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INVESTMENT POLICY - INVESTMENT AGENCY COMES OF AGE, BUT IS IT READY FOR THE FUTURE?

SARIO's successes and challenges

IN ONLY a few years, Slovakia has become the investors' darling, attracting enough investment capital per capita to pretty much match that of the neighbouring Czech Republic, Hungary and Poland.
Analysts vary in pinpointing the most important factors that have put the small European country on investors' radar screens.

IN ONLY a few years, Slovakia has become the investors' darling, attracting enough investment capital per capita to pretty much match that of the neighbouring Czech Republic, Hungary and Poland.

Analysts vary in pinpointing the most important factors that have put the small European country on investors' radar screens.

Many attribute the transformation of the Central European Cinderella to the political changes brought about by the arrival of Prime Minister Mikuláš Dzurinda and his government in October 1998.

"According to Slovak government statistics, by the end of 1999 Slovakia had received only one-sixth as much cumulative FDI (foreign direct investment) per capita as Hungary or the Czech Republic", states the US Department of State FY 2004 Country Commercial Guide for Slovakia.

In that same year, the new cabinet set up a three-pillar strategy to attract foreign direct investments.

It consisted of new legislation to improve tax incentives, the creation of a "one-stop shop" to assist investors and the encouragement of cities to develop industrial parks.

The Slovak government also signalled its openness to FDI by rescinding the previous government's law on strategic privatization, which prohibited privatization of a broad range of state-owned enterprises, monopolies in gas, power and telecommunications, and others.

None of the mentioned changes and adopted measures would have been effective enough had there not been those one-stop shops ready to provide assistance, and among them, the Slovak Investment and Trade Development Agency (SARIO).

SARIO came into existence through a special government decree in May 2000 to execute the government's goals of promoting Slovakia as a leading investment location, as well as to enhance export promotion. The agency is primarily funded from the Slovak state budget; SARIO provides most of its services to investors free of charge.

SARIO is managed by a board of directors, which consists of representatives from the Office of the Government and the Economy Ministry, as well as the agency's general manager. The board of supervisors includes members from those ministries that are closely involved in cooperation with the investment community. This structure provides the agency with direct access to high levels in key ministries and the Office of the Government, securing quick and efficient communication and cooperation on behalf of investors. The Economy Ministry gave SARIO a mandate to implement all projects and activities concerning FDI inflows and export promotion.

The one-stop shop principle gives investors and exporters a single entity for interface to address a range of relevant requests. SARIO also plays a crucial role in presenting Slovakia as a top investment destination and top-quality export producer in the Central Europe region, with specific advantages over neighbouring countries.

During the last five years, Slovakia has had to play a catch-up game with all her neighbours (excepting Ukraine), all of which have national investment promoting agencies.

The Czechs have CzechInvest, the Poles the Polish Agency for Foreign Investment (PAIZ), the Hungarians rely on the Hungarian Investment and Trade Development Agency (ITDH), and prosperous Austria counts on its Austrian Business Agency (ABA).

SARIO has managed to mix and match the best features of its counterparts and added a few ingredients of its own. The agency is better than its Hungarian equivalent, Pál Négyesi, managing director of consulting firm Global Auto Systems Kft, told The Budapest Business Journal January 26, 2005.

"SARIO is more efficient than ITDH because of its better structured background. And SARIO has more authority," Négyesi said.

While SARIO often competes directly with neighbouring agencies, there are opportunities for them to join forces and operate as regional teamwork players within the Visegrad Group or the Central European Free Trade Agreement.

SARIO is a member of the World Association of Investment Promotion Agencies and one can only hope that it will pick up some news skills and approaches from some Western European member agencies.

The point is not that SARIO has significant deficiencies in terms of its current strategy and performance results. It has done its job admirably and has helped to bring in countless large foreign investors. Yet, the most challenging times are just coming.

"An important focus for Slovakia should be to attract future investments into more value-added areas, like high-tech, technology innovation and services," President of the American Chamber of Commerce in Slovakia Robert Simončic told The Slovak Spectator March 28, 2005.

Western European countries, lacking the comparative advantages of their eastern neighbours (low/flat taxes and low labour costs), have already been forced to seek new strategies to lure and lock investors in those value-added areas.

As automakers and other manufacturers push further east, SARIO needs to get ready for the new investment environment that will eventually catch up with Slovakia.

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