Regus International has done well helping frustrated investors.
photo: Chris Togneri
Despite the relief generated by the presidential victory of Rudolf Schuster, however, direct foreign investors say that concrete changes to Slovakia's investment environment are needed before the country starts to attract significant FDI. "Maybe the country isn't losing investors any more, but they're not getting any new foreign investors," said Rudolf Nagy, the general secretary of the Austrian Chamber of Commerce in Bratislava.
One of the most commonly-mentioned hurdles investors say they face in Slovakia is difficulty in purchasing real estate. Discriminatory pricing, together with a lack of communication between different levels of government, have representatives of foreign investment warning that the country is losing out on legion potential investors.
Higher prices for foreigners
Pavol Minárik, deputy director of financial strategy and construction at Bratislava City Hall, explained that foreigners do indeed pay a higher price for real estate in Slovakia than Slovak nationals. The reason, he said, was a fee called a 'transfer tax' charged on land foreigners buy, which was calculated according to how much the same land would cost the buyer in Germany.
"Foreign investors face disadvantages because the selling price for them is different," Minárik said. "The price for them is higher because of the transfer tax. When a foreigner purchases land, we charge a transfer tax according to German regulations. This is a decision that was taken by the Ministry of Finance."
Igor Paule, commercial specialist for the Trade Commission of Denmark, explained that in Slovakia it is normally the seller of real estate in Slovakia who is are expected to pay the transfer tax. However, if the seller cannot pay the tax, the buyer must pay it. Because the tax is calculated according to German prices, he said, Slovak sellers usually cannot afford to cover the tax, leaving investors to foot the bill.
Paule said that this practice of imposing higher prices for foreigners and making them pay the difference, known as the 'Branchmann Method,' is one that he would like to see abolished.
Martin Tordsson, executive director of the Danish Chamber of Commerce, agreed that the government's policy on selling real estate to foreigners was a major barrier. "The government knows how important it is to attract investors. But they have to make some changes," he said.
Paule and Tordsson also complained over what they perceived as a lack of cooperation between state, district and local governments which further complicated the real estate situation. "Their are conflicts between city and regional governments," he said. "They both want to attract investors and they both want the money. It has even happened that one [government] level will offer a different price to an investor than another [government] level. If they don't cooperate, there's a problem."
Tordsson added that even if investors get a domestic company to negotiate the purchase of land, the tactic sometimes backfires. "Even when foreign buyers have Slovak fronts, the sellers still know it's for a foreign purchaser," he said.
"Right now, the government is not offering real help," Austria's Nagy added. "They say, 'yes, yes, you can come,' but when [investors] come, it's different. I'd say that they are stopping 50% of all [investment] action right now."
Filling the gap
One company that has benefited from the problems investors are having buying real estate is Regus International, a firm that provides furnished office space and services for firms new to any area in which Regus operates. By moving into the office space offered by Regus, firms are able to begin operations in Slovakia even while they undergo the process of obtaining land.
According to Mark Burge, Regus International Business Development Director, companies attempting to establish themselves in Slovakia should not be surprised by the difficulties they face. "I am not aware of Regus having had these problems [when we started operations in Slovakia]," he said. "But I can imagine it being a problem. It's not fair, but I think it's naive not to expect it."
Burge said that he believed Slovakia was no more guilty of discriminatory pricing than any other country, but he added that if Slovakia didn't change such practices, the country could miss out on many opportunities.
"If Slovakia wants to attract foreign investors, they should look more long-term and not be greedy initially," he said. "Investors are not just coming in and taking up space. They draw from the local labour pools, they bring money, they are part of the country."
Nagy agreed, maintaining that Slovakia has acted too slowly and, consequently, lost investors and their money. "Look at the current situation - it's a good situation," he said. "The Deutsche mark and the dollar are strong now, it's a good time to come... but no one is coming. They [foreign investors] are waiting, they are prepared to come, they would like come. But they are just not satisfied that now is the right time."