WHILE the ongoing discourse about possible tax hikes might make businesses in Slovakia somewhat edgy, foreign investors seem much more worried that their corporate taxes are being frittered away due to corruption in the public procurement system. European investors in Slovakia who are not overcome by global economic gloom place more effective law enforcement and a revamped, more-responsive education system high on their list of goals, according to a major survey conducted by seven European countries’ chambers of commerce operating in Slovakia.
“The fight against corruption should be a top priority, as suggested by the results of a recent survey among 212 European investors in Slovakia,” Markus Halt, spokesperson of the German-Slovak Chamber of Commerce, told The Slovak Spectator. “Foreign companies are very unsatisfied with the efforts of previous governments.”
Investors from European countries who are active in industry, trade and services were quite specific about the main challenges they see for the incoming government of Robert Fico.
The surveyed businesses assessed Slovakia as the most attractive investment location in central and eastern Europe, as in past years, and 88 percent of those surveyed responded that they would choose Slovakia as the site for their investment again.
But the survey also found that if Slovakia wants to retain its appeal for foreign direct investment it will need to work harder to fix certain problems in the judicial system.
“A reform of the judicial system that contributes to faster and more effective jurisprudence is strongly needed,” Halt stated, adding that another major task from the point of view of foreign investors is reform of the education system, a goal particularly advanced by companies operating in the industrial sector.
When Robert Fico announced the return of Robert Kaliňák as interior minister, he also told public-service Slovak Radio that he was confident that Kaliňák would soon submit several anti-corruption measures that will advance Slovakia to a more European environment.
Kaliňák also approached Zuzana Wienk, the head of the Fair-Play Alliance political ethics watchdog, to help decide upon changes the ministry should pursue, saying that he wants to be more focused on anti-corruption efforts, the Sme daily wrote. Kaliňák’s Smer party has already stated that it wants to develop rules for meetings between politicians and businesspeople and lobbyists, and that the party will adopt legislation in this area.
Smer also said that it might propose stricter rules for state procurement, noting that this could save hundreds of millions of euros in state expenditure each year. Kaliňák told the Hospodárske Noviny financial daily that his party had already prepared seven measures in this area. He listed banning addenda to tendered contracts, enforcing centrally-organised procurement managed most likely by the Ministry of Finance, and making a guaranteed lowest price an obligation in state contracts as some of the possibilities.
Representatives of opposition parties have expressed scepticism that Smer is genuinely concerned about improving the business environment.
Reform of Slovakia’s education system was again near the top of the investors’ wish list, according to the survey, and businesses are calling for more qualified graduates from technical schools.
“Foreign investors in Slovakia criticise a lack of combined theory and practice in education, which frequently forces businesses to engage in on-the-job training,” Halt stated, adding that better vocational skills in industrial engineering are particularly needed.
Halt added that if Slovakia wants to see its industry grow in future years it needs to guarantee a long-term strategy for preparing skilled labour.
“The new Education Ministry should handle this issue urgently,” Halt stated. “We suggest improved cooperation between vocational schools and companies, and modernisation of schools’ equipment as well as working to establish inter-company vocational training facilities. These could offer a combined curriculum of theoretical and practical training.”
Because education is a national objective, Halt said the state should financially support such vocational facilities and added that they should be integrated into the broader educational system by full acknowledgment of the degrees these schools award.
Outlook for 2012
Many companies reported they consider the Slovak economy to be in a significantly worse position now compared to last year even though a majority of the surveyed firms do not expect a further downturn in their own businesses during 2012, according to Halt.
The survey found that almost half of the businesses expect increased sales turnover this year and less than 20 percent are preparing for worse business conditions. One quarter of the companies stated that they planned to increase investment as well as hire more employees.
“The survey shows that foreign investors this year will send out growth impulses,” said Vladimír Slezák, the general director of Siemens’ subsidiary in Bratislava, adding that compared to previous years optimism is a little bit more restrained but he does not detect a crisis mood.
The survey was prepared by the British Chamber of Commerce, the French-Slovak Chamber of Commerce, the Dutch Chamber of Commerce in Slovakia, the Austrian Embassy’s commercial attaché, the German-Slovak Chamber of Commerce, the Swedish Chamber of Commerce, the Slovak-Austrian Chamber of Commerce and the Italian-Slovak Chamber of Commerce; 212 firms completed the survey questionnaires in February 2012.
“The integration of Slovakia into the common [European] market and the monetary union has delivered a strong argument that the country is an attractive location for foreign investment,” Halt told The Slovak Spectator. “Investors also appreciate the motivated and qualified workforce available at comparatively low costs.”
Halt added that several investors evaluated the productivity of the Slovak labour force better than in previous surveys conducted by the chambers of commerce.
“This shows that foreign companies mastered raising their labour productivity in the aftermath of the crisis,” Halt stated. “But in contrast the availability of skilled labour has worsened. Production companies in particular noted an increasing shortage of skilled workers.”
Halt told The Slovak Spectator that the investors consider the current tax burden as low “but it begs the question how long this will remain the case”.
According to an official news release accompanying the survey results, foreign firms consider the flat-tax system as only a slightly positive factor in choosing a site for their investments.
Slezák said that even before the March 10 elections Slovakia’s flat tax did not have the same attractiveness as in previous years but nevertheless emphasised that investors sent a “clear signal that increasing taxes is a poison”.
Halt noted that among the site-related factors assessed in the survey, political stability in Slovakia recorded the most dramatic drop ever recorded in the annual survey.
“This was obviously a result of the political quarrels last year and may not be of concern in the upcoming months as the election results predict a stable government,” Halt said.