Decent communication between business organisations and all levels of government, predictable, transparent and non-discriminatory legislation, a flexible and well-trained labour force and prompt and fair enforcement of laws are imperatives required for investors to maintain their confidence in the country’s business environment, say leading business representatives in Slovakia. They also believe that these factors have even more importance in times of economic hardship. Business leaders admit that 2009 has posed immense challenges to all kinds of firms but they are keeping a positive outlook and suggest that those companies which produce the best quality products at lower costs will be the winners in the future.
The Slovak Spectator spoke to U.S. Steel President George F. Babcoke, Slovenské Elektrárne Director General Paolo Ruzzini, Slovnaft CEO Oszkar Világi and Chairman of the Board of Directors of Volkswagen Slovakia, Andreas Tostmann, about the essentials of Slovakia’s business environment and the factors that will influence their companies in the coming year.
The Slovak Spectator (TSS): How do you evaluate the current business environment? What changes had the most significant impact on this environment, positive or negative? What factors will have the most significant impact on the business environment during the upcoming year?
George F. Babcoke (GFB): The current business environment is fragile. There are many things that we, as a company, can't control but we stay intensely focused on those things that we can control like the safety of our employees, effective cost and cash management, superior customer quality and service and close attention to managing risk. We have asked our people to find new ways to reduce costs. We are working together and we see remarkable effort. People have come up with hundreds of projects and we have learned a lot. We have to listen to our customers and then we can see improvement in quality. All of this is what we keep in hand. Doing non-standard things with people who used to work in different work areas is a challenge for intensive communication about safety. We are a more efficient organisation now. We are flexible and ready for changes, ready to serve our customers. We have to focus on looking forward. We hope that we have put the worst behind us. In the upcoming year the winners will be those who produce the best quality at lower cost.
Paolo Ruzzini (PR): Our priority will be construction of Mochovce units 3 and 4 where almost 4,000 people will be working in the second half of 2010. We also expect to strengthen our presence in the CENTREL region with our newly established subsidiary SE Predaj and the new installed nuclear capacity available at Bohunice nuclear power plant. With the power up-rate of Bohunice we will actively contribute to a carbon-free Slovak economy and its overall power output.
With Czech and Slovak markets coupled and with the price convergence to Germany’s EEX level, like every other market participant we will be watching very closely the evolution of the demand curve in Europe to see if the bottom of the economic downturn was really hit in 2009. So far, the outlook is positive.
Oszkar Világi (OV): Within the business environment, I see the quicker refund of excess value added taxes to taxpayers, the possibility of registering businesses as a group for VAT purposes, the increase of the non-taxable portion of the tax base, changes to documenting tax-deductible expenditures and the overall simplification of the tax registration of small businesses as positive changes. As for negatives, I see the possibility that actual and forthcoming high public finance deficits could gradually inflate the interest expenses for managing the state debt and subsequently also those expenses for businesses. In the same way, we see enforceability of the law weakening.
Andreas Tostmann (AT): It is not possible to give an exact answer on future development of the market and that is probably one of the biggest challenges. However, we at Volkswagen Slovakia are able to react to changing situations very fast through our instruments of flexibility which allow us to adapt our production based on market demand. Concerning the business environment as such, companies have to find solutions to become even more competitive – to look for possible gaps in productivity, avoid profusion, cut unnecessary costs and improve flexibility of production. It is for sure that just speaking about the crisis will not help. We have to fight for our chance. Production in Volkswagen Slovakia is now stabilised and we are looking forward to for the new production coming to Bratislava. We are investing during this crisis and we will come out of it stronger.
TSS: What attributes do you believe make Slovakia an attractive business destination today?
GFB: Slovakia has a strategic location in central Europe. The car industry is developing very quickly and this industry brings in other branches. Slovakia has great potential. The effective and timely implementation of the euro showed that cooperation between the government and businesses can be very effective, because business and individuals will use the euro in the future and it will have a positive impact over the long-term period.
