Wage costs keep increasing in Slovakia. (source: sita)
Slovakia is losing its competitiveness and attractiveness to investors. While Austria, as part of its strategy to support economic growth and attract foreign investment, has reduced corporate taxes, Slovakia has increased them, along with other wage-related costs. As a result, it has become the most expensive country for production and employment within the Visegrad Four (V4 – the Czech Republic, Hungary, Poland, and Slovakia) and Austria. High taxes, levies, and rising fixed costs are creating conditions that make it increasingly difficult to retain existing investments, let alone attract new ones.
“In Slovakia, the business environment has deteriorated so rapidly that we are heading for a major problem,” said Alexander Matušek, head of the Slovak Automotive Industry Association (ZAP), in an interview with the Hospodárske Noviny daily. “If I were an investor, I would have a really hard time finding a reason to come to Slovakia.”
Matušek first raised concerns about Slovakia’s declining competitiveness in January when ZAP published its 2024 automotive industry report. A month later, the Association of Industrial Unions and Transport (APZD) joined the criticism, urging the government to initiate an expert discussion on the economic impact of its policies and explore ways to stabilise the economy and enhance Slovakia’s appeal to investors.
“The decisions companies make today will directly impact the labour market and the economy in the coming years,” said Andrej Lasz, secretary general of APZD, in a press release. “If Slovakia does not offer competitive conditions, investments and new jobs will go where they make more economic sense.”
Slovakia now has the highest corporate tax rate in the region at 24 percent, is the only eurozone country to have introduced a financial transaction tax, has raised the cap on social contributions, and has increased fixed costs for companies, APZD notes.
“Countries such as the Czech Republic, Poland, Hungary, or Austria offer a more stable and advantageous business environment,” said Lasz. “Under these conditions, we are losing our ability to compete for new investments and for the production of new products by established investors.”
There is a real risk that new projects will bypass Slovakia, and well-paid jobs will disappear. Additionally, employing highly skilled professionals in Slovakia is becoming increasingly unattractive.
“Compared to the Czech Republic, hiring a highly qualified professional in Slovakia is nearly 17 percent more expensive for companies, while the employee earns 8 percent less in net terms,” APZD highlighted. “This disparity affects decision-making on both sides: employees prefer better salaries, while employers seek lower costs.”
Further compounding the issue, 20 percent of Slovak university students study abroad.
“The fact that young people gain experience abroad is not the problem,” said Lasz. “The problem is that they have no reason to return. Slovakia is becoming unattractive not only to companies but also to individuals who could drive innovation and progress.”
ZAP and APZD highlight that 93 percent of all foreign investment in Slovakia's industry over the past 15 years has come from the EU, the UK, and the USA, according to the National Bank of Slovakia.
“However, the current government led by Robert Fico is increasingly orienting itself towards Russia,” said Matušek, noting that investment from Russia accounted for just 0.003 percent, with an even smaller share coming from China.
APZD also criticizes the government for addressing public finance consolidation almost exclusively through tax increases (96 percent of measures), while austerity measures in the general government account for only 4 percent. Government expenditures continue to rise, with structural spending – which the state is legally obliged to cover regardless of economic performance – increasing from 1.3 percent of GDP in 2022 to 3.3 percent in 2023 and an estimated 5.2 percent in 2024.
“This trend is unsustainable in the long term,” warned Lasz. “If new investments do not arrive and economic growth slows, we may face major adjustments in government spending policy and additional tax burdens.”
Automotive industry already facing challenges
Matušek pointed out that Slovakia’s automotive sector has continued to perform well due to past investments and production assignments made under different economic conditions. However, as car production cycles last around six to seven years, the manufacturing of current models will begin to wind down in 2027-2028. Car manufacturers are already negotiating new model allocations with their parent companies, but Slovakia’s deteriorating business conditions are making these negotiations more difficult.
Furthermore, automotive industry in Slovakia has yet to transition to electromobility, a factor that, while currently advantageous given the European automotive crisis, could quickly become a disadvantage as the EU’s sustainability targets remain unchanged.
“If we do not secure the production of more electric models, the industry will stagnate, and some car companies will not maintain their current scale in Slovakia,” warned Matušek.
He criticised the government for failing to consult the automotive sector on fiscal policy changes, including the corporate tax hike to 24 percent, the VAT increase to 23 percent, and the raised cap on payroll tax calculations for higher earners.
“We need constructive dialogue with the government to address these issues,” said Matušek. “However, after initial discussions, the government has largely ignored the concerns of our sector.”
Negative news from the industrial sector
Meanwhile, Austrian company ZKW has announced plans to reduce its Slovak workforce of 3,300 by approximately 430 employees this year, as reported by interez.sk on February 13.
ZKW Slovakia, which operates a plant near Topoľčany, focuses on manufacturing components for headlights, LED lights, and fog lights. The company previously made headlines when Prime Minister Robert Fico worked a night shift there.
Both the company and local employment authorities have confirmed mass layoffs, attributing them to broader economic challenges in the European automotive industry.
“To minimise the negative impact on financial stability, the company is taking immediate measures,” said Sandra Simeonidis-Huber, a representative of ZKW Group GmbH, adding that the optimisation of production processes should ensure an increase in competitiveness and sufficient efficiency in production. “The consequences of high energy prices, inflation, rising fixed costs and labour costs have also prompted the company to take these steps.”
Similarly, ferro-alloy manufacturer OFZ, based in Oravský Podzámok in the Žilina Region, is partially relocating production to Uzbekistan due to high electricity prices in Slovakia and the EU. OFZ director Branislav Klocok confirmed that investment in Uzbekistan is already underway. The company’s goal was to leave at least 50 per cent of production in Slovakia.
“Our interest is to leave as much production as possible in Slovakia, which means that we might not transfer production facilities from here to Uzbekistan, but we would make new facilities there, but at the moment, unfortunately, it doesn’t look like that,” said Klocok.
The plant is one of the most important suppliers of ferroalloys for the steel and foundry industry in central Europe. It first announced a move eastward about two years ago.
