WHILE the ongoing economic crisis and problems in the eurozone have dimmed British investors’ interest in Slovakia, mutual trade is still growing, and the overall forecast is positive. As Slovakia is not widely known in Great Britain as an investment destination, it has had to take a more active approach towards promotion. In June the Slovak Investment and Trade Development Agency toured the UK seeking partners to host investment seminars and support mutual trade.
“Economic cooperation is most intense in the automotive industry, telecommunications and health care,” Branislav Javorek from the foreign trade department of the Slovak Economy Ministry told The Slovak Spectator. “We see machinery and electro-technical products, chemicals and pharmaceuticals, and furniture production as the export sectors with the most potential.”
Slovak Economy Minister Tomáš Malatinský and UK Minister for Europe David Lidington discussed current cooperation as well as prospects for development in Bratislava on May 22. While they confirmed that there had been positive development in mutual cooperation, they saw space to improve competitiveness at the national as well as international level. In this respect Lidington highlighted the contribution of Slovakia when pushing through new initiatives within the EU’s single market. Both ministers agreed that only joint steps would bring success in the EU’s fight for competitiveness with third countries.
Another field for potential cooperation is the energy sector, in which Javorek highlighted interconnection of energy networks and usage of low-carbon technologies. He also noted that there was potential for cooperation at the level of academic and research experts, with a stress on development of a knowledge-based economy especially in advanced materials and manufacturing, renewable resources, bio-technologies, and information and telecommunication technologies.
“Themes such as innovation and questions of climate change are also equally important for us and we hold the same or similar opinions on them,” Javorek said.
With regards to support for mutual economic relations the Economy Ministry acknowledged the activities of the British Chamber of Commerce in Slovakia and the UK Trade and Investment Department. But Javorek mentioned in this respect that the cancellation of the department for commerce and economics at the Slovak Embassy in London in 2011 had imposed a significant handicap on the Slovak side. The Economy Ministry says it is interested in re-opening the department in London.
“Trade relations between Slovakia and Britain are good, but there is room for improvement. According to British statistics, bilateral trade in goods exceeded 2 billion pounds [approximately €2.2 billion] in 2011 – a good result at both ends, considering the impacts of the global crisis,” Peter Repka, head of the trade and investment department at the British Embassy in Bratislava, told The Slovak Spectator.
British exports to Slovakia grew by 18 percent in 2011 compared with 2010. The most heavily-traded goods were advanced engineering and automotive products, electronic machinery and appliances, telecommunication equipment and metallurgical products.
“We would like to see further growth in this and the coming years but the economic slowdown is far from being over,” Repka commented. Looking ahead, he said that mutual trade is growing and the forecast is positive for the next few years.
Erich Hulman, the deputy chairman of the board of directors of the British Chamber of Commerce in the Slovak Republic (BCC) and CEO of G4S Secure Solutions in Slovakia, told The Slovak Spectator that despite the crisis the chamber does not see any deterioration in economic cooperation.
“There is a space for an increase, of course, and the mission of our chamber is to stimulate it,” said Hulman.
Hugh Owen, a deputy chairman of the BCC’s board of directors and a partner at the Bratislava office of London-based law firm Allen & Overy, told The Slovak Spectator that due to the current macro-economic situation and as part of a longer-term plan the commercial sections of British Embassies have been reduced, including the one in Slovakia.
“However the British business community enjoys excellent relations with the British Embassy and we all pull together to make sure that companies with a UK link get the support they need when looking at investing to or from Slovakia and the UK,” said Owen.
The BCC took part in a positive step recently, when members of the BCC and its board accompanied SARIO [the Slovak Investment and Trade Development Agency] on a trip to the UK to gauge interest in possible investment from the UK into Slovakia and to pave the way for a seminar in the UK on this topic.
According to Owen, SARIO’s presentation was of a very high quality and the UK participants appreciated and respected the visit.
