President of Swedwood Group Bruno Winborg (left) celebrates the opening of his firm's new Malacky plant with Prime Minister Mikuláš Dzurinda.
photo: Patrik Jandak
Plagued by debt and a wood surplus on European export markets, wood processing companies in the sector have lacked the finances to upgrade their technology, while loggers have been unable to make full use of the six million cubic metres of wood they fell in Slovakia each year.
Now, logging representatives hope that Swedwood's 1.5 billion crown ($41 million) Malacky investment - the company's largest ever investment into a single production plant - will solve some of their financial problems, allowing them to sell 'low-grade' wood which would otherwise be left to rot, and will bring payment discipline to the sector.
Swedwood already has two Slovak furniture plants in Trnava and Závažná Poruba.
"We had been searching for a long time in both Slovakia and abroad for a customer who would buy the low-grade wood which we wouldn't otherwise be able to use. Now Swedwood will buy it and use most of it for production at its new plant," said Miloš Vaňo, commercial director at state-owned logging company Lesy SR, which has the logging rights to 53% of Slovakia's forests.
In felling trees, many Slovak logging firms discard much of the low-grade wood (the bark and outer rings of a tree) they cut down. Some of the higher-grade wood they fell can be exported, since low production costs in Slovakia allow firms to offer lower prices for similar quality wood than domestic producers in other European countries.
But with a wood surplus general across the continent, much of the low-grade wood, which is far more difficult to sell cheaply because of its poor quality, remains a wasted resource, left as off-cuts in the forests. What is more, few Slovak wood processors have the technology needed to process such scrap into particle board for furniture-making.
The Agriculture Ministry says that these factors result in one million cubic metres of low grade wood lying unused in Slovak forests every year.
But Swedwood's investment, which will give jobs to 500 people and produce 4.5 billion crowns of goods by 2003, will bring more modern technology, allowing the firm to process 200,000 cubic metres of this low-grade wood.
Swedwood's operations will in turn give regional loggers the chance to sell more wood, and thus rake in needed revenues and increase the efficiency of their logging operations.
"Local wood businesses would never be able to sell such low quality wood abroad. Swedwood's modern technologies for processing low quality wood mean that more furniture will be produced in Slovakia, which will certainly increase the profits of suppliers," said František Šulek, director at the department of wood-processing at the Ministry of Economy.
Štefan Sústrik, managing director of Swedwood Slovakia added: "We have good contacts with the local logging businesses. The more we expand, the more local logging firms profit because they can deliver more and produce more."
Even for Swedwood's competitors, the move is a welcome one.
"One job in a wood processing firm generates six other jobs in related businesses. The investment will help the sector and create possibilities for growth," said Alexander Pažúr, business director at Kronospan Prešov, one of the two domestic wood processors in the country.
An extra benefit
Apart from increasing the efficiency of the industry by allowing more low-grade wood to be used, Swedwood's latest investment is expected to bring a degree of financial responsibility to the sector.
Slovakia's wood industry, which has a 7% share on the country's annual overall industrial production, has suffered from debt problems since the early 1990s.
Privatisations at the start of the decade left former state wood companies in the hands of new owners who rapidly found their firms short of cash and unable to upgrade technologies or pay loggers for the wood they received.
The problem remains, and in January 2001 logging companies' claims amounted to 626 million crowns ($13 million), 400 million of which were deemed irrecoverable by accountants.
But according to Marek Jakoby, an analyst with economic think tank MESA 10, Swedwood's investment may go some way to solving this problem.
"This [Swedwood's] investment will help to unfreeze financial flows in the sector. Loggers could generate more profits and their relations with processing firms could improve. This is a must for the sector," Jakoby said.
"The best thing about Swedwood for us is that we now have long-term contracts and see them as a reliable partner in paying invoices," said Lesy's Vaňo.
"Because of these contracts there will be much better relations between loggers like ourselves and wood processors like Swedwood."
Swedwood's competitors are hoping for the same.
"Today, the biggest problem in the sector is to guarantee payments. In this area companies like Swedwood are expected to have a positive influence," said Kronospan's Pažúr.
According to Swedwood's Sústrik, the roots of such cooperation have already been planted.
"Our mutual trust with logging firms has generated a good climate," he said.
7. May 2001 at 0:00 | Peter Barecz