Books on Slovakia
% of GDP
Update No: 114 - (28/11/06)
Government issues statement on November 17th celebrations
The 17th anniversary of the fall of the communist regime in the former
Czechoslovakia and the subsequent establishment of democracy on November 17th
was not officially celebrated with any special event in Slovakia. The Slovak
government, led by the left-wing Smer party, only issued a short statement on
the occasion of the event that changed history. According to the statement, the
government identifies with the November 17th, 1989, events but has reservations
about post-revolutionary developments, especially in the fulfilment of the
principles of a legal and social state.
Instead of the ruling coalition, the opposition SDKÚ, SMK and KDH parties
organized a commemorative meeting at SNP Square in Bratislava, the capital of
According to the SDKÚ's Stanislav Janiš, the position of the new Slovak
government towards the November 17th celebrations may be connected with the fact
that 10 of the 16 current cabinet members are former Communist Party members,
Smer wrote. Political analyst Miroslav Kusý also noted that the government's
position towards November 17 probably also reflects the attitude of the PM
Robert Fico himself. Fico said earlier in one interview that on November 17th,
1989, he did not even notice that something was happening.
Municipal elections now matter
There was a time in Slovakia when the prospect of municipal elections, due in
December, would have evoked a collective yawn. But that was before a public
sector reform gave Slovakia's regions, towns and villages 94 per cent of all
personal income taxes collected in the country, as well as significant clout
over schools, roads and health care.
The election campaign for municipal governments around the country began in
mid-November, although many candidates for mayor and local council have
complained that their opponents started campaigning weeks ago. The capitals of
Slovakia's eight regions are already swamped with billboards and public
advertising, especially in Bratislava, where candidates include incumbent mayor
Andrej Durkovský (Christian Democrats) and challengers Monika Benová (Smer)
and Maroš Kocner (independent).
Edo Klena of the Euro AWK ad agency, which owns 147 billboards in eastern
Slovakia's Prešov, told the Pravda daily that most of his space had been rented
months ago: "We only have one or two spots left in less attractive
areas," he said.
The 2006 elections have already been marked by apparent attempts to buy voters.
In the town of Svatý Jur, for example, Mayor Alexander Achberger recently
opened a new road and sidewalk leading up into the more rugged Neštich part of
town. The sidewalk, which was partially funded by the EU, will be heated by
internal coils during the winter to avoid icing.
Meanwhile, in Donovaly, Mayor Miroslav Dano had 25 kilograms of potatoes
delivered to every permanent resident, and flew a number of older citizens by
helicopter to Austria for an outing as part of an outreach program for seniors.
"Free potatoes, grannies in helicopters" read a headline in a local
In Poprad, Mayor Anton Danko opened a new arena with his own initials on it, and
in the last two months has unveiled nine new projects including parks, religious
artefacts, industrial zones and buses for local transport.
This year's municipal elections are regarded as more important that ever before
due to the massive decentralization of state power that has occurred in Slovakia
since 2001. Towns and villages now control a far higher share of public money
than they did at the time of the last elections in 2002.
New populist government
Slovakia has a new populist government elected in June, beating a government
that was the darling of Brussels and Washington, led by arch-reformer Mikulas
Dzurinda, who succeeded populist Vladimir Meciar in 1998 and had the rare
distinction of being re-elected in 2002, rare in a transition economy that is.
The Smer party leading the new government made out that it would have a novel
agenda, addressing popular concerns for more welfare. But half a year later it
is evident that it is as keen as its pro-market predecessor to keep foreign
It is coming to be known as the ideal place to make cars to sell to Europe. News
came through in mid-November that confirms this. Kia of South Korea has come to
town, to join the French and many other Westerners.
Kia to Open Auto Plant in Slovakia
Korea used to be regarded as a low-cost manufacturing base, so it is a
surprise to learn that making cars in eastern Europe is cheaper than exporting
them from the home country.
Yong-Hwan Kim, head of Kia's international business division, told The Sunday
Times that the wage rate at the company's plant at Zilina in Slovakia, which is
just starting production of a new European model, is one fifth of that in Korea.
Components are more expensive, but the local supplier base is growing and Kia
will benefit from the plans of its parent company, Hyundai. In 2008 Hyundai will
open a factory at Nosovice, over the border in the Czech Republic, just 40 miles
from Zilina, and supply engines and transmissions for Kia as well as its own
locally built cars.
