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ANALYSTS DO NOT CONSIDER FDI INCREASE "A BOOM"

Slovakia closes in on neighbours in FDI

SLOVAKIA remains attractive for foreign direct investments. The country performs well in competition with other central and eastern European countries for investors' money.
Recent surveys suggest that investors favor smaller countries like Slovakia, Latvia, and Lithuania for FDI.
The aggregate FDI in Slovakia amounted to Sk368.1 billion (€9.1 billion) at the end of June 2004, giving analysts a reason to be rosy about Slovak economic development. The highest sum - Sk86.9 billion (€2.2 billion) - came from Germany according to a monetary survey by the National Bank of Slovakia.

SLOVAKIA remains attractive for foreign direct investments. The country performs well in competition with other central and eastern European countries for investors' money.

Recent surveys suggest that investors favor smaller countries like Slovakia, Latvia, and Lithuania for FDI.

The aggregate FDI in Slovakia amounted to Sk368.1 billion (€9.1 billion) at the end of June 2004, giving analysts a reason to be rosy about Slovak economic development. The highest sum - Sk86.9 billion (€2.2 billion) - came from Germany according to a monetary survey by the National Bank of Slovakia.

The inflow of foreign direct investments at the end of June 2004 amounted to Sk19.9 billion (€494 million). Of this, Sk15 billion (€373 million) flowed into the corporate sector and the rest was invested in banks, the news wire SITA wrote.

The highest volume of investments, Sk6.1 billion (€152 million) came from the pockets of Hungarian investors. The FDI favored industry, which reported Sk9.9 billion (€256 million).

Though optimistic, analysts do not consider the recent direct foreign investment a boom.

"I would probably refrain from the term 'FDI boom'. There certainly is a significantly increased interest among foreign investors to set up operations and/or expand their activities in Slovakia," Zdenko Štefanides, senior analyst with VÚB bank told The Slovak Spectator.

"Compared to our regional neighbours, the Czech Republic and Hungary, however, Slovakia lags behind. Our FDI stock is worth 30 percent of our GDP, compared to Hungary's 40 percent and the Czech Republic's 50 percent," he added.

According to Štefanides, the increasing interest of investors is a natural catch-up process. The country's accession into the EU and other western structures has eliminated political risks that kept investors away from Slovakia during the mid-1990s.

Accelerated privatisation also played a major role in increasing FDI flows to Slovakia in recent years.

Finance Minister Ivan Mikloš feels that the rising FDI tide has also been inspired by the ambitious tax reform that his department started.

"This year's first quarter brought considerably more investments than last year's first quarter, and we have not even included the privatisation proceeds yet. This really shows the positive effects of reforms, and that more non-privatisation investments are coming in," Mikloš told news broadcaster TA3.

Analysts also expect the new reforms, especially in the labour market and tax system, to significantly helpt the country's business environment by allowing foreign investors to take advantage of Slovakia's business advantages.

"The inexpensive yet skilled and disciplined labour force, good geographical location close to core Western European markets, and reasonably developed infrastructure, especially in the western part of the country, are Slovakia's advantages. Clearly, investors are taking notice, especially in the manufacture of cars and electronics for export," said Štefanides.

"If adhered to, these FDI commitments will lift FDI activity in the years ahead and bring the overall stock of FDI (relative to the size of the GDP) close to the levels of Slovakia's regional neighbours," he added.

More than 82 percent of aggregate investments ended up in the Bratislava region, which does not help bridge the gap between the wealthy western and underfed eastern parts of the country.

In its latest EU-8 Quarterly Economic Report, which monitors the development of new EU members, the World Bank called the regional imbalances in EU-8 countries as a twitch that needs effective treatment.

From Slovakia, the highest volume of foreign direct investments went to the Netherlands, where Slovak businessmen invested Sk90 million (€2.2 million).

Though the majority of the Slovak public claims to enjoy no benefit from the well-performing economy, or from their country becoming an attractive site for foreign investors, the numbers are positive: Over the first quarter of 2004 FDI grew by Sk12 billion (€300 million) to stand at Sk361.6 billion (€9 billion).

Slovakia's investment development agency, SARIO, considers the first six months of 2004 the most successful year for investments in the agency's history.

"The statistics speak a clear language. We managed to attract as much foreign investment in the first half of 2004 as we did the whole year of 2003," SARIO's Ondrej Žember told The Slovak Spectator.

According to Žember, Slovakia is catching up with its neighbours.

"During the first half of 2004, SARIO managed to attract more foreign investments [and thus create more jobs] than the Czech agency CzechInvest managed," he added.

Žember said that more should be done to direct the flow of investments to the least developed regions.

"Slovakia's priority is to create a high-quality sub-supplier network for the automotive industry," Žember told The Spectator.

SARIO's new focus is on the influx of foreign investments with higher added value, for example, scientific-research centers and customer help centers. The agency also plans to support projects on industrial parks, mainly in the regions of eastern Slovakia.

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