Ľubomíra Gabrielová, head of the marketing department at SARIO, explained to The Slovak Spectator that her agency went to the UK in June to search for potential partners to organise investment seminars in cities like London, Birmingham, Liverpool, Cardiff and Manchester.
“The outcome of the trip is the task of focusing more on the locality of the British Isles because Slovakia is relatively unknown there as a possible investment site,” Gabrielová said, adding that huge potential exists to either attract companies or support mutual trade.
The United Kingdom is the 13th biggest investor in Slovakia when aggregate direct foreign investments are taken into consideration but SARIO, citing recorded enquiries and investment projects originating from the UK in which it has assisted, has lately noticed a downward trend. Contributing factors may be the impact of the economic crisis and the unresolved problems of the eurozone, according to Gabrielová.
Between 2002 and 2011 SARIO helped 17 British companies establish facilities in Slovakia. These investment projects had an aggregate value of €66.05 million and created 815 jobs.
The list of British investors is topped by Tesco Stores Slovakia. With its 130 stores across the country and more than 9,500 staff, it is the number one retailer here and ranks among the top five biggest employers, according to Repka.
“But few people recognise that Health Spa Piešťany is ultimately a British investment,” said Repka. “The Piešťany spa employs over 1,200 people and this is not a small number.”
He added that the security provider G4S Secure Solutions is another major investor.
“There are many companies that have not invested in manufacturing but are key players in the market via trading, franchising or provision of services,” said Repka. “These include companies in the defence sector, pharmaceuticals, nuclear-environmental, oil and gas, ICT, and advanced engineering.”
SARIO believes that agriculture, food production and tourism may be potential sectors for further British investment.
Assessing current interest by British investors in Slovakia, Owen said that apart from Tesco and Health Spa Piešťany there are not so many visible investments from the UK in high-profile sectors like energy, telecommunications or car production.
“In our experience there are quite a few small and medium-sized enterprises across a range of sectors, but there is no big difference in the level of activity,” said Owen.
Regarding economic sectors that the chamber sees as having potential for further cooperation, Hulman said that as the current Slovak government faces ambitious goals in reducing the state budget deficit, the UK example demonstrates that in cooperation with the private sector the government can increase the quality of the services it provides to citizens while lowering costs at the same time.
Owen added that public–private partnerships represent an area which, if managed properly, could deliver benefits to the Slovak economy.
“There does seem to be some negative press around this, but it would be a shame to reject the model in principle because of avoidable failings in well-run processes,” said Owen.
With regards to investments, the British Embassy has recorded a number of expansions in existing British investments here.
“As far as new investors are concerned, I would like to point out KMF (Precision Sheet Metal) Limited, which is engaged in integrated metal work and precision sheet metal fabrication,” said Repka.
Assessing the new cabinet
In assessing the current government’s first steps related to the economy and the business environment in Slovakia, Hulman said that the chamber appreciates the government’s clear commitment to fiscal stability and deficit reduction.
“However, the high unemployment is a significant burden on state expenses,” said Hulman. “Some discussed steps that are going to increase the cost of labour and make the labour market more rigid are therefore seen as counterproductive. Also, increased taxation might deteriorate further investments or will shift investors to other countries.”
According to Owen, some of the tax changes might make the country slightly less attractive for investment – but perhaps not materially so when compared to the very negative political developments in other countries in the region.
“The Fico government should be careful not to destabilise any positive comparisons that may be drawn between Slovakia and [these other] countries,” said Owen, adding that the government ought to be able to carry out its objectives relatively free of harm to its international reputation.
Owen pointed to corruption in Slovakia, which is one of the key areas where Slovakia’s positive reputation could be tarnished.
“Therefore it is very much welcomed that the Slovak government has invested some time and energy launching itself on a perceived anti-corruption platform,” Owen said. “As a bare minimum, the Slovak Republic should not tolerate any obvious transgressions in this respect. More than that though, it must continue to convince its people that it is not only talking about actions in this area, but continues to act upon its words.”