Don't cry for Slovakia: Investors only obey logic

THERE is great irony in how companies, in their moves ever eastward to save a dime or two on cheaper labour and lower production costs, can connect people in remote places and make them consider each other's fate.

THERE is great irony in how companies, in their moves ever eastward to save a dime or two on cheaper labour and lower production costs, can connect people in remote places and make them consider each other's fate.

Just as Slovakia has recently been on the minds of the 2,300 citizens of Ryton in Great Britain, after the major employer in the region, the Peugeot factory, announced it was closing down to ramp up production in Slovakia, Romania has been costing over 1,200 Slovaks in Rimavská Sobota some sleep as well.

In an unexpected move, car components producer Dräxlmaier recently ditched its plans to build a Sk700 million plant and employ 1,200 people in Rimavská Sobota.

While a couple months ago it seemed that the investment-anaemic and heavily unemployed region would get some relief from the German company, locals now despair of change.

Many hoped that the Dräxlmaier investment would prove the value of the new system of investment incentives, which was designed to inspire companies to move to poorer regions and create jobs where they are in shortest supply.

Labour Minister Iveta Radičová tried hard to put a good face on the departure of the German investor, saying that the decision of Dräxlmaier to abandon its plans in Slovakia was confirmation that the country was not a place for wage dumping.

According to Labour Ministry sources, the company proposed that employees be paid Sk7,500 a month plus Sk1,000 in bonuses, which is very close to the minimum wage in Slovakia. Radičová said it would have been counter-productive to pay people such low wages at a time when the ministry is trying hard to convince Slovaks who have been on welfare for years that it pays to work.

Based on some negative experiences that Slovakia has had with unrealistic promises given to investors in trying to lure them here, many instantly asked the question: Did anyone promise the company such low labour costs?

The Dräxlmaier getaway differs from the infamous departure of Korean tyre producer Hankook, which remains a textbook example of the chaotic and non-transparent management of investments by former Economy Minister Pavol Rusko. Rusko promised lavish incentives to the company, which the cabinet in the end did not approve. At the time, the Hankook withdrawal caused a major stir and forced the government to set some rules for providing investment stimuli to investors.

What makes the departure of the Germans so painful for the region is the fact that Dräxlmaier withdrew at an advanced stage of planning. It's not that the investor said no following an initial courtship after finding out that Rimavská Sobota was simply not the partner the company wanted; the municipality had already bought the land for the factory for Sk250 per square metre, and sold it to the investor for Sk10, according to Rimavská Sobota Mayor Štefan Cifruš. Dräxlmaier would not have had to walk the bumpy road of Korean carmaker Kia, whose investment ran into serious complications with purchasing the necessary land.

Nor had the company sent any warning signals that something was rotten in the state of the investment.

The truth is that Dräxlmaier simply did what most investors do. It found out that Romanians would work for less money than Slovaks, and made a rational business decision to go where costs were lowest. While Slovaks who have been out of work for many years never got a chance to decide whether to take the low-paying work or not, it is probably not the last time that this country's generally improving economy will cost it a labour-intensive investment.

Just as Peugeot's departure from Ryton was not about Slovakia, Slovaks cannot really blame Romania for becoming more aggressive in attracting foreign investors. Romania may even have learned how to hook investors from Slovakia itself.

The Romanian state offers foreign investors a wide variety of state support. For example, investments worth over $1 million are exempt from customs duties on imports of technology. Labour costs are substantially lower in Romania as well.

Some say that the departure of Dräxlmaier shows that Slovakia, as the automotive capital of the region, is beginning to suffer from its economic focus on the automotive sector, and that investors will continue to move to cheaper countries once Slovakia becomes too expensive for them.

But it's not only foreign firms that are moving further east. Several Slovak firms have already moved their production to places where production costs are much lower.

The state says that it is moving mountains to find a substitute for Dräxlmaier for the Rimavská Sobota region. The local major also says that it is time for the region to stop crying over spilled milk, since there are still many investors who consider Slovakia a good place to invest, even if it is no longer the only investor paradise in Eastern Europe.

By Beata Balogová

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