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Slovak exports' addiction to imports is deepening

Slovak exports are growing more and more dependent on imports of energy and raw materials, meaning that unless the country's industrial giants kick this unfavorable habit, it won't matter whether the country's exports increase or not, because the trade deficit is only going to widen.
Analyses by the Slovak Chamber of Business and Commerce (SOPK) back this up. According to its research, imports account for 70 percent of Slovak exports, while domestic production without imported materials makes up 30 percent. "In the first place, we need to improve the ratio to at least 60:40, and then our foreign trade will be doing a lot better," said Peter Mihók, SOPK's chairman.
Mihók sees the export structure as one of the reasons for companies' heavy dependence on imported goods. In his opinion, the majority of Slovak products shipped abroad are those with a lower added value and which are dependent on imports.


Head of the Slovak Chamber of Commerce and Industry Peter Mihók says Slovak firms must reduce their import dependence to increase the value added of their exports.
TASR

Slovak exports are growing more and more dependent on imports of energy and raw materials, meaning that unless the country's industrial giants kick this unfavorable habit, it won't matter whether the country's exports increase or not, because the trade deficit is only going to widen.

Analyses by the Slovak Chamber of Business and Commerce (SOPK) back this up. According to its research, imports account for 70 percent of Slovak exports, while domestic production without imported materials makes up 30 percent. "In the first place, we need to improve the ratio to at least 60:40, and then our foreign trade will be doing a lot better," said Peter Mihók, SOPK's chairman.

Mihók sees the export structure as one of the reasons for companies' heavy dependence on imported goods. In his opinion, the majority of Slovak products shipped abroad are those with a lower added value and which are dependent on imports. "We actually import all raw materials and a lot of energy resources, [process them] with minimal and environmentally questionable [methods] and then pass them onto others to process them more thoroughly," he said.

Peter Staněk, state secretary at the Ministry of Finance and a former economic advisor to Prime Minister Vladimír Mečiar, does not think the export structure is such a problem. "The production of chemical detergents used, for in absorption processes, can be just as profitable as the production of microchips," he said.

"The point about a high import ratio may sound very interesting, but they concern only metallurgy and chemicals," Staněk continued. Mihók added a third category to those Stanek mentioned - wood-based export products with a low value added, such as lumber or building materials.

Nevertheless, Staněk is troubled more by high imports of energy materials, such as oil, gas, coal and nuclear fuel. "If we increase the efficiency with which we use these resources, we will increase our ability to collect money from transit fees and jumpstart the active balance of services," he said. "Then we can offset part of the deficit in the balance of goods through charging transit fees for transporting oil, gas, on highways, on riverways and through power lines. This is the way to influence the overall development of the goods and services balance without increasing the budget deficit."

Mihók confirmed that saving energy is an unknown term in Slovakia. Slovak companies spend on average 20 percent more for raw materials and energy in a production unit than their Western competitors. "Such raw material consumption completely offsets our cheaper workforce," Mihók said. "Sometimes it even tips the balance."

He thinks outdated technologies are to blame. "It might sound like a paradox, but we could achieve a short-term turnaround through an increase in imports," he said, referring specifically to technology imports.

Slovnaft showcase

"First of all, new technologies would decrease consumption of raw materials and energy," Mihůk said. "These technologies would create conditions for [producing] higher value added from raw materials going through our production lines and consequently more exports of our labor. Personally, I admire Slovnaft's current investment policy targeting a higher degree of oil refining so as to achieve more complex or refined export products."

"Our strategic objective is to satisfy the increasing consumption of oil products on the domestic market, while at the same time maintaining our export range and volume," said Slavom×Ur Hatina, Slovnaft's general director. "To achieve this, we need to resructure our technology and we want to increase the proportion of products with a higher added value."

"Our development project focuses on increasing gasoline and diesel production," Hatina continued. "In 1999, we want to produce 60 percent more gasoline and diesel out of the same amount of crude oil that we do today. It makes a difference whether one exports a ton of heavy furnace oil priced at $100, or a ton of gasoline that costs 2.5 times as much."

Kicking the habit

Slovnaft's action could prompt other large industrial firms to follow suit. "Many of our companies now face the same principal strategic decision....either to go on importing iron ore for instance, or instead import processed iron blocks, then process these blocks and do what is called top-quality steel production," StanŻk said. "You can either export rails or [you can export] glazed tin sheets needed by every food producer from the Netherlands to the Baltic states to manufacture products for the European market."

Staněk believes that a measure to force producers to modernize would be ineffective. "There is a counter-measure for every measure," he said. "Managers and owners of these companies must realize themselves that they have to change their philosophy if they want to survive and be a market player in 10 years."

According to Staněk, one has to consider whether Slovakia's economy is geared enough toward finished products or toward components such as airplane engines. "We really have to answer the question whether we are good enough to produce final products or whether we should focus on top components with quality certificates that any producer will accept - [German machinery company] Hanomag, [South Korean auto maker] Daewoo or [German ???] Manesmann," Staněk said. "We should then concentrate our resources, research, technologies, and licenses [to create] a small group [manufacturing] construction machines, or "Zuzana," a self-propelled howitzer - that would focus on finished goods."

POSS ADDS

Over the last three years, Slovak exports have increased; yet the indistrial companies' appetite for imports been accompanied by a growing demand for imports. Whereas in 1994 the ratio of imports to GDP was 59.8%, in 1995 it rose to 61.1% and last year it was 68%. The deepening import addiction has started causing a negative trade balance in the fall of 1995.

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