Industry growth splits haves, have-nots

Figures released by the Economy Ministry May 10 showing a steep rise in revenues in the processing industry confirmed the growing gap between the performances of foreign and domestic firms, analysts said.
Company revenues in the processing industry - one of the key indicators of economic growth - grew 25% to 457.85 billion crowns in 2000. However, while the ministry was happy with the growth, economists said the underlying trend shows that Slovak businesses are suffering.
"The growth is undoubtedly positive, and is a signal that the overall situation in the sector is getting better thanks to more foreign businesses coming to Slovakia. But domestic firms are still struggling and recording red figures," said Karol Morvay, an analyst with Bratislava-based economic think tank MESA 10.


German firm INA's expansion in Slovakia, as seen above during their opening of a new plant at Kysucké nové mesto, is helping industry.
photo: TASR

Figures released by the Economy Ministry May 10 showing a steep rise in revenues in the processing industry confirmed the growing gap between the performances of foreign and domestic firms, analysts said.

Company revenues in the processing industry - one of the key indicators of economic growth - grew 25% to 457.85 billion crowns in 2000. However, while the ministry was happy with the growth, economists said the underlying trend shows that Slovak businesses are suffering.

"The growth is undoubtedly positive, and is a signal that the overall situation in the sector is getting better thanks to more foreign businesses coming to Slovakia. But domestic firms are still struggling and recording red figures," said Karol Morvay, an analyst with Bratislava-based economic think tank MESA 10.

In 2000, private domestic processing firms reported negative revenue growth of -0.1%, while state-owned firms managed a 6% rise. However, foreign firms saw a massive 38.9% increase in revenues.

The processing industry includes all manufacturing branches, but excludes mining and the energy sector.

The improved overall financial performance of foreign corporates was helped, analysts say, by the record $2 billion in foreign direct investment Slovakia saw in 2000, including such high-profile investments as the $400 million acquisition of Slovak steel giant VSŽ by Pittsburgh-based U.S. Steel in October.

While foreign businesses operating in Slovakia said that the figures showed a degree of corporate consolidation, they remained concerned that some of the flaws they perceive in the Slovak business environment may hinder foreign investment growth.

According to Marián Nejezchleba, a manager with German roller bearings producer INA, obstacles to investment still exist, particularly in the complicated ownership structures of Slovak firms. INA expanded operations last year, increasing revenues from 2.5 million in its initial investment year 1992 to 2.9 billion crowns in 2000.

Economists and investors have complained that acquisitions of Slovak firms can be complicated, as the many unregistered owners of land and company holdings make it difficult for buyers to identify sellers and make property or stock purchases. They have called for clearer legislation to smooth the process of investing.

"We definitely can't say there's been an improvement in making things clearer," Nejezchleba said.

He added that the driving force behind INA's expansion wasn't a general improvement in the corporate sector, but the fact that more investors were coming to Slovakia to take advantage of cheap labour and lower production costs.

"This is the reason why we moved part of our production from Germany to here, and it's why we will continue to expand," Nejezchleba said.

Not all bad

Although the picture of domestic firms seems bleak, other figures have suggested some Slovak processing companies are doing relatively well.

Central Slovak textile firm Maytex invested 46 million crowns into modernising machinery at its production plant and has seen its revenues grow 16.5% in the first quarter of 2001 in comparison with the same period of last year.

However, Maytex co-owner Jaroslav Guoth said that his company had increased its revenues only thanks to growing demand from foreign customers.

"Most domestic businesses are still in torpor, and we therefore can't key production on them. But obviously, from the point of view of our own revenues, we would welcome their revival," Guoth said.

The trend of foreign companies seeing revenues balloon and domestic firms playing second fiddle would continue in 2001, MESA 10's Morvay added.

"Slovak companies will get healthier only if there are enough foreign firms for them to supply. Slovakia needs more foreign investors to help domestic firms' revenues grow," Morvay said, warning, though, that a revenue windfall for Slovak firms was unlikely to come overnight.

"There are investors coming, but the change won't be that rapid," he added.

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