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THE COUNTRY HAS ROOM FOR MORE INVESTMENTS BEFORE CATCHING UP WITH NEIGHBOURS

Slovakia's FDI tide is rising

IF THE VOLUME of foreign direct investments that flowed into Slovakia by the end of March 2004 were distributed among the country's population, each citizen would be Sk66,000 (€1,651) richer, according to the latest statistical data.
Though the majority of the population claims to enjoy no benefits from the well-performing economy or from their country becoming an attractive site for foreign investors, the numbers speak a clear language: FDI over the first quarter of 2004 grew by Sk12 billion (€300 million) to stand at Sk361.6 billion (€9 billion).

IF THE VOLUME of foreign direct investments that flowed into Slovakia by the end of March 2004 were distributed among the country's population, each citizen would be Sk66,000 (€1,651) richer, according to the latest statistical data.

Though the majority of the population claims to enjoy no benefits from the well-performing economy or from their country becoming an attractive site for foreign investors, the numbers speak a clear language: FDI over the first quarter of 2004 grew by Sk12 billion (€300 million) to stand at Sk361.6 billion (€9 billion).

The biggest investors in that period were Hungary and Austria, while over 77 percent of the investments flew to the Bratislava region.

Optimism is growing and the analysts claim that the current development is sustainable.

"We see this trend to be sustained as Slovakia is becoming an increasingly attractive place for FDI, particularly for manufacturers looking to set up or expand their operations in central Europe and the EU at large," Zdenko Štefanides, a senior analyst at VÚB, told The Slovak Spectator.

According to Štefanides, the major reasons for the increased FDI are the recently adopted comprehensive supply side reforms and markedly improved business environment that provide the country with inherent competitive advantages, such as a relatively inexpensive yet productive labour force, good geographic location, and reasonably well-developed infrastructure, to come to the fore.

"Besides, although having caught up quickly recently, Slovakia still lags behind its regional neighbours in attracting FDI relative to the size of the economy. For example, the cumulative stock of FDI in Slovakia amounts to around 30 percent of the country's GDP, whereas in Hungary it is over 40 percent and in the Czech Republic around 50 percent, respectively (let alone Ireland's 150 percent). Hence, there is still a lot more growing to do," added Štefanides.

Over the first quarter, a considerable portion (Sk9.5 billion or €238 million) of FDI flew into the corporate sector, while Sk2.6 billion (€65 million) went to the banks.

As for individual sectors, investments were chiefly oriented towards industrial production and financial mediation, the Slovak Statistical Office reported.

According to Silvia Čechovičová, an analyst with the ČSOB Bank, the construction of the two dominant car producers PSA Peugeot and Hyundai/Kia will bring other investors along with it.

"We should not forget that we are still facing the privatisation of the major power producer Slovenské elektrárne and the completion of the sale of the remaining state shares in the companies that have already been privatised," Čechovičová added.

The Slovak Investment and Trade Development Agency (SARIO) reports 40 projects in the pipeline, chiefly in the field of the automotive industry. In the event of their successful implementation, new investments of €2 billion could arrive in Slovakia creating 6,000 to 10,000 new jobs.

SARIO Director General Roman Kuruc told SITA that these projects also cover the wood-processing and chemical industries.

Though the investments from the new projects would flow mostly to northern Slovakia, specifically to Žilina, Martin, and Banská Bystrica, the core of the FDI continue to target the Bratislava region, which leaves the problem of a widening gap between the wealthier west and the underfed east unresolved.

"Bratislava is the natural choice for foreign investors, given the capital's and the surrounding region's developed infrastructure and proximity to core western European markets. There is little chance that the Bratislava region will lose its position as the prime destination for FDI anytime soon. Its lead, however, may gradually narrow," Štefanides told The Spectator. According to Štefanides, the tight labour market and rising wage costs in Bratislava will probably become the crucial motivation for foreign investors to explore other regions of the country as well.

However, analysts agree that developing the infrastructure in the eastern parts of the country could make those regions more attractive to investors.

"If the cabinet accomplishes its plans for highway construction, the chances for investment flowing into those regions will increase. To a certain extent, the government's intentions to provide state support in the form of investment stimuli for regions with a high unemployment rate could present an opportunity for the eastern regions," Čechovičová added.

Potential investors that the SARIO projects could bring here are chiefly from the United States, Germany, France, and Japan.

"Though, the first quarter data shows Hungary and Austria as the biggest investors, these countries rank sixth and third, respectively, in the cumulative stock of FDI in Slovakia, behind Germany and the Netherlands," said Štefanides.

"To our understanding, Hungary's prime FDI donor role in the first quarter was driven by the MOL concern's purchase of Slovnaft shares (MOL's Slovak unit) from minority investors, while the investment of a banking group based in Austria took second place," Štefanides explained.

SARIO currently registers 240 potential investment projects amounting to about €6 billion. These investments could create 29,000 to 55,000 jobs.

The volume of Slovak investments abroad dipped by Sk227 million (€6 million) over the first quarter of 2004, reaching Sk18.2 billion (445 million) as of March 31. The biggest share of Slovak investments, amounting to Sk7.5 billion (€188 million), flew to the Czech Republic, making up 41.2 percent of total investment.

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