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BANK OFFICIALS SAY THEY CAN TRUST THE GOVERNMENT, AND ARE WILLING TO PUT THEIR MONEY ON IT

EBRD positive about investing in Slovakia

Slovakia's austerity budget and continued lack of economic transparency have made this year a skittish time for many foreign investors. But fumble as the government may, they appear to have at least one very powerful friend who remains upbeat about lending Slovakia money: the mammoth European Bank for Reconstruction and Development.
Slovakia is one of 60 countries, along with the European Investment Bank and European Commission, which hold shares in the EBRD, a bank dedicated to assisting former communist countries in their transition to democratic, market-based societies. As a shareholder, Slovakia is guaranteed some measure of support from the assistance bank. But Alain Pilloux, the EBRD's Business Group Leader for Central Europe, said investing in Slovakia is not only an obligation - it makes good business sense.


EBRD First Vice President Charles Frank (left) met Slovak Prime Minister Mikuláš Dzurinda in Bratislava March 22.
photo: TASR

Slovakia's austerity budget and continued lack of economic transparency have made this year a skittish time for many foreign investors. But fumble as the government may, they appear to have at least one very powerful friend who remains upbeat about lending Slovakia money: the mammoth European Bank for Reconstruction and Development.

Slovakia is one of 60 countries, along with the European Investment Bank and European Commission, which hold shares in the EBRD, a bank dedicated to assisting former communist countries in their transition to democratic, market-based societies. As a shareholder, Slovakia is guaranteed some measure of support from the assistance bank. But Alain Pilloux, the EBRD's Business Group Leader for Central Europe, said investing in Slovakia is not only an obligation - it makes good business sense.

The key word for the EBRD is trust, and the EBRD trusts the current Slovak government, Pilloux said.

"In the last few months the Slovak government has done a lot to create trust with the international community by making very positive statements and taking positive measures," the EBRD's central European top authority said in an interview with The Slovak Spectator on July 12. "It is very important for us that this trust is created. We are spending a lot of time in Slovakia at the moment and meeting with government officials very often in order to help Slovakia as much as we can."

Granted, the government may find it easier to win the support of the EBRD than to gain the confidence of self-interested parties like privately-owned foreign investment banks. But government officials and analysts said that the EBRD's confidence in a country can be infectious, positively affecting investor confidence in other areas of the economy.

"The government welcomes the investments of the EBRD", said Vladimír Zlacky, an advisor to Deputy Prime Minister Ivan Mikloš, adding that "its [the EBRD's] participation on the Slovak economic market improves the credibility of Slovakia abroad."

"The investment activities of the EBRD in Slovakia serve as a signal for other foreign investors that Slovakia is a country worth investing in," said Martin Barto, the head of the Strategy Department at state bank Slovenská Sporiteľňa (SLSP).

Increasing investment

At the end of 1998, the latest date for which figures were available, the EBRD had approved equity investments and long-term loans for 26 Slovak projects for a total investment of 429.45 million euros. The majority of this money went to support foreign investors and domestic private sector companies with foreign partners, such as the Austrian Tatra Banka (a 28 million euro loan), Eurotel Bratislava (a loan of 6.86 million euro) and the oil giant Slovnaft (a 44.2 million euro equity investment, 17.2 million euro loan). Two of the loans went directly to the state: one to telecom monopoly Slovenské Telekomunikácie (ST) and the other to the road construction arm of the government.

Though it is not clear if the rate of EBRD investments in Slovakia is rising, the bank has certainly expressed an interest in broadening and deepening its influence in the Slovak economy. Pilloux mentioned in particular the EBRD's desire to invest in the Slovak railway monopoly ŽSR. The EBRD has also offered to lend millions of euro to Slovakia's second largest bank, Všeobecná Úverová Banka (VÚB) and steel maker VSŽ.

Deputy Prime Minister Ivan Mikloš reported on July 6 that EBRD First Vice President Charles Frank had recently expressed an intention to invest "hundreds of millions of dollars" in Slovak utilities and other projects.

The EBRD explains the planned investments - which range from infrastructure to environment, financial, corporate and industrial projects - as springing from its desire to help Slovakia advance to the vanguard of countries queueing for EU accession.

Along with advising the government on bank restructuring, support for other creative strategies, such as the merger of small private banks, is also being considered, according to a 1999 EBRD fact sheet. In the corporate and industrial sectors, the EBRD is looking to support foreign investors who are considering starting joint ventures with existing Slovak companies. Another goal is to finance municipal and environmental infrastructure projects, in the areas of energy efficiency and waste management.

However, analysts said that while the EBRD wants to help Slovakia, the bank is not a charity and its continued participation in Slovak projects should not be taken for granted. The EBRD carefully considers its investment choices, putting all companies it selects through a strict audit known as the due diligence process, and demanding that each investment produce at least a token profit

"Our main aim is not to maximise profit but to have an impact on transition towards market economies... but we must earn our living, " Pilloux said. "We don't invest in bad projects... the project must be sound," he added.

Analysts say one thing which might affect even the EBRD's will to invest in Slovakia is a continuing lack of transparency in government-linked economic activity. Another is that the financial climate will prevent the possibility of making even a low-level profit on an investment.

Not all investments have gone well for the EBRD here. The bank's most notorious complaint arose from the 10.5% stake it bought in Slovnaft in 1995, for which it paid par value of over 800 crowns per share. Following the EBRD deal, the government of Vladimír Mečiar sold two stakes in Slovnaft (totalling 54% of shares) to a company named Slovintegra at a price of 155 crowns per share.

"So far, investments made by the EBRD in Slovakia have not been very good", said Barto, citing the EBRD's 10.5% stake in Slovnaft as an example. "The EBRD has had bad luck in Slovakia. But it still considers this environment worth investing in because it hopes that in the future it may be more successful."

CA IB's Chodák opined that "the EBRD considers this environment reliable because it has close contacts with the current government, and it is well informed about what is happening. And that is the criterion the EBRD takes into consideration when it makes decisions about its future investments and the stability of the environment."

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