German auto giant BMW may be bringing a huge investment to Slovakia.photo: Ján Svreek
German automotive giant BMW is scouring the central European region for a location for a proposed production plant, and Slovakia is putting its best face forward to secure the contract. If won, the deal would be the third largest foreign investment in the country's history.
Government representatives have said that the investment would strengthen the economy and quell problems with unemployment, currently hovering just below 20%.
Alan Sitár, advisor to the prime minister for foreign investment in Slovakia, said: "This is one of the most crucial potential investments that Slovakia has had a chance to attract. Its importance can be compared to that of Volkswagen's investment [in 1992] or US Steel in the [Košice steel firm] VSŽ transaction - it's that kind of large scale we are talking about."
The $440 million (one billion Deutschmarks - DEM) plant would produce 200,000 cars per year, while creating upwards of 2,000 new jobs, with thousands more employed indirectly. Vying with Slovakia for the lucrative contract are Poland, Austria, Hungary, Germany, and the Czech Republic.
Sitár believes that the Czech Republic is Slovakia's biggest rival for the bid; the importance of the investment has certainly not escaped representatives of Czech investment agency CzechInvest. "This is a prestigious car producer and will bring many benefits to the Czech Republic, so I think that this investment would be just as important for us as it would be in Slovakia, Hungary or Poland," said the investment agency's Pavlína Bolšová.
Factors in decision
According to BMW spokesman Thomas Gubitz, while the search process is only moving through its initial stages, one of the most influential factors in the company's decision will be location.
"I think one of the major points that we have to consider is that we can't be too far away from our plants in Germany - there can only be a certain distance between them," Gubitz said, adding that this did not automatically exclude countries other than Germany.
Sitár said that BMW's stated requirements for the investment had so far been general, but revolved mainly around land issues and infrastructure. The Slovak government has four possible site locations in mind, and this number is expected to increase. The Czech Republic has seven possible site options to present to BMW.
"I would say that land is one of the major focuses at this point. We are trying to find something that would suit BMW, and then we will proceed from there with an incentive package and other information," Sitár said.
Slated to come into effect by January 1 is a new Slovak FDI incentive package featuring a 10 year tax holiday and state subsidies for jobs created for previously unemployed people. However, the package may not be enough to woo the German firm.
"Incentives are normally for the beginning stages - when you are building the plant. But when you plan to be in a location for a long time, there are other factors that are more important than incentives, because you have them only once," Gubitz said, adding that besides location, a sound workforce was of the utmost significance to ensure a quality product and the future of the company.
"We need quality employees - this is also very important. It's not so important to have employees coming from car manufacturing [backgrounds] because we are able to teach people what they need to know to build high-quality cars, but they must be hard working and able to learn," the BMW spokesman said.
Karol Balog, director of the Agency for Industrial Development and Revitalisation (AIDR), said BMW could look to the success its compatriot manufacturer Volkswagen has had in its plant in Devínska Nová Ves, north of Bratislava, to illustrate the effectiveness of the Slovak workforce.
"I would say that we have as good a chance as any other country [to win the bid]," Balog said. "Our biggest advantage is the quality of our workforce, one which comes at a very reasonable price."
However, Balog added that problems with legal stability - in terms of registering a company, the vagueness of laws and inefficiency in the legal system - may cost Slovakia in its bid to win the investment. "I've heard from a number of investors that they rank legal stability very high on the list of their priorities," the AIDR chief said.
The German firm and government representatives are to meet on October 24 to discuss possible production sites and specify the most important conditions for its investment BMW feels should be met.
Gubitz said similar meetings would take place with all interested countries, and that it was too early to comment on Slovak prospects for winning the investment.
Fierce competition
Slovakia has had a mixed track record in attracting large scale investment. In late summer, French automobile parts producer Plastic Omnium nearly opted for Hungary until last minute negotiations sold them on Slovakia. Volkswagen has had a solid and profitable relationship with the country since 1992, but the giant automotive parts supplier Textron opted for the Czech Republic after months of ultimately fruitless negotiations with Slovakia.
Increasing competition between the countries of central Europe, most notably the Visegrad Four countries (Czech Republic, Poland, Hungary and Slovakia), has become clearly visible in the latest potential investment. Experts have said that while such competition is at the root of a market economy, if not contained it may be to the detriment of some countries, which can over-extend themselves to obtain FDI dollars.
Eric Burgeat, general director for the OECD centre for co-operation with non-members, said that competition is always positive in a market economy, but was concerned with the consequences for a country going beyond its means to land a lucrative contract.
"Each individual country should be aware of the risks involved in overbidding in a competition. Overdoing direct subsidies could have a detrimental impact on the political situation and would not be the most attractive element for an investor," Burgeat said.
Sitár, however, argued that the continuous battles for FDI with Slovakia's neighbours were neither positive nor negative, simply part of the nature of business. "I believe that competition between the [Visegrad Four] countries is a natural thing. All of the countries understand the benefits and that's why they try to use all the tools, incentives and packages to win this kind of race," he said.
