Interview with Jaroslav Ružička, Managing partner of Dr. Ružička Law Office

He helped found the Slovak-Austrian Chamber of Commerce and served two terms as its president. He spent two years as the head of Slovakia's Office of Human Rights. He taught law for ten years at Comenius University before finding he had too much energy for the academic sector. He served two years as a member of the Slovak government's Legislative Council. He is the managing partner of the Dr. Ružička Law Office, whose consulting clients since 1993 have included Deutsche Bank, Austrian Airlines, Warner Bros., EXXON and SPP. Jaroslav Ružička.
photo: Courtesy of Jaroslav Ružička

The Slovak Spectator (TSS): Jaroslav Ružička has been active in investment in Slovakia since 1993, yet remains a relatively unknown name in this country. How did you get your start in the investment consulting business?

Jaroslav Ružička: While the Iron Curtain was up I was a lecturer at the Law Faculty of Comenius University. In 1993 I left teaching, because I was 30 and had a lot of energy, and many people like me were leaving the school system. It was not only poorly recompensed, but it was underdeveloped, and there wasn't a lot of interest in developing it. But that was quite logical, given the list of other priorities the country had - like setting up a new system of state leadership, dealing with the economic shock that occurred, changing people's mentality and so on.

I then served on various expert commissions at the government or ministry level, such as the legislative commission of the Slovak government as the nominee of the scientific and academic community. I had quite a lot to do with legislation in the beginning of the 1990s, as Slovakia was changing towards the new system, but I began to see my future as lying elsewhere, in consultation work. The principle of numeris causus had only begun to apply two years previously, and before then advocacy had really not existed as a private profession in the command economy - if there were a problem between two state companies, the state looked after it. Lawyers had thus tended to orient themselves towards civil law, property relations, family law, criminal law, and legal relations between individuals. After 1989, however, a need was created on the market for people who were interested in understanding the changes in the economic structure, in studying them and tracking them from a local perspective, all the more so because investors were beginning to appear on the scene and establish their first contacts with this environment. It was a time when few law offices existed that worked in foreign languages as a matter of course. Global law or consultation firms either didn't exist or were just getting started.

The big challenge for consultants back then was to adapt the local knowledge they had to the standards common in Western countries and the needs of the new investors. At that time I was still teaching at university, so I had the advantage of being able to recruit among the better students and doctoral candidates. Our first major engagement was in helping the Austrian bank Creditanstalt set up an organization here and then a daughter company; we accompanied them for their first four years here and helped them set up their legal division. The same thing happened with the Bavarian Hypobank, the first German bank to be set up here, which later fused with Vereinsbank. It was quite natural for German-speaking investors to be among the first here, given the historic use of the German language in this region.

By 1996 we had about 20 people altogether in the office, and by 1999 over 30, about two-thirds of whom were consultants. We started working on larger projects, such as setting up 34 large markets for the Austrian Baumax in the Czech Republic and Slovakia. We did a lot of M&A work in real estate and construction, such as legal and tax advice on the Tatracentrum project in Bratislava, as well as in the automotive sector as the exclusive legal advisor to Volkswagen and helping Porsche set up its dealer network. In 2004, after years of informal cooperation, we signed a formal association contract with the global law firm CMS Cameron McKenna to be their representatives in Slovakia.

TSS: From 1991 to about 2001 Slovakia went through a long period of heavy privatization, while foreign investors started coming to buy privatized assets from Slovak individuals, followed by several years of investors coming here to buy market share in Slovak companies. Where is the country now in its foreign investment evolution?

JR: The investment process has unfortunately been a rather complicated one, which hasn't been connected with the desire or reluctance of investors to come here, or with Slovakia's investment potential per se. It has been related to another set of factors, the most important of which is stability and a certain level of normal progress, whether we're talking about Slovakia in 1993 or Slovakia today. By stability I mean the stability of the system, not necessarily political stability, because politics are essentially a reflection of a process.

In 1993 Slovakia had to create a new and stable system of state institutions and other phenomena that in the past had been the domain of Prague. Political stability, just like systemic stability, took a while to find, as both had to go through certain phases of development. This had an impact on education, the social and health systems, and above all on the generation who were in their 50s and had to get used to the fact that things were radically different from what they had been used to.

Well-informed and well-connected observers were often able to extrapolate from these chaotic changes and see whether they were actually leading to reform and a certain economic liberalism that was needed, or whether they were a swindle and a pretence of change and merely a case of the communists being switched for some other political group. Of course, things might have been a bit more stable if the political changes during the 1990s had not been so dramatic, but the same thing happened in Hungary, Poland and the Czech Republic, if not to a greater extent, and yet these states were considered more stable than Slovakia. To a great extent this was a problem of image, and shows the importance of a country's image in the investment process, and the exceptional importance of creating the impression of stability.

