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Crisis might also be an opportunity

Some time ago Tomáš Malatinský said that the financial crisis offers a chance for economies to improve the quality of their goals. Slovakia’s economy minister still believes that these chances exist and that Slovakia should use the crisis to diversify its exports and, along with the orientation of other countries of the European Union, it should try to penetrate the markets of India, China and Arab countries. The Slovak Spectator spoke to Malatinský, who joined the cabinet of Robert Fico straight from the Federation of Employers’ Associations (AZZZ) where he represented the interests of the employers, about the quality of the business environment, innovation, energy policies and combating red tape.

Tomáš Malatinský(Source: Sme Tomáš Benedikovič)

Some time ago Tomáš Malatinský said that the financial crisis offers a chance for economies to improve the quality of their goals. Slovakia’s economy minister still believes that these chances exist and that Slovakia should use the crisis to diversify its exports and, along with the orientation of other countries of the European Union, it should try to penetrate the markets of India, China and Arab countries.
The Slovak Spectator spoke to Malatinský, who joined the cabinet of Robert Fico straight from the Federation of Employers’ Associations (AZZZ) where he represented the interests of the employers, about the quality of the business environment, innovation, energy policies and combating red tape.

The Slovak Spectator (TSS): Slovakia is lagging behind in innovation effectiveness, having ranked 22nd among 27 European Union countries. What steps could, in your opinion, improve this state?
Tomáš Malatinský (TM):
For the development of innovation it is necessary to establish a managing body, fed from public funds, with strong and clearly defined competences in coordination of policies. This body should secure the preparation, implementation and evaluation of innovation policies; the coordination of national and regional policies and strategies, innovation education and regular evaluation of the effectiveness of the national system of innovation among others. No less important will be the completion of a regional system of managing innovation, which in Slovakia is almost completely absent. It will be also important to change the sector structure of the economy shifting it towards a higher share of knowledge-intensive business services (KIBS). Economies with a high share of KIBS generate high tax revenues.

The Slovak sectors with low levels of innovation and creativity are unable to compete, for example, with Romania, Bulgaria and other alternative destinations of foreign investments. Preserving the basic social functions of the state will be possible only through increasing the share of added value in the national economy, and its subsequent redistribution through public budgets. This cannot be achieved without building strong branches of industry and services based on the knowledge of innovative technologies.

TSS: Slovakia recently received its worst-ever ranking in the World Economic Forum’s (WEF) Global Competitiveness Report, ending as the third least competitive country in the EU, with corruption, administrative burden and low enforceability of law being among the reasons for the drop. What importance do you attribute to this and similar rankings?
TM:
Rankings of world economies reflect long-term outlooks in all areas of the business and administration of a country. Maybe it is relevant to compare countries within one region with a similar political culture and market economy, where Slovakia prevails in the assessment of the World Bank within the Visegrad Four group. The Economy Ministry monitors similar rankings and makes an effort to prepare measures to improve the business environment and lower the administrative burden.

TSS: The Singapore project prepared by the previous government was halted, while your ministry is working on a new project to reduce red tape. Could you provide more specifics about the new programme?
TM:
First of all it is about addressing red tape for businesses and reducing the administrative burden. Yet, measuring and lowering this burden is not only a one-time issue but rather a continual process, which requires a systematic approach. Thus the Economy Ministry will carry out the so-called third-phase of measuring, which includes all legal regulations under the ministry’s jurisdiction. The assessment will be carried out for the first time by the ministry itself without an external supplier and in cooperation with business associations and unions. Based on the results we will define the regulations that represent the highest burden as well as measures to lower this burden. Then such measurement should take place at other ministries as well, while gradually the whole legal system of the country should be scanned.

TSS: The ministry is calling for more funds to support the research activities of firms. What types of activities would the ministry support? How do you assess the opinion that it is better to improve the business environment for all as opposed to supporting selected firms?
TS:
The Economy Ministry wants to support the commercialisation of the results of applied research and development (R&D), which means that firms that directly use R&D for their further development and improve their economic performance will return the invested funds to the state budget either directly through taxes or indirectly. Projects submitted mainly by firms in cooperation with suppliers of expertise, which would be directly applied in practice with a clear usage, would receive support. Yet this support will not disturb the business environment because each firm will have a chance to apply through projects for this support. Such projects are supported even within the EU because in the end these firms bring higher added value while increasing the competitiveness of the given state on the global market.

