Invest in Slovakia

 

Over the past 10 years Slovakia has attracted major auto manufacturers, including Peugeot and Kia, to invest in the country

Starting business in Slovakia Macro economics data and statistics for Slovakia

Slovakia emerged from a communist regime in the 1990’s to evolve into a capitalist, free market economy and an ally to the US. During the past 10 years the country was run by Dzurinda who successfully liberalized the economy via privatization of public companies, deregulating the business environment and slashing taxes and the budget deficit.

The Free Market Economy

As a result of these reforms, the Koruna appreciated, credit ratings have increased, and foreign investors have swarmed to Slovakia. Slovakia has begun to catch up with its neighbors as growth rates increased. Money trickled down as rapid growth rates delivered increases in both employment and real wages.

During his tenure Dzurinda was criticized for neglecting impoverished eastern Slovakia. He also enraged poorer Slovaks with benefit cuts and reduced health care benefits. Slovakia risked squandering its hard-won economic renewal because of political instability.

 

Top Ten Members of BSSE In the first quarter of 2007, the total turnover of transactions on BSSE amounted to 367.47 billion SKK

In June 2006, the Dzurinda government was defeated by Robert Fico. This news shocked the business and financial markets. Dzurinda's defeat was most likely due to the eastern Slovakian votes who were enraged with Dzurinda's lack of attention to eastern Slovakia's needs. Fico’s challenge was to bring improvements to the lives of the eastern citizens.

Halting Privatization

Fico began the process by halting privatization and instead instituted reforms in the education system to train poorer workers. This will probably mean slower overall growth rates, but significantly improved political stability.

Accession into the EU

Fico accepted the previous government's scheduled 2009 entry into the European Union, as well as maintaining the Maastricht (the EU's free trade zone) limit as well as the corporate governance requirements for EU aid.

Economics and Finance

Over the past 10 years Slovakia has attracted major auto manufacturers to develop new sites. Peugeot and Kia both started production last year and are expected to reach full capacity within the next two years. Volkswagen has had an established plant there for over 10 years. Together they produce a total output of 850,000 vehicles (up 75% on the previous year), making Slovakia the biggest car producer in the world.

Exports

Slovakian exports are set to reach about 30% of GDP. Slovakia’s success in attracting foreign direct investment has boosted exports, which have overtaken personal consumption as the main driving force behind economic growth. The OECD has estimated that the two new auto plants alone will add 4% to economic growth in 2006-08. Growth was estimated at around 8.2% annualized GDP last year, with almost 10% in the second half. The OECD predicts growth of another 8% this year. The dynamism of Slovakia's economy has significantly increased wages and reduced unemployment.

Concerns

On the downside Slovakia still has an unemployment rate of 12%, the worst in the EU after Poland. In the eastern regions the unemployment rate is as high as 20%. Furthermore, growth is happening at such a rapid pace that there are concerns that the economy is overheating, creating housing bubbles and labor shortages (especially around the major auto plants). However, wage increases have been lower than the rise in productivity and industrial wages remain at ¼ of that of the Euro zone average.

Inflation has been the main concern to Slovakia as they attempt to meet the strict Maastricht criteria for adopting the Euro in 2009. However with interest rates rising to 4.75% and oil prices falling, the problem appears to have been mitigated. One of the Maastricht’s limits imposed on Slovakia is for a budget deficit of 3% of GDP. Currently the elected prime minister inherited a deficit of 3.4% of GDP which should in theory force the government to introduce austerity measures, to drive the deficit down to 3.0% in 2007 and pass the Euro assessment in 2008. In October 2006, Moody's improved Slovakia's debt rating to to A1.

Growing household income has enabled Slovaks to save and borrow more. Household deposits rose 15% yoy (year over year) in the third quarter of 2006. Slovaks are also becoming more confident about investing in mutual funds. Household loans surged 36% yoy in the third quarter. Corporate lending rose 14% yoy in the third quarter, especially in the small business segment.