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KIA expands its plans

SOUTH KOREAN carmaker KIA has disclosed plans to increase its investment in Slovakia by €135 million. While the investment hike is good news for the central European country, indicating that the company is happy with the choice of Žilina for its new plant, Prime Minister Mikuláš Dzurinda's government will probably have to dig deep into state coffers for an extra Sk800 million (€20.5 million) in support for the carmaker.

SOUTH KOREAN carmaker KIA has disclosed plans to increase its investment in Slovakia by €135 million. While the investment hike is good news for the central European country, indicating that the company is happy with the choice of Žilina for its new plant, Prime Minister Mikuláš Dzurinda's government will probably have to dig deep into state coffers for an extra Sk800 million (€20.5 million) in support for the carmaker.

Originally, KIA pledged to invest €700 million (€17.9 million) in Slovakia and employ 2,400 people. In raising its investment by €135 million the company would create an additional 700 jobs and the amount of cars produced per year would increase from 200,000 to 300,000.

However, the investment hike process is still in the early stages and negotiations will have to follow.

"KIA has sent us a statement indicating that they are interested in increasing the investment. That is all we can say for now. Certainly, a meeting between ministers concerned, the Slovak Investment and Trade Development Agency (SARIO) and KIA representatives will follow. This meeting will clarify what KIA's intentions are. State assistance will definitely be increased adequately to the increase in volume of investment," Maroš Havran, spokesperson for the Economy Ministry, told The Slovak Spectator.

Based on EU law, Slovakia can provide state support at 15 percent of the foreign investment. Thus, Brussels will also have a word or two on any eventual increase in Slovak state support for the Koreans.

"If the increase happens, it certainly will have to go through an approval process," said Havran.

The European Union has already approved Sk8.8 billion (€225 million) in incentives from the Slovak government for KIA.

Slovakia, which is bound by the EU to keep strict budgetary discipline, will have to search hard to find the money to support the extra investment.

"Firstly, the investor has to find the money. The only place where Slovakia can find the funds is the state budget and the pockets of the ministries. It is an issue for the cabinet ministers to discuss," Havran said.

The Finance Ministry has not yet received an official request for the increase in support and ministry officials have not said where they would start looking for the crowns.

The Finance Ministry has, however, been calling for stricter and more clear guidelines on the distribution of state incentives.

"Certainly, we are working on those rules. A group involving the ministries of finance, economy and labour and representatives of SARIO has prepared the rules that have been submitted to the ministers with the economic portfolio. The cabinet should discuss and approve the new rules shortly, which will lead to more transparency and efficiency," SARIO spokesperson Ondrej Žember told The Slovak Spectator.

The Economy Ministry claims that KIA representatives say they are pleased with the way their investment has been developing. This is despite the seemingly never-ending problems over the purchase of land for the Žilina plant.

However, during Prime Minister Mikuláš Dzurinda's visit to Namyang, South Korea in late May, Hyundai Group representatives did say they were very satisfied with the way the Slovak government has handled the investment. At the meeting, Chairman of the Hyundai Group Chung Mung-koo shared KIA's plans to increase its investment with Dzurinda. KIA in fact expects a boom in the European car market and wants the Slovak investment to be as competitive as possible.

The construction of infrastructure for the new Hyundai/KIA plant has already started near Teplička nad Váhom and the construction of a village to accommodate the Korean employees of KIA in Slovakia is to be launched in mid June.

The Korean village will be built in Krasňany, a few kilometres from Žilina, on 10 hectares of land.

Analysts note that almost all the foreign companies who decided to invest in Slovakia have eventually invested more than they originally planned.

According to Žember, raising the original investment is regular practice with investors from all over the world.

"Most of the investors who come to Slovakia declare only basic information about the initial stage of production, the volume of investment and the number of jobs," Žember told the Spectator.

As to whether raising the investment is a regular practice everywhere in the world, Žember said that it varies from place to place.

"They [the investors] need to be satisfied with the business environment. It certainly is a regular practice in Slovakia," Žember added.


(Magdalena MacLeod
contributed to this report.)

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