TSS: Recently investment stimuli went to 10 firms, some of which did not promise to create new jobs but only to preserve existing ones. How do you assess the current system of providing state stimuli? Are you planning any changes?
TM:
The current investment stimuli system is in line with the respective EU directive as well as the legislation on investment support. It means that, for example, the companies Mondi SCP and Samsung Electronics Slovakia will not create new jobs but will invest altogether more than €160 million, which in the current crisis represents significant help. Yet, we are currently working on a draft revision of this law and one of the measures proposes the option of investment support only for projects that will lead to a net increase in jobs. This measure would apply to new as well as established investors.

TSS: In the past you have said that you do not consider the crisis a threat but rather a chance for high-quality economic growth. How could, in your opinion, Slovakia change the current situation to high-quality growth?
TM:
The crisis emphasised the key problems and unsustainable trends in our economy and within the ‘cleansing process’ it gives a chance to change them. Not only consolidation of public finances and a more effective public sector are in question. Only increased support for innovation, a better business environment and qualified labour can achieve high-quality growth and improve the competitiveness of the country. Slovakia should use the crisis for diversification of Slovak exports and, along with the orientation of [other] countries of the EU, it should strive to penetrate the markets of India, China or Arab countries.

TSS: Slovakia is getting closer to the 2020 deadline for increasing the share of renewable energy to 14 percent. Does Slovakia have a chance of achieving this goal?
TM:
Meeting the goals in 2009 and 2010 was in line with estimates prepared in the past based on the National Action Plan for Energy from Renewable Sources of Energy. Thus I consider meeting the goal of 14 percent in 2020 completely realistic. The ministry will push for such support for renewable energy sources, which will lower the costs of reaching the goals in this area, as well as in greenhouse gas emissions. In the case of solar energy, we will prefer small devices by which households can cover their energy consumption. However, we want to gradually lower the financial support for renewable energy sources since we consider these only temporary and necessary only for the development of new technologies. In the near future, we will prefer such devices, which have minimal influence on the end price of electricity. A large challenge remains in the form of setting the efficient support for heat from renewable sources. Our intention is preferably to use biomass for the production of heat and not for electricity production.

TSS: Russia is building new gas pipelines, for example, Nord Stream and South Stream. What influence do you expect this trend will have on Slovakia’s position as a pipeline transit country?
TM:
Based on actual information the ministry has, the operation of the Nord Stream pipeline already indicates signs of a drop in the volume of transited gas through the Slovak transit network in 2012. Considering the operation of the second branch of the pipeline, which will increase its total transportation capacity, some effect is still expected. The South Stream pipeline project does not have any impact on the transit of gas through Slovakia since the final investment decision over the project is expected to be made around this time.

For the future of the central European transit corridor, which Slovakia is part of, it is important to settle relations between Ukraine and Russia as well as the accomplishment of the planned reconstruction of the transport network. The solutions adopted by countries which plan to end the usage of nuclear energy as well as the assumed increase of Europe’s dependence on gas imports will have a significant impact on the country’s position. Thus it is important that the Slovak operator of the transit network actively participates in the projects with respect to solutions within the region.

TSS: The Slovak government has declared support for the use of nuclear energy, unlike some countries which have changed their energy focus in the aftermath of the Fukushima tragedy in Japan. What are the developments around the plans to construct a new nuclear power plant in Jaslovské Bohunice?
TM:
One of the priorities of the development of electro-energy remains to secure at least 50 percent of electricity production from nuclear power plants. Nuclear energy currently represents a real alternative solution for energy problems from an economic as well as an environmental point of view.

Nevertheless, nuclear energy policies must be carried out in line with the highest international standards of nuclear safety regardless of events similar to Fukushima. Slovakia does adhere to these standards.

As for the new nuclear energy source in Jaslovské Bohunice, the project is continuing in line with a set timetable. On October 25, the supervisory board of the company JESS approved tasks for the upcoming period, including an assessment of the environmental impact.

TSS: What is your response to the opinion that Slovakia suffers from a low interconnection between education and the business environment or practice? What could your ministry do to improve this situation?
TM:
The ministry has already elaborated schemes to address this disproportion, the so-called innovation vouchers, intended to interlink businesses with solution institutions such as high schools, universities and the academy of science, which is linked to financial support from the resources of the Finance Ministry. Additional resources support existing clusters and the creation of new functional clusters, which would be motivated exactly based on the interconnection of the members of the cluster with education providers while they would receive resources only until a certain stage, for example, as a cluster start-up.

All this however requires resources either from the EU or the state budget, and the Economy Ministry is one of those institutions that are able to return these resources to the state budget.

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