When Kia's first-ever manufacturing facility in Europe is fully operational, it
will establish new benchmarks for productivity - manufacturing 100 cars per
employee per year - the culmination of a 1 billion euro investment.
The new Kia five-door hatchback, designed, engineered and developed especially
for European customers, will start rolling off the production lines at Kia's new
facility in Zilina, about 125 miles northwest of Bratislava. The car and the
factory will play an important role in establishing Kia as a major player in
European automotive markets.
"To achieve further growth in Europe, we needed to fully understand our
customer's requirements, learn exactly what European customers want and develop
a European-style car, to be made locally In Europe," said In-Kyu Bae,
president and CEO of Kia Motors Slovakia (KMS). "Another important aspect
is that Zilina will cut down delivery times for European customers. Compared
with our South Korea-built vehicles, the distance from factory to showroom is so
much shorter and by building cars in Europe we no longer have to pay import
Sang-Ho Moon, senior director and head of production at KMS, has spent the past
year getting the factory built and its 1,300 employees ready to start full
production. "Our target is to reach the stability required to make sure
everything is right," he said. "We have a unique opportunity to
achieve truly excellent product quality with a new plant, a new model, new
employees and new suppliers. We have the chance to do some things differently,
and it is a great new challenge. We are creating a new history both for Kia and
for Eastern Europe and developing a new factory culture.
Site layout at the Zilina plant has been particularly important, as the winter
weather in Slovakia can get very, very cold. "The way the factory has been
designed means that people or vehicles do not have to go outside, which is very
important in the winter, and the offices for the managers of each shop (press,
body, paint and final assembly) are situated so they can see the processes are
running smoothly," Moon said. "From my office I can see a number of
areas and there's a constant visual check. We will be able to produce 300,000
cars a year at a rate of one unit per minute and it has been a great advantage
to build our new facility on a greenfield site."
Production will start with 5,000 models this year, rising to 150,000 units in
2007. In 2008, production will increase to 225,000 vehicles, with full annual
capacity (300,000 units) achieved in 2010.
By the end of 2009 KMS, will have recruited 3,000 employees to run a three-shift
operation. Alongside car assembly in Slovakia, Kia will manufacture diesel and
gasoline engines and around 75 percent of all components will be sourced from
"I believe that with our all-new factory and our well-trained employees, we
will establish highly competitive production levels and deliver top class, high
quality products that will have immense appeal to consumers across Europe,"
President Bae said.
The new Detroit
Cheaper labour costs are attracting manufacturers generally to the old Iron
Curtain countries, Slovakia to the fore here.
The new Peugeot 207 is rolling off an assembly line at Trnava in Slovakia, where
the French company received a government grant to set up a manufacturing plant
and is able to take advantage of labour rates that are a fraction of those in
Western Europe. There is now so much motor manufacturing in Slovakia, the Czech
Republic and neighbouring countries that the area has been called the New
Detroit, recalling when American carmakers and their suppliers centred on the
state of Michigan early in the 20th century.
Skoda, the Czech Republic's indigenous car manufacturer, has been part of the
Volkswagen group for 15 years and has been transformed from an inefficient
producer of cars that were the butt of jokes to one of Volkswagen's most
profitable operations, making 500,000 cars a year.
Volkswagen also has a factory in Bratislava, Slovakia, that produces the cheap
Polo and the expensive Touareg 4x4 as well as bodyshells for the Porsche
Wage rates in Bratislava are 85% lower than those paid by Volkswagen in West
Germany. At a time when it is desperately trying to cut costs and is negotiating
with the unions in Germany for a longer working week, expansion of its Czech and
Slovak businesses must be a tempting alternative.
Will they ever make Volkswagen-badged cars at Skoda? Detlev Wittig, chairman of
Skoda Auto, who has encouraged the Czech company to develop its own models, does
not rule it out: "What I can say is that we will not make Volkswagen
versions of Skodas." The countries that have emerged from behind the Iron
Curtain are not only attractive to the motor manufacturers of western Europe.
Like the Japanese before them, South Korea's car firms are anxious to "make
where they sell", thereby avoiding trade tariffs and the cost of
transporting cars between continents.
PSA Peugeot Citroen encouraged automotive suppliers and service companies to set
up in the region when it entered into a joint venture with Toyota in the Czech
Republic in 2001.
