Foreign investors say they plan to stay

ONLY 1 percent of foreign investors running businesses in Slovakia are considering moving their operations out of the country. That was one of the key findings of a survey of foreign investors in Slovakia conducted earlier this year by the American Chamber of Commerce in Slovakia (AmCham) and presented to high-level business representatives, representatives of ministries, members of the Slovak parliament, ambassadors, representatives of academia, leaders of NGOs and foreign experts who attended the Foreign Investors Summit organised by the chamber on September 28.

Slovakia, which earlier in the decade was nicknamed the “Central European Tiger” due to its unprecedented economic growth, has often been recognised as having favourable conditions for doing business.

“However, we felt that, as competition continues to intensify for the limited supply of highly-skilled and educated labour, and other issues influence the development of Slovakia’s economic standing, Slovakia’s political and business elites needed to review the main deterrents to economic growth in order to secure healthy conditions for doing business in Slovakia,” Jake Slegers, the Executive Director of AmCham, told The Slovak Spectator when asked about the reasons why the chamber conducted its survey. The intention, Slegers said, was to systematically review current conditions and identify obstacles for foreign investors doing business in Slovakia.

“By highlighting positive conditions and identifying barriers, then making appropriate recommendations and participating in effective follow-up, AmCham Slovakia hopes to positively influence Slovakia’s international competitiveness and ensure positive and sustainable development of Slovakia’s economy,” Slegers said.

More than 100 companies, representing foreign investors from 22 different countries, responded to the survey, which served as a basis for the Foreign Investors Summit and for AmCham policy recommendations in two of three main areas covered by the survey: a competitive workforce, better regulation, and adapting to change.

One of the most intriguing findings of the survey was that, while 99 percent of respondents said their operations had been affected by the economic downturn, only 1 percent were considering moving their operations out of Slovakia.

In addition, only 8 percent of surveyed firms planned to downsize.

“The fact that a vast majority of foreign companies want to keep their operations at least at current levels is a strong indication that Slovakia remains highly competitive,” Slegers commented, adding that it’s equally important that 35 percent of respondents indicated that they were even considering expanding their operations in Slovakia.

The survey results also point out that Slovakia’s efforts to stabilise its public finances by entering the eurozone are bearing fruit. Fully 83 percent of foreign investors perceived the use of the euro as the official currency as having a positive impact on their business.

As many as 72 percent of correspondents surveyed said they considered the allocation of public tenders and financial resources as being non-transparent and that the state has not created and does not apply transparent procedures for allocation of incentives and EU funds. In addition, 81 percent considered corruption to be a barrier to doing business.

“A vast majority of the participants pointed to the strong need for increased usage of electronic media in government-related transactions,” Slegers said. “The surveyed investors expressed their will to support all of the Slovak government’s initiatives to raise awareness in this area and implement additional anti-corruption measures. “One of the suggested ways to overcome this barrier and increase transparency, as well as efficiency, was to proactively advance positive initiatives in e-government and e-procurement, which are currently only in the intention or design status.”

At the summit, it was noted that the UN 2008 e-Government Readiness Index compares various countries according to two primary indicators. These indicators are, firstly, the state of e-government readiness and, secondly, the extent of e-participation. Indicative of Slovakia’s lack of progress in these areas is Slovakia‘s rank of 38th of the top 50 countries in the UN index.

“Unfortunately, this places it behind all of its central and eastern European neighbours,” Slegers said. “A greater sense of urgency is therefore expected by the respondents specifically in the areas of e-government and e-procurement.”

The Slovak Business Alliance (PAS) noted similar problems in its Index of Business Environment (IPP), executive director of the alliance Róbert Kičina told The Slovak Spectator.

“Businessmen point out corruption as the third most serious barrier to doing business in Slovakia, after weak enforceability of the law and the high level of bureaucracy,” he said.

The investors surveyed by AmCham also strongly encouraged the Slovak government to decrease the administrative burden on businesses, reduce rapid and non-systematic changes of legislation and allow greater discussion and involvement by various stakeholders in preparation of new legislation.

According to Kičina, the ineffectiveness of public expenditure was also ranked by the World Economic Forum, which conducted a survey that placed Slovakia 127th among 133 in an evaluation of cronyism.

The complicated and ineffective social welfare system, legislation and backward education system are also among the most significant barriers to business, according to the PAS.

In the AmCham survey almost 50 percent of respondents saw the educational system as not adequately preparing individuals for Slovakia’s labour market needs and the lack of a qualified workforce currently belongs among the main challenges that companies face in the area of human resources. The surveyed investors recommended including more practical training and education in school curricula, and increasing the focus on language and communication skills, including soft skills, such as leadership training and the development of a service-oriented approach to business, Slegers said.

However, PAS, which in its IPP recorded a continuing deterioration in the Slovak business environment in the second quarter of 2009, points out that the impacts of the crisis also show strongly in the country. “More and more often businessmen openly talk about lower performance, productivity and ability to fulfil their obligations,” Kičina said. “The crisis has caused the ability of companies to follow their aims and vision to drop.”