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Slovak economy's fate in the hands of a few giants

Slovak exports, which make up some 60 percent of the country's gross domestic product (GDP), are still generated by a handful of large companies despite seven years of economic transformation. The large concentration of exports from top industrial firms decreases diversity and effectiveness and puts the Slovak economy in an inflexible position according to Peter Mihók, president of the Slovak Chamber of Commerce (SOPK).
Exports rose only six percent in 1996 compared to 1995, while it increased 19 percent in 1995 and 28 percent in 1994.
"Even though statistics show that some 20,000 companies participate in foreign trade, the strongest fifty create up to 80 percent of all exports and imports," said Mihók.


"Those who can, reach for foreign sources. But those who cannot should have the opportunity to borrow money at home, but under conditions which would not condemn them to pay back the interest forever."

Slavomír Hatina, Slovnaft general director



Slavomír Hatina, Slovnaft's general director, met a former director, Václav Veselý, (1946-1950) last year.
Courtesy of Slovnaft

Slovak exports, which make up some 60 percent of the country's gross domestic product (GDP), are still generated by a handful of large companies despite seven years of economic transformation. The large concentration of exports from top industrial firms decreases diversity and effectiveness and puts the Slovak economy in an inflexible position according to Peter Mihók, president of the Slovak Chamber of Commerce (SOPK).

Exports rose only six percent in 1996 compared to 1995, while it increased 19 percent in 1995 and 28 percent in 1994.

"Even though statistics show that some 20,000 companies participate in foreign trade, the strongest fifty create up to 80 percent of all exports and imports," said Mihók.

According to Pavol Kárász, head of the economic forecasting department at the Slovak Academy of Science (SAV), 39 key Slovak exporters were behind almost 50 percent of Slovakia's annual exports last year. The most important exporters were the east Slovak steel mill VSŽ Košice, the oil refiner Slovnaft Bratislava, tire producer Matador Púchov, chemical factory Duslo Šaľa and Volkswagen Bratislava. "Those five combined for a total of 28 percent," said KŠrŠsz. "The remaining 34 exported another 22 percent."

Kárász said that producers currently achieve export growth by better using already existing markets and not by creating new ones.

According to Mihók, Slovakia's current export structure has several risky aspects related to its product structure - namely that metallurgical and chemical products prevail. "Metallurgic products belong to a category of so-called sensitive products, sensitive to outside influences {prices, demand}," Mihók said.

"Because of our export structure, a crisis on international markets could rattle our own economy. Chemical products are vulnerable, because the entire chemical production depends on gas and oil, which are extremely sensitive commodities in terms of international trade," Mihók said.

According to an analysis of Slovak trade in 1996 by the Ministry of Economy, the export of iron and steel products dropped by 3.9 billion Sk ($130 million). Export of copper products dropped by 0.8 billion Sk ($26.6 million), export of various chemicals decreased by 0.9 billion Sk ($30 million) and plastics went down by 0.6 billion Sk ($20 million).

On the other hand, exports of one of Slovakia's most important companies, the petrochemical refinery Slovnaft, grew by 10 percent. Last year Slovnaft exported goods worth 18 billion Sk ($600 million). Total Slovak exports last year amounted to 270 billion Sk ($9 billion). "In the Višegrád four region, consumption of petrochemical products has been growing," said Slavomír Hatina, Slovnaft's general director. "And we have found new markets north and east of Slovakia."

According to Kárász, it is necessary to increase the competitiveness of the key exporters while allowing small and medium size exporters to participate more. He believes that export supporting programs should be directed this way. "We could set the rules, involve commercial banks and independent institutions free of lobby influence in the process," Kárász said.

Mihók agreed that Slovakia suffers from too high a concentration of mega-firms, even though those might be average size from an international perspective. "We would like to see small and more flexible companies be more involved in the export process," SOPK's director said.

According to Mihók such small companies have big problems with financing, because the Slovak banks offer difficult conditions.

Slovnaft's director Hatina agreed. "There are enough capital sources abroad, only we don't have them," he said. "Those who can, reach for foreign sources. But those who cannot, should have the opportunity to borrow money at home, but under conditions which would not condemn them to pay back the interest forever."

Mihók sees export support initiatives to be a possible solution. "We have to find a way to help small and medium size companies finance production," he said. "Then, we wouldn't have to help them with exporting."

Hatina said cheaper loans would make production less expensive and the producers would be more competitive. He said the government should give guarantees for projects aimed at exporting rather than those aimed at importing. "We should turn it around," he said.

The exporters should be motivated through financial incentives as well. "It could be done in the form of supporting programs by banks, but it could also be done through tax relief," said Hatina. "If those programs are not started soon, I think the concentration of production will be even bigger than it is now."

Those export-support programs being used now are not working well, according to Mihók. "The Eximbank does not yet operate," said Mihók. "The law has been passed, the bank is expected to be set up June 1. Within two years, it should offer certain programs. The question is what money it will have and whether it will focus on support of small and medium size businesses."

Mihók believes legislation supporting exports is missing the point. "In fact, money for the Foreign Trade Support Fund is spent on publications, presentations of Slovak products, trade missions abroad, and participation at fairs and exhibitions," said Mihók. "The money should be spent rather to support pro-export production. Once we have good products, the producers will be able to take care of publicity on their own. But if we do not have competitive products, we may organize lots of presentations, but our exports won't get any better."

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