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SARIO investment agency nears collapse

SARIO, the government's key tool for luring wealthy foreign business people to invest in Slovakia, was facing bankruptcy at the end of May after the government failed to transfer its 50 million crown ($1 million) budget for 2001 onto its accounts.
The ignominious position of SARIO, Slovakia's national investment agency, drew criticism from investment experts and foreign businesses, who said the government's inability to solve SARIO's financial troubles cast doubt on the likelihood of its bringing foreign direct investment (FDI) to Slovakia, and thus boosting the stagnant economy.
"How does the government want to attract foreign investment to Slovakia when they can't even keep such an agency going?" asked Karol Balog, head of the Agency for Industrial Development and Revitalisation. "The government's main problem is still that they only talk about it [attracting foreign businesses to Slovakia] but don't do anything to make it happen."

SARIO, the government's key tool for luring wealthy foreign business people to invest in Slovakia, was facing bankruptcy at the end of May after the government failed to transfer its 50 million crown ($1 million) budget for 2001 onto its accounts.

The ignominious position of SARIO, Slovakia's national investment agency, drew criticism from investment experts and foreign businesses, who said the government's inability to solve SARIO's financial troubles cast doubt on the likelihood of its bringing foreign direct investment (FDI) to Slovakia, and thus boosting the stagnant economy.

"How does the government want to attract foreign investment to Slovakia when they can't even keep such an agency going?" asked Karol Balog, head of the Agency for Industrial Development and Revitalisation. "The government's main problem is still that they only talk about it [attracting foreign businesses to Slovakia] but don't do anything to make it happen."

Although the Economy Ministry has promised SARIO that the money will be transferred soon, Alan Sitár, SARIO's chairman of the board, said that the cash crunch had already affected the agency's performance.

"It has been reflected in the quality of services we provide to investors and our effectiveness in this regard. It's unpleasant, and the situation might yet result in catastrophe," Sitár said.

Economy Ministry spokesperson Dagmar Hlavatá said that her ministry would not let the situation deteriorate so far. "I can't imagine being able to attract foreign businesses without SARIO," she said. "Our people don't have the necessary experience. If bankruptcy were ever called on SARIO, we would have to form a new agency."

Deep roots

SARIO's financial woes date back to the summer of 2000, when it was established to take over from the now-defunct SNAZIR investment agency, owned by the FNM state privatisation agency.

But while ownership of the new agency has formally changed hands, moving from the FNM onto the books of six government ministries and the Office of Government, the ownership stake hasn't yet physically been transferred to the ministries' accounts, nor has SARIO's function been completely clarified. As a result, the agency's money remains frozen in government coffers.

SARIO is currently surviving from the pittance it still receives from the FNM, but the end is in sight. At the end of the last year the agency's debts were nine million crowns, while at the beginning of May this year it was on the verge of bankruptcy, unable to pay a 2.5 million crown rent bill for its office.

But Sitár said there were more serious problems arising from the agency's cash troubles. SARIO doesn't have the money to set up branch offices in European and US cities to establish direct contact with investors, a common practice for similar agencies in Hungary, Poland and the Czech Republic. Instead, SARIO does all its talking with investors from Slovakia.

Nor does the agency have enough money to prepare analyses of Slovak companies for potential foreign investors, or even to update its web page and provide investors with first-hand information on the Slovak investment climate.

"These are key areas, and their absence reflects on the quality of our services," Sitár said.

Nasty surprise

Investment advisors said that SARIO's teething pains would come as an unpleasant surprise for many foreign investors, who had been told repeatedly by the Slovak government over the last 12 months about the efficient services which SARIO would render to help investors overcome obstacles in the Slovak investment and business environment.

"It will be a very negative sign for a lot of foreign investors, because they were given all kinds of promises about how effective the agency would be," said Michel Lacombe, head of French consultancy firm Artem, which acted as an advisor to the French auto parts firm Plastic Omnium, which last year became Slovakia's fifth largest investor. "Investors have become used to efficiency in the Czech Republic, Hungary and Poland, but at the end of the day they may find that the Slovak government isn't able to make things happen."

Lacombe added that one of the most important things which the investment community had expected from SARIO was the establishment of branch offices in the home countries of major foreign investors in Slovakia, something that SARIO couldn't afford due to its money shortage. "Not having these offices is like a wallet without money. Financial problems are drastically lowering SARIO's effectiveness," Lacombe said.

The agency's poverty comes in a year when the government has said it expects to attract $2.7 billion in FDI, the most ever for Slovakia after a record year in 2000. The investment inflow was to have been boosted by a recently-approved 10-year tax holiday, and to have been smoothly managed by SARIO, an agency which is still trying to overcome the reputation for poor services established by its predecessor SNAZIR.

While SNAZIR suffered from lack of coordination in the services offered by the Slovak government to investors, SARIO was expected to function as a full-service investment agency - a 'one-stop shop', in the expression of its founders.

Since SARIO's beginnings last year, investment advisors say, its services have indeed been an improvement. In June 2000 the agency was working on 60 investment projects, while by May 2001 that number had increased to 150.

Ton Verbraeken, senior tax manager with the KPMG international auditing and advisory firm, said that some of his clients had visited SARIO and been satisfied. "This is an improvement, because all investors used to ignore SNAZIR," he said. "The new agency has reach on both the central government and the municipalities, which is very important, even through they still have a lot of catching up to do and need more experienced people."

Several foreign investors agreed that SARIO had a lot to learn from others of its kind. "The best example of persistence in attracting foreign investors is the agency in Ireland. I think SARIO should closely look at them and see what improvements could be made. They are needed," said Joost Bergmans, managing director of Belgium car cords producer Bekaert Slovakia.

For SARIO, however, improvements and growth are of little use until the agency's role as Slovakia's solitary investment co-ordinator and 'one-stop shop' is acknowledged by all the state-funded players on the investment stage. Sitár said that many government ministries held talks with investors independently of SARIO, which not only sidelined the agency but resulted in lower-quality services for investors.

"One can't expect ministries to provide investors with all the information they need - and besides, by holding separate talks, they are violating the 'one-stop shop' principle on which SARIO was based," said Sitár.

"I'm persuaded that SARIO should be the main communicator with investors, and I hope our role will be clarified as soon as possible."

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