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Cars and IT drive investments

SLOVAKIA is strong in the automotive and IT industries, uses the euro currency and has a qualified and still relatively cheap labour force. All these make Slovakia attractive for investors from the United States to launch or extend their business here.

“Slovakia is enjoying an increasing interest from the US,” Milan Seliak, country manager at Bisnode Slovensko consultancy company, told The Slovak Spectator. “Based on our analyses, the share of companies with Slovak companies with owners from the US keeps increasing.”

Seliak thinks that Slovakia is interesting for investors due to its ideal location in middle of Europe and qualified labour force with relatively low wage costs.

“The government also often creates interesting investment stimuli, which are an attractive benefit for investors,” said Seliak.

On the other hand, he criticizes all-too-common changing of legislation, as well as still extensive red tape and corruption.

“The often changing ‘rules of the game’ are annoying barriers,” said Seliak, adding that Slovakia is making many changes in laws, which directly or indirectly affect the business environment. “There is still relatively large bureaucracy and also large corruption.

 

Investments

 

It is difficult to put a precise number on US investments or US companies in Slovakia, as many of them invest in Slovakia through their daughter companies headquartered in another country; thus, such an investment cannot be counted as being from America. Moreover, under certain conditions, the US can serve as a tax haven, a possibility which Slovak companies sometimes use.

Bisnode registers more than 700 companies in Slovakia with owners from the US, when this number rose more than two times over the last seven years. According to Seliak this may be connected also with the constant pursuit of Slovak companies for ‘tax optimisation’, or anonymity of ownership while “when meeting certain conditions, some parts of the US can have a character of tax havens”.

Based on preliminary data of the National Bank of Slovakia (NBS), Slovakia has not registered any inflow of foreign investments from the USA for years 2012 and 2013. But Richard Dírer from the Slovak Agency for Development of Investments and Trade (SARIO) warned that this data may be distorted as it includes only such investments, which are carried out by an original parent company from the USA. He added that investments carried out via daughter companies headquartered in other countries are registered as investments from the given country.

But in 2011, the NBS registered an inflow of foreign direct investments (FDI) from the USA of over €91 million, which made up 3.6 percent of the total inflow of FDI.

In terms of fields most attractive or promising for potential US investors, Seliak pointed to the growth of client centres for strong US brands that successfully attend to clients in Europe. US companies in Slovakia are already established in the IT and automotive sector, while Seliak also pointed out to the potential of distribution centres, while he believes that opportunities that may be attractive for US investors are very variable and extensive.

SARIO added that US investments are in Slovakia placed especially in the steel, electrotechnical, and food industries or financial services or shared services centres.

“The automotive sector and shared services centres can be considered to be the most prospective fields for investments from the USA and the biggest interest for investing in Slovakia arrives from this side, too,” said Dírer.

SARIO also sees opportunity in venture capital, when US companies could enter into growing start-ups in Slovakia.

When presenting the investment environment of Slovakia, SARIO cooperates with AmCham in Slovakia, the economic section of the Slovak Embassy in the US, honorary consuls of Slovakia in the USA or established US companies. In March 2014, representatives of the US Embassy participated in the Commercial Club, a meeting of representatives of economic sections of embassies in Slovakia organised by the Embassy of Canada and SARIO.

Since 2008 SARIO has assisted 14 successful investments from the USA totalling 134 million euro, while the plan was to create over 2,800 working places. During the time being SARIO is assisting during two projects, which have a potential to create as much as 2,350 working places, according to Dírer.

 

TTIP

 

For the time being, the USA and the European Union are negotiating the Transatlantic Trade and Investment Partnership (TTIP). According to Dírer because negotiations about the TTIP are still going on it is difficult to say, in what an extent this so-far unfinished process affects interest of investors in Slovakia and the inflow of FDI. Apart from the removal of barriers in trade, the aim of TTIP is to secure a mutual equality of investments within economic competition and to harmonise their protection on both sides.

“It is possible to expect that if TTIP is signed, thanks to harmonisation of regulations (not only in judiciary, but also in the case of technical norms) the interest of investors from the US will increase,” said Dírer. “Thus this development can influence not only the inflow of FDI into Slovakia, but also provide an opportunity for Slovak companies to survey the US market more intensively.”

Based on a survey the Business Alliance of Slovakia (PAS) conducted with support of the US Embassy on 453 respondents earlier in 2014, more than one half of business assume that TTIP would bring new business opportunities and would help revitalise Slovakia’s economy. Based on the survey, 52 percent of respondents perceive the free trade agreement as a large or moderate opportunity while only 11 percent think the opposite. Each fifth respondent was neutral and 17 percent was not able to respond.

Business people also expect that the creation of the Trans-Atlantic free trade would have a positive impact not only on their revenues, but also on employment.

“Not only based on domestic estimates but also according to international institutions Slovakia should in any case belong to countries that will profit from TTIP more than the average,” Róbert Kičina, executive director of PAS wrote in PAS press release in February.

According to the business people, the possibility to extend the circle of trade partners, intensification of foreign trade and simpler transfer of know-how and technologies should be the most significant benefits of the Trans-Atlantic free trade zone. Intensification of competition on the market is put as the main risk. For now they consider large transportation costs, geographical distance, differing standards and norms, administrative demands on export procedures and customs as the main barriers to intensify their foreign trade with the US.

The TTIP impact analysis on Slovakia’s economy and business environment indicates a 2.57 percent increase in corporate revenues, a 1.19 percent increase of employment rate (i.e. 27,652 new jobs), 3.10 percent growth in exports and 2.93 percent growth in imports, according to PAS. The expected growth of cross-border trade is 3.02 percent. In addition to this growth, GDP is expected to grow at roughly 3.96 percent to 4.22 percent. Accordingly, TTIP’s contribution to Slovakia’s economy could amount to as much as €3.6 billion or €1,743 per single household.

Slovakia’s potential to profit from TTIP’s benefits depends largely on the competitiveness of Slovakia’s economy, according to PAS, pointing to Slovakia’s positive experience with entering the European Single Market in 2004. The range of customers serviceable without the need of overcoming national barriers has been extended from 5.5 million to 500 million with a now fiercer competition between Slovak and European producers, while the latter have gained barrier-free access to markets of central and eastern Europe. Shortly after the country’s entry into the EU, Slovakia’s economy experienced one of its most stellar periods, with its increasing economic growth hitting an all-time high of 10.4 percent in 2007. PAS points out that this success of Slovakia’s economy was not generated solely by the country’s joining the EU. Its fundamental prerequisites were substantial reforms of the business environment that boosted the competitiveness of businesses, i.e. their ability to succeed at the marketplace. The actual entry into the EU’s trading space was but a catalyst for the following economic success.

Topic: Foreigners in Slovakia


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