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FDI cure for regional gap with Bratislava

Looking at the daily parade of expensive cars passing down the streets of the Slovak capital, the masses of people pushing baskets full of goods bought from the numerous hypermarkets spread across town and the number of companies that have opened branch offices in Bratislava over the last two years, it soon becomes apparent that Bratislava is a poor fit in Slovakia's economic jigsaw.
With its 'valleys of hunger', unemployment levels over 30% in some regions, industrial monoliths that provided employment and economic productivity now left rusting and derelict, the Slovakia outside Bratislava bears little relation to life in the capital.

Looking at the daily parade of expensive cars passing down the streets of the Slovak capital, the masses of people pushing baskets full of goods bought from the numerous hypermarkets spread across town and the number of companies that have opened branch offices in Bratislava over the last two years, it soon becomes apparent that Bratislava is a poor fit in Slovakia's economic jigsaw.

With its 'valleys of hunger', unemployment levels over 30% in some regions, industrial monoliths that provided employment and economic productivity now left rusting and derelict, the Slovakia outside Bratislava bears little relation to life in the capital.

The bad news for those outside the booming capital is the imbalance between Bratislava, which has a living standard higher than the EU average, and the rest of the country suffers at below half of that same mean, is unlikely to be redressed soon.

"The reason [behind the difference] is that many foreign investors are coming to the Bratislava region because geographically its position is one of the best in Europe, with a good connection to the rest of the continent and other investors already there," said Ján Tóth, analyst with ING Barings bank in Bratislava. He added that this trend had grown in spite of the fact that labour migration to Bratislava had slowed as accommodation in the capital became both harder to find and more expensive for workers mowing westward from poorer areas of the country.

Government officials and economic analysts agreed though that the one hope for remedying the problem of the social and economic gulf between Bratislava and the rest of Slovakia lies in more foreign direct investments coming to the country, helping to cut unemployment levels in economically depressed regions and giving people not just jobs, but more money.

"FDI is a cure for lowering these regional differences," said Vladimír Tvaroška, an advisor to the Deputy Prime Minister for Economy Ivan Mikloš.

Research carried out by the European Union Statistics Office shows that in the period of 1995 - 1997, per capita GDP in terms of purchasing power - the category most used to measure living standards - reached 111% of the European Union average in Bratislava while the figure in other Slovak regions was slightly over 40%. Bratislava and Prague were the only regions in Central Europe where the figure was well over 100%. Analysts say that over the last three years the figures have not changed.

Iveta Radičová, a political analyst at Bratislava's Comenius University said that not only FDI but also efficient public administration reform, giving more power in decision making processes to municipalities could boost districts falling into economic stagnation. "There is no other alternative than giving those who know most about their regions the power to influence and decide upon what is going to happen there," Radičová said.

The analyst explained that there were two reasons why most of Slovakia had been falling behind the Bratislava region in terms of standard of living. "In these [poorer] regions, there used to be one crucial company which employed most of the people there and an overt majority of these companies collapsed as they were privatised in the 90s. Last, but not least, is that people in the Bratislava region are more flexible with the structure of their labour force in terms of intelligence and education and are able to react quickly when there is demand on the labour market," she said.

Most of the investors would, according to Tóth, establish their businesses in central and eastern Slovakia only when there is no other alternative, referring to the comparatively poor road links and geographic location vis-a-vis western countries. "Industrial parks planned for the Bratislava region to attract more foreign investors would have good potential in regions like Košice and Martin but only when Bratislava is saturated with businesses," Tóth added.

However, the other regions themselves have refused to give up hope for raising their own standards of living, pointing to what they claim are advantages any investor into their districts should factor into account when considering an investment.

Elena Krausová, head of the Námestovo district, a region with a 16% unemployment rate, said that foreign investors would earn their profits relatively quickly if they invested in the region. "This region has great potential to attract tourists - we have some springs as well as the Orava dam here. If there were more investments made into services, the region would get a boost," she said.

The government itself has already taken steps to ensure that some of the imbalance is redressed. Tvaroška explained that other projects and initiatives aimed at stirring the interest of foreign businesses in all Slovak regions, not just Bratislava, had been planned.

He said that an incentive package discussed over the last six months and due to be implemented early next year gave more financial breaks to those investors deciding to wade into more problematic regions. "When an investor decides to invest in a region where the unemployment rate is under 10%, his minimum investment has to be twice as high as if he decides to settle down in a region with higher than 10% unemployment rate if he wants to obtain a 10 year tax holiday," Tvaroška said.

Despite what may appear to be an uphill task still facing many regions to attract investment - and the jobs, economic growth and general prosperity it brings - Krausová said that people in her region still remain optimistic about their future.

"We have some companies in the region that were once very big and viable. All they need is a boost to their production and exports to be more viable. They already have some cooperation with foreign customers, they just need to raise this. I think this will come about in the future," she said.

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