The Kolin factory, built on a site that had been earmarked by BMW, makes a
Toyota design sold as the Citroen C1, Peugeot 107 and Toyota Aygo. Peugeot's
responsibilities in the joint venture include purchasing, and its favourable
experience in setting up Kolin led to the creation of the Trnava plant that was
West European governments have claimed that car companies have received huge
grants from these countries, which recently joined the EU. Peugeot emphatically
denies that this was the reason for going to Slovakia.
Jon Goodman, director of external relations of PSA Peugeot Citroen in the UK,
said: "The Slovak Republic played by the EU rules even before it was a
member and we received only 15% regional development aid, the maximum allowed by
the EU, amounting to 105m Euro (Ł71m) out of total investment of 700m
The manufacturers go east simply because it is cheaper to make cars there.
Carl-Peter Forster, president of General Motors Europe - which has factories in
Poland - quantifies the advantage: "If the wage rate in West Germany is
100%, Britain is 75%, Spain 40% and Poland and Slovakia 15%," he said.
Direct labour accounts for only about 15% of the total cost of making a car, but
the manufacturer's saving on a family saloon can still be more than Ł400.
Cost-cutting Peugeot Citroen opens auto plant
Europe's second-largest automaker PSA Peugeot Citroen christened on October 19 a
new assembly plant in western Slovakia as a flagship of the company's
cost-cutting strategy, Deutsche-Presse-Agentur (dpa) reported.
Company Chairman Jean-Martin Folz joined local officials at a ceremony to open
the 350 million Euro (US$440 million) assembly line, which will produce Peugeot
207 models for the increasingly-competitive European market.
The French automaker launched the plant in Trnava just weeks after announcing
plans to close a car plant in Ryton, England, earlier than expected next year.
Like many of its competitors, PSA is shifting some production from western
Europe to eastern countries with lower wages and taxes that joined the European
Union in 2004.
PSA picked Slovakia in 2003 for a new plant that's expected to produce 300,000
cars a year with 3,300 workers by 2008. The company plans to add a second model
with a new assembly line in 2009, doubling its investment and raising annual
output to 450,000 cars.
Franck Guyot, PSA's purchasing chief for central Europe, said the Trnava plant
and a joint-venture plant with Toyota that opened last year in the Czech
Republic exemplify the company's effort to control costs while expanding
"We used to be focussed on western Europe," Guyot told auto executives
in Prague. "Now we're growing all over the world." The share of the
automaker's sales outside western Europe rose to 30 per cent last year from 15
per cent in 2000, Guyot said.
PSA plans to build a second assembly plant in China and open one in Brazil soon,
Guyot said. He also said the company has opened regional offices in Slovakia and
China, and plans to build one in India soon. He added that "We are
examining possibilities in Iran."
"We are now in a position to examine more eastern countries," Guyot
At the Trvana plant, Slovak officials credit PSA and other auto companies with
boosting a slumping economy that used to rely on agriculture and the arms
Volkswagen, Kia, Ford and car-supplier firms have expanded rapidly in Slovakia
in the past five years, helping unemployment fall below 10 per cent last month.
Russia-Slovakia expansion of partnership in energy sector
Russian President, Vladimir Putin, has reaffirmed his country's readiness to
expand cooperation with Slovakia in the energy sector, Interfax News Agency
"Slovakia is an increasingly important partner for us in the energy sphere.
Various reports suggest that we meet 90 per cent of Slovakia's energy
needs," Putin told his Slovak counterpart Ivan Gasparovic during talks in
the Kremlin on November 7th. "Slovakia is important for Russia not only
because of the amount of energy resources we supply to meet its needs, but also
because Slovakia serves as one of the most crucial transit routes for our energy
resources toward Europe," the Russian president said.
Slovakia "needs cooperation with Russia in the sphere of energy,"
Gasparovic said. "The events of 1989 and the subsequent disintegration of
Czechoslovakia have somewhat restricted our contacts and slowed the pace of our
cooperation," the Slovak president said. "We should do everything
possible to turn our relations into a partnership again and to help each other.
Slovakia is ready for such a partnership," he said.
Slovakia is also ready for investment cooperation with Russia, as well as joint
investment projects in third countries, he said. Putin said he hopes that
Gasparovic's visit to Moscow will help "advance our cooperation in a
variety of areas." "Slovakia is our long-time and time-tested partner.
For this reason, our relations have been developing, primarily in the
economy," he said.
