By: Gregory Fasing, Honorary Consul, Consulate of the Slovak Republic Issue: Global Trade Section: Collaborator Profile
The Slovak Tiger In Central Europe
It has now been nearly 20 years since the Velvet Revolution of the fall of 1989 saw the disintegration of communist domination of Eastern Europe, and over 16 years since the peaceful division of Czechoslovakia into the Slovak Republic and Czech Republic. The Slovak economy was in tough shape in 1993, the first year of independence. Back then, economic growth had shrunk dramatically and Slovakia faced numerous challenges.
Not only has Slovakia met and overcome those challenges, the Slovak economy is now one of the leading economies of the European Union, which Slovakia joined in 2004. Of all of the former communist countries that have joined the European Union, Slovakia has achieved the stringent benchmarks required to enter the Eurozone, and since January 1, 2009, full implementation of the Euro currency in Slovakia has further strengthened currency, trading and investment stability.
In sharp contrast to the early economic difficulties of 1993, Slovakia has emerged as a European leader in growth and economic development.
How was this economic success achieved? The 1998 election was a watershed event. The new government designed and introduced carefully formulated economic changes, restructured the banking sector, and streamlined the tax system with a 19% flat tax in 2004. Foreign direct investment surged. Slovakia, located in the heart of central Europe, was not only in close proximity to traditional European markets, but it also has a highly educated and qualified workforce, particularly in engineering, and relatively low labor costs. Slovakia in the past 10 years has been very attractive for foreign investors. Large financial institutions from Western Europe have invested heavily in Slovakia. In 2000, Slovakia joined the Organization for Economic Cooperation and Development, and it became a full member of the European Union in 2004. Slovakia has also been a full member of NATO since 2004.
The automobile and electronics manufacturing industries have formed the backbone of the Slovak economy.
The year 1992 witnessed the creation of a motor vehicle assembly plant by Volkswagen in Bratislava. Today the Volkswagen plant is the largest business in Slovakia and one of the biggest non-financial companies in Central and Eastern Europe. It produces the Touareg and Audi Q7. Other motor vehicle manufacturers have followed. In 2006 Peugeot Citroën, the French car manufacturer, commenced production of automobiles in Trnava, in western Slovakia, and in 2007 South Korea’s Kia automobile company began operating a brand-new one billion-dollar production plant near the western Slovak town of Žilina. Depending upon the outcome of the current worldwide economic slowdown, Slovakia could produce as many as 850,000 passenger automobiles in 2010. The presence of major motor vehicle manufacturers has led to the development of numerous satellite support industries, including at least 150 vehicle component manufacturers, several of whom also sell components to other car factories throughout Europe.
In 2008 there were five companies from Slovakia that were among the 50 largest companies doing business in Central and Eastern Europe. They included Volkswagen, Slovnaft, a petrochemical company in Bratislava, U.S. Steel, located in the major Eastern Slovak town of Košice, SPP (Slovak Gas Company) in Bratislava and Samsung Electronics Slovakia, located in the Southern Slovak town of Galanta, where it produces televisions with plasma and LCD screens and other electronics. Samsung also recently opened another plant in the western Slovak town of Voderady near Trnava. Samsung has announced intentions to build a European version of Silicon Valley in Slovakia. Samsung also manufactures liquid crystal display panels for Sony, which has been manufacturing televisions in Nitra, Slovakia since 2007.
Slovakia exported products in 2007 which equaled €43.7 billion, which represents an annual growth rate of 15.2% year on year. Exports of automobiles equaled about one third of that figure, with nearly 87% of the exports going to other countries of the European Union.
Gross domestic product has increased an average of 7.5% each year of the 21st Century. However as a result of the current worldwide economic slowdown, gross domestic product is anticipated to decline 2.5% in 2009.
Despite incentives by the Slovak government to spread foreign direct investment throughout all regions of Slovakia, most foreign investments still center around the capital city of Bratislava (35 miles from Vienna, Austria) and western Slovakia, because of proximity to transportation and markets, and because it is the region with the most experienced and educated personnel.
The Slovak government has developed new services for both Slovak businesses and established foreign investors since early 2008, when Slovakia started to experience the impact of the current financial situation. Despite the current financial downturn, adoption of the Euro currency has enhanced Slovakia’s competitive position, and increased access to additional foreign direct investment. It has improved Slovakia’s position as a sustainable, stable, trustworthy and predictable country with a healthy banking system and working credit system that make further business growth feasible. Slovakia is currently expanding foreign direct investment beyond the manufacturing base. A major emphasis on research and development, the green economy and alternative energy investments is currently underway. Slovakia is well positioned to weather the current economic downturn because of the strong economic policies implemented over the last 11 years.
Gregory Fasing is Honorary Consul for the Consulate of the Slovak Republic. He can be reached at 303-692-8833 or at [email protected].