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Local incentives sway investor decisions

Local government efforts to attract foreign investment to Slovakia's regions vary from sluggish to strenuous, making boomtowns of some cities and paupers of others. Investment advisors say that the variety of local responses to foreign firms threatens to negate the central government's plans to concentrate foreign investment in areas of high unemployment.
The government of Prime Minister Mikuláš Dzurinda declared direct foreign investment (FDI) into Slovakia a priority immediately after taking office last October, and followed up with an investment incentive plan in March 1999 to back up its words. The government plan called for a five year tax break for foreign firms that invested at least 5 million euros into Slovakia, and lowered the investment floor to one million euros for companies which invested in areas of high unemployment - mainly Slovakia's poorer eastern regions.

Local government efforts to attract foreign investment to Slovakia's regions vary from sluggish to strenuous, making boomtowns of some cities and paupers of others. Investment advisors say that the variety of local responses to foreign firms threatens to negate the central government's plans to concentrate foreign investment in areas of high unemployment.

The government of Prime Minister Mikuláš Dzurinda declared direct foreign investment (FDI) into Slovakia a priority immediately after taking office last October, and followed up with an investment incentive plan in March 1999 to back up its words. The government plan called for a five year tax break for foreign firms that invested at least 5 million euros into Slovakia, and lowered the investment floor to one million euros for companies which invested in areas of high unemployment - mainly Slovakia's poorer eastern regions.

But according to some analysts, investors are still swayed more by the sophistication of local infrastructure and a by moderate unemployment rates in making a decision where to locate.

According to an official with a western embassy, who asked not to be named, areas that are attractive to foreign investors are those with an established infrastructure near major motorways, and in which employees are readily available.

"The government wants investment in areas of high unemployment and low development," the official said. "But for investors, areas with sound infrastructure, close transport links and a reasonable level of unemployment is ideal. Also, the further east they go, the further labour and energy costs go down." He added that Bratislava, the western River Váh Valley and the urban areas around Košice in the east and Banská Bystrica in central Slovakia had proven the most desireable for foreign investors.

Complicating the central government's plan to channel investment towards the neediest regions is the reluctance of some regions to actively court foreigners. Martin Kábat, an analyst for Bratislava brokerage house Slávia Capital, said that cities which were not immediately attractive to investors should "create an environment to attract foreign businesses."

Boris Randa, a real estate consultant for the British firm Spiller Farmer, which helps foreign companies buy land in Slovakia, said that the desire of local governments to create the right environments and even to cooperate in drawing investors to their regions varied widely. "While there is a general willingness to invite investors, it depends on the people and the cities," he said. "In many cases, they are very helpful in the planning and in some cases they aren't."

Jozef Mikoš, the Deputy Mayor of the eastern town of Zvolen, said that Zvolen was doing nothing out of the ordinary to attract investors. "It should be more than enough that we even allow them in," he said when asked why Zvolen had no special incentives programme.

Mikoš also expressed dismay that the nearby town of Krupina had recently landed a deal with a foreign investor to build a factory and create new jobs, claiming that Zvolen's infrastructure was far superior to that of its diminutive neighbour.

Štúrovo Mayor Ladislav Fekete opined that creating special conditions for foreign investors would be unfair to domestic investors. Fekete, whose city lies in south Slovakia on the Hungarian border, said that foreign firms were welcome to invest in his area, but added that the city would not create special conditions simply to accommodate them. "We won't give any tax breaks or anything like that," he said. "I think that everyone hould get the same treatment."

At the other end of the spectrum is central Slovakia's Lučenec, whose Mayor Jozef Murgaš has managed to attract firms like the Belgian department store Delvita, Austrian department chain Billa, the British Tesco, Europská Sylikátová Organizacie (ESO) and Obchodny Dom Streda over the last two and a half years. The investments these firms brought, Murgaš reported, had resulted in over 12,000 new jobs throughout the region.

"We wanted then to come so we prepared special conditions for them," Murgaš said. "For example, we gave them free consultancy, we gave them tax breaks which became more beneficial with the more employees they hired and we sold them the land they built on for one crown."

Western Slovakia's Trnava has also opened doors for international firms by advertising its proximity to the state capital Bratislava and offering tax breaks to investors according to the number of employees hired. "We are really trying to make allowances for anyone who wants to come in," said Trnava Deputy Mayor Eduard Čechovič. "As a result, we've now got Billa with a second store being negotiated, Danone is coming and Sony opened a factory that employs 600 people."

As foreign investors eye Slovakia with one hand on their wallets, they are clearly paying close attention to where they get the best investment deals - notwithstanding the central government's incentives programme. While some cities seem oblivious to the need to sell themselves, others say they are keenly aware of the economic benefits investors create. "[Investors] can go where they want," said Stanislav Bernát, Mayor of the northern town of Martin. "It is the town's responsibility to get them."

Martin has been one of the most successful Slovak towns in attracting FDI, with its city-built industrial parks and its one-crown fees for land. The Danish shoe firm Ecco, a firm called Automartin which supplies parts to Volkswagen Bratislava and auto interiors maker Johnson Controls are among the investors which have arrived in Martin region in the last few years.

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