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Good bye to cheap labour?

One of Slovakia's greatest attractions for investors has been its relatively low labour costs. However, this situation is changing. According to figures from Eurostat, Slovak salaries are rising. During the last quarter of 2005, pay in Slovakia rose at the rate of 7.5 percent, the fourth highest rate in Europe. The only EU members with faster rising salaries are the Baltic countries: Latvia, Lithuania and Estonia.

One of Slovakia's greatest attractions for investors has been its relatively low labour costs. However, this situation is changing. According to figures from Eurostat, Slovak salaries are rising. During the last quarter of 2005, pay in Slovakia rose at the rate of 7.5 percent, the fourth highest rate in Europe. The only EU members with faster rising salaries are the Baltic countries: Latvia, Lithuania and Estonia.

This survey has created some doubts that Slovakia can continue to land foreign investments at the present rate. But Robert Prega, an analyst at Tatra banka says that such rises in labour cost are anticipated.

"With such low wages it was obvious that the growth rate would be higher than in countries where labour force costs are permanently high," he told The Slovak Specator.

Health and social security contributions are factored into these statistics as well as salaries. According to Prega, businessmen like these public payments to be stable and predictable.

As none of the new governing parties has announced any radical changes in this area, no difficulties are expected in the near future.

"The ongoing economic reforms and the whole economical policy of the state should lead to rising price of labour force," Prega continued, "but at the same time macroeconomic indicators like the competitiveness of the country and the unemployment rate must be taken into consideration."

Prega says that declining competitiveness is especially evident in industry sectors that involve a lot of physical labour and investors in those industries have already started moving eastwards.

Prega said that a cheap labour force is only one of several factors that attract investors.

"Slovakia will keep its advantage of low labour costs in the years to come and remain attractive for the investors in the future," he said.

Other matters make Slovakia attractive to corporations most notably the transparent tax system, with the 19-percent flat tax, which is advantageous to investors.

"The key measure in terms of keeping the foreign investments within the country is the positive business environment that Slovakia has created," Robert Prega said. However, he added that it is too early to predict whether this image will be maintained after the recent changes in the Slovak political scene.

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