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Omnium saga ends happily for Slovakia

"Good luck with your investment in Slovakia," said Deputy Prime Minister for Economy Ivan Mikloš on December 14, a few moments before signing a memorandum of understanding on a 2.5 billion crown ($51.9 million) investment with French auto parts producer Plastic Omnium.
Mikloš' toast closed the book on a drawn-out battle that began in January this year to land Omnium, the fourth largest foreign investment in Slovakia's history. It's a story that very nearly had a tragic ending for the investment-hungry nation.

"Good luck with your investment in Slovakia," said Deputy Prime Minister for Economy Ivan Mikloš on December 14, a few moments before signing a memorandum of understanding on a 2.5 billion crown ($51.9 million) investment with French auto parts producer Plastic Omnium.

Mikloš' toast closed the book on a drawn-out battle that began in January this year to land Omnium, the fourth largest foreign investment in Slovakia's history. It's a story that very nearly had a tragic ending for the investment-hungry nation.

Government officials involved in the transaction say that it was their hard work and the presence in Slovakia of the German car producer, Volkswagen, which pulled Omnium back from the brink of investing in Hungary. Omnium will produce bumpers, fuel tanks and wheel wells for VW, the French firm's main customer

In early summer, after negotiations seemed to have faltered and Omnium representatives accused the government of being poorly prepared for crucial meetings, the company had said that it was 95% decided to move to Slovakia's southern neighbour.

But the government's willingness to sweeten the incentives offered to Omnium, on top of personal interventions by Mikloš himself, brought the firm back to the negotiating table.

Ján Jursa, who represented Mikloš' office in negotiations with Omnium, said that while the Slovak government had not been able to offer incentives as generous as those in Hungary, it had given Omnium the highest ever subsidy awarded to a foreign investor for the creation of each new job - 60,000 crowns ($1,200). The offer still lags behind the 80,000 crowns available in Hungary and the 200,000 crowns in the Czech Republic, but was enough to tip the balance.

"They [Omnium] understood that there were some things that were less advantageous in coming to Slovakia than in going to Hungary, mainly the size of the initial investment necessary [to get the factory running]. Yet they made an important negotiation gesture, made concessions to the Slovak government and came to Slovakia," Jursa said.

Budapest had offered Omnium the chance to invest into a pre-prepared site with infrastructure already complete, ready for Omnium to begin construction of its plant. In Slovakia, however, Omnium will have to invest an undisclosed sum into infrastructure with the Slovak government contributing 41 million crowns ($820,000).

"We did what we could. We couldn't do more," Jursa said.

Alexis Martinez, Omnium's financial director, explained that the importance of being in the same country as its main customer, the abundance of skilled Slovak labour, and the project's overall prospects, had all been important factors in his company's final decision.

"The Slovak government provided us with a respectable [investment] package, and I don't think that we would have saved more money in Hungary. The project has to be viewed from a longer-term perspective, not just its pre-investment stage.

"We believe that globally, Slovakia has an advantage over Hungary, primarily because skilled people are more available here than there, and because things are getting better, especially at the regional level. Local governments [in Slovakia] are able to understand the needs of companies like Plastic Omnium better," Martinez said.

VW the key

Despite praising the government's efforts, analysts remain convinced that Omnium's decision to come to Slovakia was based largely on the presence of the German auto firm, whose own investment has been described as an FDI miracle for Slovakia. VW, the country's largest non-financial company, tripled turnover between 1997 and 1999, and last year accounted for 16% of Slovakia's total exports.

"This company [Omnium] didn't consider the country and what it offers as the most important element. VW Slovakia was what they were thinking about when they chose Slovakia over Hungary. If VW were in Hungary, they wouldn't have hesitated for a second and would have gone there," said Karol Balog, the director of the Phare-funded Agency for Industrial Development and Revitalisation (AIDR).

"In Omnium's case, the majority of its future products will go to VW Slovakia. For them the priority is therefore to be in the same area as VW and deliver their products in the shortest possible time," Balog added.

Omnium's factory site near the west-Slovak village of Lozorno will be only 20 kilometres from VW's future Malacky plant.

Michel Lacombe, head of the French company Artem and Omnium's consultant on its investment, agreed with Balog's judgement, noting that customs duties and the distance between Hungary and Slovakia would have been almost prohibitive for Omnium.

"Imagine Omnium having to send 40 trucks per day [bearing its auto parts] from Hungary. It would have cost them a million euros per year," Lacombe said.

Regardless of its reasons for investing, Omnium's presence in Slovakia has, the government says, sent out another very positive signal to other investors considering Slovakia as well as potentially lifting domestic industry.

"The arrival of Omnium is a significant signal. It means a future boost for FDI into Slovakia," said Katarína Mathernová, advisor to Mikloš.

According to Balog, Omnium's presence in Slovakia will be vital for increasing industrial production, mainly in the Slovak chemical sector. "Considering the plastic materials which the company makes, I think that there is a strong chance Slovak chemical companies such as Chemko Strážske and Duslo Šaľa will get a chance to supply Omnium. Omnium's decison to come here is not only a signal for more FDI in the near future, but also a chance for Slovak companies to become more viable," Balog said.

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