Firms find the path to Slovakia

THIS year Slovakia experienced the first benefits of its prolonged reform efforts. European Union membership and the record influx of foreign direct investment are among the most profound.
Every month, fresh investors announce their plans for doing business in Slovakia, giving analysts reason to be optimistic about the future. Expectations that Slovakia's high unemployment rate will decrease and relatively low living standards will be raised put a bounce in everyone's step.
The Slovak crown has been buoyed by the trends. This year, it has reached a historically firm position against euro.

ITALIAN company Enel won the tender for power producer Slovenské elektrárne.
photo: Courtesy of Slovenské elektrárne

THIS year Slovakia experienced the first benefits of its prolonged reform efforts. European Union membership and the record influx of foreign direct investment are among the most profound.

Every month, fresh investors announce their plans for doing business in Slovakia, giving analysts reason to be optimistic about the future. Expectations that Slovakia's high unemployment rate will decrease and relatively low living standards will be raised put a bounce in everyone's step.

The Slovak crown has been buoyed by the trends. This year, it has reached a historically firm position against euro. Even though the National Bank of Slovakia tried to reign in the crown's growing strength, the national currency stays strong. Not even the ecological disasters that hit Slovakia this year - vast floods in Eastern Slovakia and windstorms in the High Tatras - could keep it down.

While 2003 was the year of important reforms, mainly in the public finance and tax sectors, this year was crucial for pension and health reforms. In 2004, the Slovak parliament adopted laws introducing revised pension and health systems. Whether they were prepared well and realistically will be born out in forthcoming years when they are no longer concepts but part of everyday life.

January 13

Euro Valley Industrial Park, near Bratislava, welcomes two new investors. Multinational steel concern Arcelor announces plans to launch a new operation on 30,000 square metres. The primary investment is expected to reach Sk600 million (€14.7 million) and create some 100 jobs. Swiss glass company Glas Troesch AG also reveals plans to settle down in Euro Valley. The company expects to invest Sk7.5 billion (€184.3 million) and create 300 to 400 new jobs.

January 18

Investors announce plans to pour an additional Sk760 million (€19 million) into an industrial park in the village of Kechnec, in Eastern Slovakia. The municipal authorities sign a letter of intent with investors Van Geel Košice, which plans to invest Sk210 million (€5.25 million) and create 100 jobs; Kuenz-SK Košice, which plans a Sk148.5 million (€3.71 million) investment and the creation of 80 jobs; and CryoSoft Košice, with an investment projected at Sk35 million (€870,000).

January 20

The Parliament overrules a veto by President Rudolf Schuster by approving the amendment of a law on pension savings. The law introduces the capitalization pillar of the pension reform that will gradually replace the current pay-as-you-go pension system.

January 22

Fitch Ratings agency improves Slovakia's investment rating from BBB to BBB+. The improved rating is the result of the country's ongoing reforms, progress towards the adoption of the common EU currency, and falling deficits.

January 27

Hungarian oil company MOL increases its stake in the Slovak oil refiner Slovnaft, from 70 to more than 98 percent. MOL buys nearly 6 million shares for Sk1,379 (€34.47) per share. The financial company J&T Finance Group and its clients, who control 15 percent of MOL shares, accept the bid and sell their stake in the oil refiner. The European Bank for Reconstruction and Development (EBRD) had already sold MOL its 8.37 percent stake in Slovnaft.

February 4

Swiss company Sky Media Manufacturing, the European leader in optical media production, chooses Slovakia to site a plant making CD-ROMs and DVDs. The company plans to invest more than €105 million in the production facility in Nové Mesto nad Váhom, Western Slovakia, creating more than 1,000 jobs. This will be the biggest plant of its kind in Europe, and the fourth biggest worldwide. It should produce 60 million CD-ROMs and DVDs per month.

February 26

At its general meeting, shareholders of gas utility company Slovenský plynárenský priemysel (SPP) decides on new consulting contracts with strategic investors. According to SPP, it will now spend several hundred million Slovak crowns less on consulting services. It will also impose stricter controls on the execution of these services. The contract spans 2004 and 2005. The opposition parties as well as the Economy Ministry, which owns 51 percent of SPP, considered the previous contracts too disadvantageous.

February 27

South Korean company Dong Jin Precision Slovakia reveals its plan to build a new plant in Dunajská Streda, in Southern Slovakia. The new plant is scheduled to produce components for Samsung Electronics Slovakia in Galanta. Dong Jin Precision Slovakia plans to invest €6.5 million in the new factory. The new plant's annual production value is planned at €40million. The company expects to be operational for at least ten years, be environmentally friendly, and employ 350 people.

