of preparations for Slovakia's membership on
this body at its meeting. Slovakia is one of the candidates for non- permanent
membership of the UN Security Council from January 2006.
The UN's General Assembly will elect new non-permanent members in October of
this year. The commission headed by the State Secretary of the Ministry of
Foreign Affairs Magda Vasaryova also determined its tasks for the near future.
Members of the steering committee discussed and approved a plan of political
consultations with permanent and non-permanent members of the UN Security
Council before the elections to the UN Security Council, as well as
participation of government's representatives in important events of the United
Nations in New York.
Slovakia is the single candidate of the Eastern European Group for non-permanent
member of the UN Security Council for years 2006 and 2007. The UN Security
Council has fifteen members. Five are permanent members with the right of veto
and ten are non-permanent members elected for two-year terms.
New car registrations rise
Slovakia's Automotive Industry Association (ZAP) announced that the sale of cars
in Slovakia increased in March, The Slovak Spectator reported recently. Police
reported that there were 5,640 new registrations for cars and small commercial
vehicles up to 3.5 tonnes in Slovakia in March. Maria Novakova from ZAP said
that there is 1.66% increase in sale of cars every year. The Czech carmaker
Skoda remained the best-selling car brand in Slovakia. Importers sold 4,115
Skoda vehicles up to 3.5 tonnes in Slovakia in March securing the brand a 29.13%
Kia gets green light for auto plant development
Kia automobile manufacturing plant got approval for the land it needs to proceed
with the development of its plant, Slovak Agriculture Minister, Zsolt Simon,
proposed purchasing the remaining 50 hectares of land at 200 Slovak crowns.
Economy Ministry spokesman, Maros Havran, explained that under Simon's proposal,
the Slovak Land Fund would purchase the remaining land and lease it to
companies, GovInvest I and II for 99 years, with the possibility of subsequent
The agency will lease the land to Kia. According to Simon, 80 million crowns
would come directly from the pocket of the economy ministry, while the rest
would be paid by the land fund SPF.
Kia representatives have accepted the solution and have no objections, Havran
told The Slovak Spectator.
Slovakia gains World Bank loan
Slovakia's foreign Affairs Ministry recently said that the World Bank recently
offered a loan of 5m Euro (193m Slovak crowns) for the development of the
country's human resources sector, the Tsar News Agency reported.
The loan agreement was signed by Slovak Ambassador to the US Rastislav Kacer and
World Bank's country chief for Central Europe and Baltic countries Roger Grawe.
The loan will mature in 5 years. With the help of this loan Slovakia's
government will improve its sectors in employment, training and social cohesion
and create an effective infrastructure for implementing, managing and evaluating
Slovakia proposes 100% sale of freight cargo company
The privatisation of Slovakia's state-owned freight transport company, Cargo
Slovakia, is a distinct possibility, The Slovak Spectator reported recently.
The ministers with economic portfolio recommended to the cabinet and gave its
approval for the liberalisation of the railway transport market. The ministry
hopes to see international cargo transportation also liberalised by 2007 and
passenger transportation may be privatised by 2010.
The company itself, however, hungers for new investments, it said in a recent
statement. Analysts were quoted as saying that private ownership of Slovakia's
cargo transport business could be a profitable investment for those transporting
goods to the east, especially Ukraine and Russia.
Czech railway Transport Company Ceske Drahy has expressed an interest in buying
Cargo Slovakia. Ceske Drahy spokesman Petr Stahlavsky said, "Both countries
use the same technology. A merger of Slovak and Czech rail cargo transportation
companies would be very effective as it would strengthen the position of both
the countries in the European market."
Slovak Transport Minister Pavol Prokopovic said that when the deal for
privatisation has been fixed, the ministry would like to get at least 15bn
Slovak crowns (380m Euro). The transportation ministry is encouraging the state
to sell 100% of its shares of Cargo Slovakia in an international tender. The
ministry said that this is the first country in the region that is heading for
privatisation of its transportation company and therefore will get more money.
Ministry spokesman Tomas Sarluska said that this is a very interesting package
for the future and there is a trend of globalisation nowadays in the world. An
international tender for Cargo Slovakia could be announced as early as May this
year. Interested buyers would have to submit their bids in October.
Slovak Finance Minister Ivan Miklos said, "The tender should be completed
by the end of the year" Transport Ministry spokesman Tomas Sarluska said,
"Selling the entire state-owned package is a reasonable step. If you look
at road transportation, all the cargo transporters are private. There are no
state-run companies securing road freight transportation. This is the direction
the business is heading."
He added, "Moreover, other carriers might have problems in the future
because a supranational transporter will be forming and it could very well push
smaller carriers, perhaps the state-owned ones, out of the market."
Sarluska said, "We had to make investments to stay alive. Our rolling stock
is slightly outdated and we need to pour further investments into cargo
transportation." He explained that Cargo Slovakia faces competition not
only from railway firms in Europe but also from trucking companies.
The advisor was chosen in January out of 7 applicants, CA IB Financial Advisors
was an advisor in the privatisation of regional power distributor
In 2005 the company plans to transport 49.6m tonnes of goods. The draft
investment plan for 2005 assumes 641.3m crowns from its own funds and 298.2m
crowns through external resources. Labour reductions are also likely. The
company, which started in 2005 with 12,256 employees, plans to cut its numbers
to 12,006 by December. Railway transport in Slovakia will be developed by 2015
and the ministry hopes that railway transport will preserve its current 21%
market share in the total volume of transported cargo and passengers.