On the other hand, there were sectors that were always going to get investment, no matter what happened, because they were vacant, such as the private banking sector. The arrival of the first foreign banking capital in 1993 and 1994 brought with it the first wave of economic certainty, and other foreign investors knew they would have banking partners who had a good grasp of what they needed and what they were used to. The foreign banks also stimulated the growth of mid-sized enterprises here, many of them from Austria, who started to be satisfied with what they found in Slovakia. They encountered a technologically skilled nation, experienced people, and production costs that were extremely lucrative given the relative stability that already existed. Despite the economic barriers that existed in Slovakia, such as the old import surcharge, these firms were always able to find room to manoeuvre.

The next major development was eight years ago with the coming to power of a more attractive government. There were already many investors here in 1998 who were telling their foreign partners to come and have a look, that there were opportunities to be had even on the domestic market in areas such as infrastructure and the service sector. Even today these sectors remain relatively unexplored, not just in tourism but also in financial and technical services, roads and railways. But with the change in government, and the arrival of more investors to take advantage of these uncharted sectors, Slovakia's ratings began to improve, until people said to themselves - "wait a minute, this country is just about to join the European Union, its legislation and systems have all been approximated to European standards, to an extent that many European states even today don't match." At the same time, Slovak politicians began to be seen more at international investment fairs and gatherings, which in combination with the better ratings led to an improved image for the country as an investment destination. After years during which we had only heard of the Czech Republic, Hungary and Poland, Slovakia began to be mentioned for its strong economy and as an example of reform for other countries to follow. That was a huge change.

The final stage was one of strategic investments, large investments that brought stability with them. Combined with the formal stability produced by Slovakia's memberships in NATO and the EU, this last investment phase has sealed the question of Slovakia's stability. They were not one-off deals, but long-term commitments, such as PSA Peugeot-Citroen or KIA Hyundai, investments that cannot be carted off to Ukraine or somewhere else if the economy changes.

Throughout all of the last phase I think we've seen a real willingness on Slovakia's part to meet investors halfway, and a supportive investment environment, including tax reform and the approach of state organs and regulators.

TSS: Given their proximity, Austrian investors have always had the best information about investment possibilities in Slovakia, and yet also a certain historical wariness about sending their money east of the border. When did the feelings of Austrians about Slovakia begin to change for the better?

JR: I would say that in general, unlike some other European countries, Austrian investors have always had a positive view of Slovakia, especially on the political and economic level. Of course, there were various ups and downs [i.e. the kidnapping to Austria in 1995 of the Slovak president's son - ed. note], but Austrians had the advantage of finding stories about Slovakia just about every week they opened their newspapers, stories of economic or political or legislative change.

Sometimes, however, the changes they read about were too fast and too deep for any one observer to digest, and sometimes you would read stories claiming that of every 10 Austrian tourists who came to Slovakia, 4 had their car stolen. That was a very sensitive issue, especially in Austria where safety and security are very important to people. There was also a lot written about crime coming from Slovakia, and I suppose it was quite natural that the lower criminal elements would come and steal things from cars in parking lots, not just in Austria but elsewhere as well. Nevertheless, such news stories cast a kind of shadow over Austrian perceptions of Slovakia, and drew a kind of curtain over people's ability to see processes in a true light. It was a complicated environment, and because the police and the courts and security services didn't work properly immediately after 1989, criminal elements took advantage of this, in Slovakia and elsewhere.

On the other hand, economic processes were occurring that knew no borders and could not be turned back. Gradually people read fewer and fewer stories about cars being broken into or stolen, especially after the Slovak security forces made crime and stability a priority. Austrian investors would visit Bratislava after seven years and be unable to believe their eyes at the beauty of the Old Town. They would visit the opera and go out to a restaurant, and gradually developed a new relationship with the country. I think Austrian political and economic officials also helped the relationship with Slovakia a lot, such as the Austrian ambassadors, who highlighted the positives, such as Slovak art, the level of education in the country, and so on. Slovakia's entry to the European Union merely confirmed the new perception that many Austrians had of the country.

TSS: You've been involved with two actual or intended Austrian investment projects in the transport field - Austrian Airlines' entry last December into Slovak carrier Slovenské aerolínie, and the pending privatization of Bratislava airport. When we put these together with the project to complete a freeway linking Vienna and Bratislava by 2008, can we say that the burgeoning transportation sector reflects the new Austrian approach to Slovakia?

JR: Transport infrastructure is one of the three most basic investment sectors anywhere you go. It is not only a prerequisite for further development, but it is interesting in itself as an investment. This is especially true of the Vienna-Bratislava corridor. Austria is fairly well integrated into the European transport infrastructure, while Slovakia unfortunately still is not, for historical reasons. The Slovak-Austrian corridor has been regarded as a priority in this country for many years, but in Austria it ran afoul of the early impression that investors and ordinary people formed of countries like Slovakia that are now new members of the European Union.

Studies have long shown that the triangle formed by Bratislava and Vienna and either [the Hungarian city of] Győr or Trnava has all the conditions to create an investment boom, with research and education centers, priority industrial areas and the human resources to make this all possible. This is politically interesting for both Slovakia and Austria, and precisely things like the privatization of the rail cargo company, of the airport, and of Slovenské aerolínie, are promising to turn this investment region into a reality. The development of this transport corridor will provide a springboard for a whole range of further development and growth.

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