KIA announced its plan to build a new plant in Slovakia.
photo: TASR

March 2

South Korean carmaker Hyundai/KIA Motors announces that it will locate its new plant in Slovakia. Investment in the new plant, with a planned annual output of 200,000 cars, should total €700 million. The government is set to add 15 percent, making the total investment close to €800 million. The investment incentive for Kia does not include tax holidays. The total public expenditures linked with the investment project amounts to Sk8.8 billion (€2.2 billion). Economy Minister Pavol Rusko estimates that the state should get a return on its investment by 2010, four years after production starts in 2006. He expects the Slovak economy to reap benefits of Sk9.224 billion (€230 million) by 2010.

March 2

Standard & Poor's (S&P) ratings agency improves Slovakia's rating for loans in foreign currency from BBB/A-3 to BBB+/A-2. The agency also confirms the country's rating for loans in local currency at the A-/A-2 level, with a stable outlook.

March 6

The National Property Fund names PPC Holding the winner of the tender for the 90-percent stake in the lucrative steam and gas company Paroplynový cyklus (PPC). PPC Holding entered the tender for PPC with the Swiss group Aare Tessin fur Electricitat. PPC Holding is a subsidiary of the firm VSŽ Košice, which is 90-percent owned by the financial group Penta.

March 22

For the first time ever, Slovakia's stock exchange market faces paralysis when the Securities Centre transforms into the new Central Securities Depository (CDCP). CDCP is supposed to start offering services but out of more than 500 issues, not a single security was transferred on the BCPB Bratislava stock exchange. Brokers say the new system is insufficiently prepared. Activities on the market were renewed March 31 when banks agreed with the CDCP on new conditions.

March 29

Slovakia's Finance Ministry objects to statements by German Chancellor Gerhard Schröder criticizing central and eastern European countries for reducing corporate tax levels. Later, more "old EU" countries express their dissatisfaction with the favourable flat-tax system in Slovakia and other new EU member states.

March 31

The first problem appears in the KIA Motors deal. Certain landowners demand between Sk350 (€8.75) to 700 (€17.5) per square metre for land required to site the plant. According to surveys drawn up on the basis of the Judicial Engineering Institution methodology, the price should range from Sk103 (€2.57) to 146 (€3.65) per square metre.

April 22

Transport Minister Pavol Prokopovič signs documents to start the transformation of state-controlled airports in Bratislava and Košice to private businesses.

April 29

Slovak tyre producer Matador Púchov in the Trenčín region establishes a joint venture, Matador-ATC, in Ethiopia with the local company ATC-Addis Tyre Co. The agreement is officially signed in Addis Ababa.

May 1

Slovakia becomes a member of the European Union.

June 29

The Slovak parliament officially asks to see contracts signed with car giants KIA and PSA Peugeot Citroen, opening a new chapter in the steaming debate over whether the Slovak cabinet should disclose stimulus information to foreign investors. The Slovak cabinet approves the full disclosure of the contracts, excluding business secrets, on July 14.

June 30

US Steel pays a tax of $16 million (€13 million) to the Slovak government. The payment is related to an agreement between Slovakia and the European Commission that resolves the issue of overproduction of steel in the company's US Steel Košice

July 1

The state-run postal service, Slovenská pošta, is transformed into a joint-stock company. The result should be equal conditions for the operation of Slovenská pošta and other private trade companies that provide similar services.

July 7

The Slovak government approves a plan to split the national railway company Železničná spoločnosť (ŽSSK) into two joint-stock companies: one operating solely passenger transport and the other cargo transport. The Transport Ministry hopes to sell cargo rail transportation company Železničná spoločnosť Cargo for a profit of Sk15 billion (€376 million).

July 14

The Slovak cabinet agrees to sell the state's majority stake in Slovakia's national air carrier, Slovenské aerolínie.

July 28

Austrian Verbund, Russian InterRAO, Italian Enel and Czech ČEZ submit bids on the purchase of a 66-percent stake in Slovak power producer Slovenské elektrárne. Potential investors are asked to prepare more specific bids by September. Verbund is excluded because its bid did not include nuclear facilities.

End of July

Vast floods hit the Košice and Prešov regions causing damages of almost Sk1 billion (€24.8 million). This sum does not include damages to agricultural land and forests.

August 25

The Slovak tyre manufacturer Matador Púchov establishes a new company in Great Britain to develop its market directly in the UK.

September 9

Lidl, a German chain of discount stores, opens 14 new stores in Slovakia.

September 13

The Swedish firm Nefab Packaging announces a plan to invest about Sk250 million (€6.25 million) over the next two to three years in the Levice-Geňa Industrial Park, in Southern Slovakia. The Swedish firm will build a plant to manufacture wood containers for the engineering and automotive industries. The plant is set to employ 120 people.

September 21

International ratings agency Fitch upgrades Slovakia's long-term foreign and local currency ratings to A- and A+, respectively, and affirms its short-term rating at F2. The country's outlook is revised to "stable". The Fitch Report puts Slovakia at the same level as its neighbours, the Czech Republic and Hungary.

September 21, 22

The Slovak parliament passes six health reform laws: the law on healthcare, ambulance healthcare, healthcare providers, health insurance, public health insurance, and health insurance companies.

