SOUTH Korean carmaker Kia Motors, part of the Hyundai Automotive Group, announced on March 2 that it had chosen Slovakia over Poland as the site for its plant in central Europe. The Slovak Spectator asked leading financial analysts about the potential impacts this most-desired investment might have on the country's economy.
The Slovak Spectator (TSS): What will be the major benefit of the Hyundai investment for Slovakia's economy, and its major impacts?
Analyst with Slovenska sporiteľňa bank, Juraj Kotian (JK): The arrival of Kia is confirmation that Slovakia is on the right track. If Slovakia had not known it by now, today the whole world knows. The investment will immediately push up employment in the region and also temporarily boost the construction industry. It will improve Slovakia's payment balance, speed up the construction of highways, and advance the development of the Žilina region. It is very important to stress that sub-suppliers for the carmaker have also announced their arrival.
Pavol Ondriska, analyst with financial group Slávia capital (PO): The investment will have a positive impact on the country's exports, which are expected to climb, and subsequently on budgetary incomes through taxes and insurance payments. It is a crucial factor that the involvement of the supplier network - domestic as well as foreign sub-suppliers - could double or triple these budgetary incomes.
Analyst with ČSOB bank, Marek Gábriš (MG): Firstly, the major benefit that is immediately visible is the creation of new jobs. It will considerably push down the jobless rate in the region. Secondly, the country's foreign trade will benefit from the new export capacities. It is almost certain that all of the production will be exported, which will also boost GDP growth. Last but not least, the FDI [foreign direct investment] inflow will help restructure Slovakia's economy and bring in Western know-how.
TSS: Will the investment considerably influence the development of the Slovak currency?
JK: The arrival of the carmaker got partially reflected in the exchange rate of the crown even before the official announcement; thus, the initial reaction of the crown was minimal. Moreover, the rise of the crown is restrained by the threat of interventions by the National Bank of Slovakia and tensions on the Slovak political scene. Immediately after these risks disappear, the crown will again swell due to the influx of money to the capital account of the balance of payments.
PO: Winning the investment is a confirmation of the improving image of Slovakia's economy, which creates a potential space for the crown's further strengthening on the mid-term horizon. However, on the short-term horizon, political factors, including the April referendum [on early elections], create potential risks for the country's reforms and in no way support the Slovak crown.
MG: The news about the South Korean investment had an immediate impact on the market. However, the Slovak currency retreated later in the day after gaining muscle. The FDI inflow should have a positive influence on the currency in the long run. However, only part of this cash will flow through the foreign exchange market (funds that should probably be used for construction works, etc.) We expect the second part of the FDI to be directly used on the purchase of technology, which might lead to a temporary decline in foreign trade. On the other hand, the foreign trade deficit should be comfortably covered by FDI inflow. Overall, we expect the FDI inflow to appear in the strengthening of the currency.
TSS: What were the major advantages that Slovakia had over Poland?
JK: Slovakia had a greater flexibility and determination in carrying out reforms like, for example, the tax and labour market reform. Better links to suppliers and lower labour costs [were also reasons]. Currently, Slovakia has some of the best conditions for investment. The fact that it defeated the Czech Republic, Hungary, and finally also Poland in the Hyundai competition proves this assumption.
PO: One of the greatest advantages of the country is the effectiveness of production, which is a combination of labour productivity and lower wages than in Poland.
MG: I think that most of these advantages are generally known: developed infrastructure, functioning network of auto-component suppliers, low costs and skilled workforce, reform-oriented business environment (tax reform and reform of labour market) and weaker trade unions than Poland.