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Arms industry has painful conversion

Július Tóth is the president of DMD Holding Trenčín, a shareholding company formed by the Slovak government in October 1995 to convert the country's dying arms production industry to civilian production. The Slovak finance minister between 1992 and 1994, Tóth believes he has a panacea to cure the factories that have been hemorrhaging since 1990 through the funding band-aids that the state has infrequently patched on them. DMD Holding, itself owned by the state, owns between 5 and 34 percent of 26 huge Slovak factories affected by the conversion, collectively known as DMD Group. DMD Group provides jobs to over 25,000 people - 18 percent of all workers in Slovakia's machinery industry.

Július Tóth is the president of DMD Holding Trenčín, a shareholding company formed by the Slovak government in October 1995 to convert the country's dying arms production industry to civilian production. The Slovak finance minister between 1992 and 1994, Tóth believes he has a panacea to cure the factories that have been hemorrhaging since 1990 through the funding band-aids that the state has infrequently patched on them.

DMD Holding, itself owned by the state, owns between 5 and 34 percent of 26 huge Slovak factories affected by the conversion, collectively known as DMD Group. DMD Group provides jobs to over 25,000 people - 18 percent of all workers in Slovakia's machinery industry.

Ray of hope

The first step at conversion surgery on the wounded arms industry is expected to come in the production of road building equipment. The Slovak government plans to construct 464 kilometers of highways by 2005, a dramatic rise from the 198 kilometers which currently span the country. To this end, the government plans to invest 135 billion Sk in the project, out of which the construction company that wins the tender is expected to spend 20 to 25 billion Sk on new equipment.

"This cake is very interesting," Toth told Slovak Television in early August. "It certainly won't be spent entirely on domestic producers, but we definitely will try to grab as much as possible."

Salad days

This undoubtedly would be a shot in the arm to the factories which dot the Slovak countryside, providing an economic lifeline to the many towns' residents. In the salad days of socialism, Czechoslovakia's 15 million inhabitants churned out enough military equipment to rank among the world's top ten producers. In 1987, Czechoslovak military production totalled 30 billion Sk. Of that, Slovak factories muscled 18 billion Sk, according to Ján Čarnogurský, chairman of the Christian Democratic Movement and Czechoslovak deputy prime minister in the first post-Communist federal government, which took over in December 1989.

Experts are unable to say exactly how much of the national product came from weaponry and how many workers were involved. Czechoslovakia was selling arms mostly to Syria, Iraq, Lybia, Algeria and Pakistan. In the seventies, customers paid in cash. But in the next decade, the cash sources dried out.

For several more years, the communist government sponsored production, hoping to get the money later. But in July 1988, the still-communist Czechoslovak government decided to slow military production and begin converting at least part of it. Two months before the Velvet Revolution started in November 1989, the communists agreed to completely stop tank production in Slovakia by the end of 1990.

Precipitous fall

The fall since then was precipitous. şşThe first post-communist government clearly understood that it could not secure sales of tanks and armoured vehicles that the factories in Martin and Dubnica were producing,'' Čarnogursky wrote in his analysis of military production, published in the daily Sme in 1994. şşIt could not forbid companies from producing weapons if they found a customer, but it was not willing to pay for the production in advance of prospective foreign buyers.''

And the slow, agonozing death began. Now, though in obvious need of resuscitation, DMD Group will have to compete with Slovakia's remaining 92 machinery producers. According to the daily Hospodárské Noviny, average productivity within the DMD Group is half of what it is in other companies in the industry. DMD Group also is heavily in debt, its companies owing almost 14 billion Sk.

Despite the gloomy statistics, Alexander Wolf, DMD Holding's general director for strategy and development, is an optimist. As he told the economic weekly Trend, DMD Holding's companies , its two owners - the economic and finance ministries - along with the banks "are preparing restructuralization of the debts...and a set of rules to get new loans for prospective programs and promotion of export activities.''

Lifelines

At an economic conference in Svit earlier this year, Toth presented specific business projects that he said would extract DMD Group from its conversion agony, including:

1) A Slovak-Russian joint venture to produce wood cutting machinery.
2) A Slovak-Russian joint venture for development, production, application and service in oil-drilling and oil-processing.
3) Join with a well-established foreign company to develop a terrain car for both civil and military use, which could be sold in CEFTA countries.
4) Form a corporation with Czech companies to produce machinery and equipment for energy production.
5) Form a corporation with Slovakia's steel giant VSŽ to create production lines for metallurgy.

Furthermore, DMD Group managers and top officials of the Slovak army said some Slovak-produced arms still could be sold abroad, including "Zuzana," the first NATO compatible howitzer developed in a former Warsaw pact country; the Božena mine sweeping device and a modernized T-72-M2 tank, Trend reported.

But Toth is pragmatic. "Everything depends on how we secure the markets,'' he told the daily Práca. şşWe do not want to produce weapons or other products for storage.''

During the cold war, Czechoslovakia of 15 million inhabitants used to beamong the top ten military producers in the world. Its total militaryproduction in 1987 was worth 30 billion Czechoslovak korunas (COMPARE TO THE THEN GDP!!!). Of that, tanks and armoured vehicles worth 18 billion were made in Slovak factories, according to Jan Carnogursky, chairman of the Christian Democratic Movement and According to Carnogursky, during the seventies and eighties, Slovakia put out 9,500 tanks T 55 (8,300 for export) and 1,800 of upgraded tanks T 72, half of which were sold abroad. Also, the arm factories made 19,000 armoured vehicles - some 2,500 for the Czechoslovak army.

In 1991, federal prime minister Marian Calfa helped convince the Israeli government to let the ailing Slovak tank producers sell 260 tanks to Syria. This contract kept the ZTS Martin şşspecial,'' meaning military, production

alive until 1993. But the conversion to civil production was inevitable. The federal government gave he managements of the Slovak factories over two billion Czechoslovak korunas to support conversion projects in 1990 and 1991. "They did not use this money properly at all. They just ate it up,'' said Jozef Danco, Slovak minister of finance between 1991 and 1992. People in the towns and villages, where almost every family had someone laid-off or afraid to lose a job at the local weapon producer, because the managements had been unable to secure effective production under new conditions, blamed their ill faith on Vaclav Havel, the Czechoslovak prezident, who openly spoke against military production. In those regions, it was, and still is widely believed that poor Slovak workers suffered because of unsensitive decisions of Havel and the federal government to completely stop the industry.

In 1992 election campaign, Vladimir Meciar, chairman of the Movement of Democratic Slovakia (HZDS) skillfully used the situation in the stagnating arms industry, promissing jobs and work, criticizing Havel and the federation and promoting idea of a sovereign Slovakia - which was not supposed to mean split of Czechoslovakia, just more jurisdiction in the hands of the Slovak government. However, the split of Czechoslovakia eventually happened anyway, because the Czech government of Vaclav Klaus had a different idea of how things should develop.

Slovak military factories were not exactly the priority on the Meciar cabinet's list after January 1, 1993. Yet, they were still state owned, with managements waiting for the government to give money and come up with solutions, said Danco, who now works as an analyst with M.E.S.A. 10. DMD Holding is a government solution. Toth was appointed by the government. "NEEDS A PUNCH-LINE QUOTE. BUT I DO NOT HAVE IT.''

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