September 24

Johnson Controls decides to invest a total of Sk850 million (€21.25 million) in Slovakia. The company is set to create 550 to 600 jobs, in particular for university graduates. Its new research centre near Trenčín, in Western Slovakia, will focus on computer-aided design, mainly for the automotive industry.

September 27

Dominant Slovak fixed-line phone operator Slovak Telecom, owned by Deutsche Telekom, is set to become a 100-percent shareholder in mobile operator EuroTel Bratislava. Slovak Telecom, which already has a 51-percent stake in EuroTel, reaches an agreement to acquire the remaining 49-percent stake from Atlantic West B.V. consortium, dually controlled by Verizon Communications and AT&T Wireless.

October 6

The Slovak cabinet agrees to back Italian firm Enel as the preferred buyer of a 66-percent stake in state-run power company Slovenské elektrárne.

October 7

Representatives of the American investor Plastipak Packaging and the village of Kechnec (in the Košice region) sign a contract for 10 hectares of land at the Kechnec Industrial Park. The American investor is buying the land to build a bottle production and recycling plant. The investment has an initial value of €15.5 million (Sk651.8 million).

October 11

Economy Minister Pavol Rusko announces that he wants to change the country's nuclear plans. He proposes that two blocks of a nuclear power plant in Jaslovské Bohunice should be shut down simultaneously in 2008, instead of decommissioning one reactor in 2006 and the other in 2008.

October 25

German company Continental Teves announces an investment of €60 million to construct a brake systems plant in Zvolen over five years. The plant should start producing brake components for the automotive industry in late 2005, reach an annual production of five million components within five years, and employ 500 people.

October 25

International company Truthheim Invest is likely to fund the completion of the new Slovak National Theatre. Truthheim Invest should provide all the funds needed to finish the project, some Sk800 million (€20 million).

October 27

The Slovak Parliament gives the go-ahead for the establishment of Diaľničná spoločnosť, a highway company, to secure the development, administration, maintenance, and repairs of roads and motorways. The company will start operating in 2005.

October 27

The tax credit for steel maker US Steel Košice (USSK) is reduced from the originally planned $500 million (€460.1 million) to $430 million (€395.7 million). This is because the US company was producing over the capacity agreed with the European Commission. In addition, USSK will pay tax of $32 million (€29.5 million) in two instalments in 2004 and 2005. The Slovak cabinet okays the EC proposal, which aims to solve the dispute over USSK's above-quota steel production. According to the draft (a result of talks between the Slovak government, the EC, and US Steel), USSK must adhere to a production limit from January 2005 and sale limits from the day of the country's EU accession.

November 1

For the first time ever, Slovak citizens can redirect a part of their mandatory pension contributions into private pension funds. They are able to do this by making arrangements with one of eight newly licensed pension administration companies.

November 19

The best-known mountain range in Slovakia is hit by a storm of unprecedented strength. Winds stronger than 160 kilometres per hour completely destroy one-quarter of the High Tatras forest on an area of about 12,000 hectares. The felled timber is roughly equal to one year of softwood production in Slovakia. It is the largest ecological catastrophe in Slovakia in the last 100 years.

November 26

The National Bank of Slovakia again decides (it had already done so several times in 2004) to lower its key interest rates as a response to a strong crown. NBS rates now stand at 4-percent limit rate for two-week repo tenders; 5.5-percent overnight refinancing rate; and 2.5-percent overnight sterilisation rate. The Slovak crown did not react, stabilizing at 39,290/310 crowns to the euro and 29,730/750 crowns to the dollar.

December 2

German company Getrag Ford Transmissions decides to site its new production plant at the Kechnec Industrial Park near Košice. The construction of the transmission plant will start in the first half of 2005. The German company will invest €300 million. It estimates that the plant will bring 1,000 jobs to the region.

December 2

The cabinet defines how state income taxes will be distributed to regional governments and municipalities, allowing towns and villages to get on with the task of designing their 2005 budgets. As a result of budget decentralization, municipalities and regional governments are entitled to a direct proportion of state income taxes to fund their budgets.

December 9

Parliament approves the 2005 state budget. The planned budget income in 2005 is Sk258.56 billion (€6.55 billion), with expenditures reaching Sk320.08 billion (€8.12 billion), and a deficit of Sk61.52 billion (€1.56 billion) representing a deficit of 3.8 percent of GDP.

December 13, 14

In spite of the National Bank of Slovakia's intervention on interest rates in November, the crown continues hitting new records. It drops below the 39 crown to the euro mark to close the day at 38.93/95 crowns to the euro. Against the dollar and Czech crown, the Slovak currency closed at 29.33/36 crowns to the dollar and 1.270/271 Slovak crowns to the Czech crown on December 13. On December 14, the crown reaches a new position of 38.810 crowns to the euro. Bank dealers expect further firming of the crown.

Compiled by Marta Ďurianová

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