The volume of trade and business cooperation between Russia and Slovakia totals
US$ five billion, which is quite a good figure for contacts between two
countries, Putin said. Gasparovic thanked Putin for the invitation to visit
Russia, a country, which "has been playing an increasingly important role
in European and global affairs." "As the recent informal EU summit in
Finland has shown, Russia should play a major role in European affairs," he
Efforts to join Euro in Slovakia must be stepped up
Slovakia needs to step up efforts if it is to meet its tight deadline for the
next key step in the country's European integration process - signing up to the
Euro in January 2009, the country's central bank chief told the Deutsche
But, while Ivan Scramko expressed cautious optimism that Slovakia would be able
to knock its public finances into shape in time for joining what is currently
the 12-member Eurozone, he roundly criticised the tough fiscal rules for
adopting the Euro as set out in the Maastricht Treaty.
The Slovakian national bank governor said that to a considerable extent the
selection process is influenced by external factors and is not in the hands of
the those countries applying to join the Euro. "This is further proof that
the Maastricht Criteria have not been adequately set," Scramko said.
However, he warned that Slovakia, which was one of the ten largely Central
European states that joined the European Union in May 2004, needed to take steps
to keep the lid on inflationary pressures to ensure the country's Euro bid did
not founder. In particular, this included revamping the country's fiscal policy
to ensure that it is more flexible and trimming the deficit.
"The perspectives for joining the Euro area in 2009 are good, although
there are risks," he said. Indeed, he saw the key challenge facing the
country as bringing its inflation rate into line with the tough reference rate
(currently about 2.6 percent) that has been set for countries seeking to join
the common currency.
From their top-floor boardroom of the central bank's high-rise building in
central Bratislava, the members of the bank's rate-setting council have a
remarkable vantage point to view the fast-paced economic changes underway in the
new EU member state. As a measure of the construction boom underway in
Bratislava and that has helped to fuel concerns about overheating in the
Slovakian economy, the central bank building has just recently lost its status
as the city's tallest building.
Robust domestic demand in Slovakia is projected to power the country's economic
growth ahead by 6.5 per cent this year, with annual inflation running at 4.6 per
cent in September, down from 5.1 per cent in August. Price stability might be
the main priority of the Slovakian national bank, but Scramko said other factors
such as unemployment and economic growth needed to be taken into account.
"We are not going to achieve low inflation at any cost," he said.
After inflation this year knocked Lithuania out of the running to become a
Eurozone member in 2007, the small former Yugoslav republic of Slovenia will
become the only new EU member state to join the Euro on January 1. But should
Slovakia succeed in meeting the 2009 deadline for Euro membership it will become
the first of the leading new EU states - Poland, the Czech Republic and Hungary
- to adopt the Euro.
Analysts have rolled back their timetable for when Poland, the Czech Republic
and Hungary are likely to join the Euro.
Slovakia has already become the first of the four key EU newcomers to sign up to
the European Rate Mechanism, which represents a key step along the tough road to
Euro membership. "We are closely watching Slovenia and hope to learn some
more lessons from its practical experience with the changeover," Scramko
said. "The most difficult task is to bring inflation below the Maastricht
level by spring 2008," Scramko said.
Spring 2008 is likely to be when the European Commission will decide whether
Slovakia meets the strict fiscal targets for adopting the common currency. In
the meantime, the central bank in Bratislava has embarked on a rate-hiking cycle
to tame consumer price pressures, having hiked its benchmark rate by a total of
175 basis points since the start of the year.
But while many analysts believe that Slovakia might have a chance to drive its
budget deficit below the strict three percent target, Bratislava will be hard
pressed to grind inflation back below the even tougher goal for Euro candidates.
Government and central bank officials along with business leaders have already
prepared a national Euro changeover plan, which sets out action plans for the
country's different economic sectors.
This also includes a mandatory dual display of prices for about six months
before and at least 12 months after the changeover with the central bank chief
stressing the need to monitor prices following Euro adoption.
But said Scramko: "We need foremost to take further steps towards
disinflation. This does not only include monetary policy steps. We need support
from a prudent fiscal policy and we need moderate wages." After all, he
said the central bank is not expecting those making the final decision on
Slovakia's entry to the Euro to show it any leeway. "We are prepared that
the assessment of our convergence will not forgive us anything, but we also
expect that both the criteria and the assessment process will not become tighter
than they have been till now," he said.