PR: Slovakia has a strategic location in the centre of Europe; it is close to new growing markets and has good power grid cross-border interconnection with the Czech Republic. The country has skilled people and over 50 years of experience with nuclear power, with the latter being the key to low operational costs and carbon-free power generation that is safe, reliable and competitive.
OV: I think Slovakia is still an attractive business destination; however, its attractiveness is gradually decreasing due to natural reasons such as the highly probable entry of other “cheaper” countries of eastern Europe to the European Union. In my opinion, Slovakia has not fully used the comparative advantages of the introduction of the euro.
AT: Slovakia lies in the heart of Europe and therefore has a central location to important markets and also suppliers. Moreover, the mechanical engineering industry has a long tradition in Slovakia and there is still a qualified workforce in the field. Slovakia joined the euro zone in 2009 and that also has a positive impact on businesses here.
TSS: In which areas could Slovakia achieve quick wins in improving its business environment and making the country more attractive to business?
GFB: Continuous communication between state and local governments and business is vital. Companies, employers’ associations, research departments and schools should participate in this discussion. For companies it is crucial to manage costs, stay flexible and close to customers.
PR: It is necessary for any investor to have trust in the environment in which it invests and operates. In Slovenské Elektrárne, where the state is a 34 percent shareholder, we meet and regularly discuss our strategic plan and its compliance with the country’s energy strategy that was elaborated by the Ministry of Economy. We are sure that the state’s most important role is to introduce stable, transparent, non-discriminatory and predictable legislation and a regulatory framework to encourage investments like our €2.8 billion investment in Mochovce 3 and 4 to support the growth of the country’s economy.
OV: Businesses everywhere in the world like countries with a stable legal environment, a good level of enforceability of the law, high quality infrastructure, a flexible labour market and good communication between the business community and state bodies. In some of these parameters, Slovakia still has room to improve.
AT: In addition to infrastructure it is also very important to have a flexible labour market and to have a good education structure. Volkswagen Slovakia already works in close cooperation with Slovak universities. We work together with five universities on our IngA – Engineer in Automotive Industry project. We have opened a third year of this successful programme just a few days ago as it is very popular. More than 3,000 students took part in its first two years. Together with Slovak University of Technology in Bratislava we have announced the establishment of a new study programme, Automobile Production, and at the end of October we donated an automated robotic station to the Technical University in Košice. However, it is very important that education will be strongly supported by the state. Last but not least, a decrease in administrative burdens is also very important.
TSS: How would you characterise developments in your business segment and the most significant changes that the past year has brought?
GFB: The past year has been the most challenging in my career and I have been in the steel business for more than 34 years. We have been very flexible after recognising the start of the crisis early enough to take quick and decisive actions. Our measures have been difficult but responsible towards our employees and contractors. Thanks to them we are now in good shape and we have more experience with which to face new conditions. We see some improvement and we are ready to produce what our customers require. We will see in the next few months how sustainable the improvement is. What we see in companies around us is that the whole credit situation, while improving, is still a major concern that will tend to determine the path and speed of any sustainable recovery.
OV: This year the global demand for oil products dropped considerably, thus sharpening the already tough competition within the sector. By the reduction in oil processing and the tighter retail margins the crisis has considerably cut investment possibilities. We have observed among our customers an increase in primary and secondary insolvency.
AT: 2009 is definitely a difficult year. The crisis did not touch the automotive industry alone – it is a reality for the whole of the global economy. To be able to react to the rapidly changing market environment we have introduced comprehensive flexibility tools so that necessary adjustments in production can be done. VW SK has an extremely flexible production system, including flexible shift systems and work-time accounts – our flexikonto system. We were the first company in Slovakia to introduce this flexikonto system (work-hour basket) which later became part of the Slovak Labour Code.
More information about Slovak business environment you can find in our Investment Advisory Guide.