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Slovakia set to get Land Rover plant

SLOVAKIA is already home to three carmakers making the country the world’s leader in per capita car production, and now looks set to have a fourth assembly plant as Jaguar Land Rover (JLR) pursues a factory in Nitra.

(Source: Sme)

For now most of the debates in Slovakia focus on what a final investment stimuli the Slovak government may grant to the British, but Indian owned company, and whether the fourth carmaker is not too much for Slovakia’s strained skilled labour market. There is added concern about whether the country is too reliant on the automotive industry.

JLR, owned by the Indian Tata Group, announced its selection as its preferred location for a new plant on August 11 while it has already signed a letter of intent with the Slovak government for the potential development of a new manufacturing plant in the city of Nitra in western Slovakia.

The move came after an analysis of a number of locations including Europe, the United States and Mexico. Slovakia was a finalist along with neighbours the Czech Republic, Hungary and Poland. The company put Slovakia’s proximity to a strong supply chain and good logistics infrastructure as reasons for the decision.

“With its established premium automotive industry, Slovakia is an attractive potential development opportunity for us,” Jaguar Land Rover CEO Ralf Speth said, as cited in the company’s press release from August 11. “The new factory will complement our existing facilities in the UK, China, India and the one under construction in Brazil.”

The Slovak cabinet as well as several economic analysts and automotive experts see not generous subsidies but existing know-how and network of sub-contractors as the reason for Jaguar Land Rover opting for Slovakia as the preferred location for a new plant. This is in contrast to concerns of some about too extensive concentration of Slovakia on the automotive industry.

“Paradoxically the high concentration of the automotive industry is one of the main official reasons for arrival of Jaguar Land Rover,” Boris Fojtík, analyst of the Tatra Banka bank wrote in his memo, recalling that if materialised this would be the biggest green-field investment in Slovakia in the last seven years.

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Finance Minister Peter Kažimír also notes that Slovakia was the only one of the competing finalist countries which is a member of the eurozone.

Subject to the outcome of the feasibility study, a final decision by JLR over the investment is expected later this year.

The ‘Automotive Nitra Project’ investment proposal, which the Slovak Investment and Trade Development Agency (SARIO) has submitted for an environmental impact assessment, indicates that the proposed plant should create 2,000-4,000 jobs, with an annual output of 150,000-300,000 cars. The estimated investment costs stand at more than €1 billion. The construction work is expected to launch in 2016, while the plant, which should cover around 200-300 hectares, should begin operating in 2018 or 2019.

State incentives questioned

JLR can get investment stimuli in Slovakia from the state, while these may be in the form of direct payments, tax holidays, subsidies or grants. All such measures must also be approved in Brussels. As the final agreement is only to be signed, several items – like amount in incentives the state will give JLR – remain unknown and as Prime Minister Robert Fico has indicated, also will remain so for a while.

“We promised the British side, and I do keep my word, that we wouldn’t comment on developments after the signing of the so-called letter of intent,” Fico said on August 14 as cited by the TASR newswire. “Let’s realise that Slovakia is now a selected and preferred location for this investment. Our duty is to get to a final agreement on the investment itself as soon as possible.”

Poland’s Krakow was considered to be its biggest rival in winning the €1.4 billion investment and Polish officials contend that generous subsidies from Slovakia led to the carmaker’s decision.

“At the end of the negotiations the Slovak party submitted such conditions of state aid, in such an amount, that according to our calculations continuing discussions would be pointless,” Economy Minister Janusz Piechocinski said as cited by the Warsaw Post, adding that the distribution of benefits and outlays would be irrational not only from the point of view of jobs to be created, but also from the point of view of the budget. “We are not fighting for investors at all cost.”

While state incentives Slovakia might provide to JLR are estimated by some as high as €400 million, calculations based on EU rules put them at about €126 million. Subsidies offered to JLR by Krakow are unknown while the Sme daily has calculated them at up to €181 million. The difference stems from the fact that the European Commission regards the Nitra region as more developed than Krakow, allowing the Poles to offer more to draw investment.

Martin Jesný from the Slovak Automotive Institute think tank does not think that Slovakia has offered much more money to the British carmaker than Poland when he see rather the structure of the investment package and a different added value at question – a well–established network of suppliers and qualified workers who have experiences with production of premium aluminium car bodies, as well as the euro, Sme wrote. Volkswagen already manufactures such bodies in Bratislava.

Labour force remains a question

The number of people working directly in Slovak car production is estimated at about 70,000, but the whole automotive industry employs about 200,000 people and thus the availability of qualified labour force is one of the questions drawing the biggest attention in discussions in Slovakia. While the national jobless rate is currently about 12 percent, some engineering companies already complain about lack of qualified labour. Moreover, all three existing carmakers are located in more industrialised western and northwest Slovakia. The jobless rate in Nitra Region is 10.3 percent and in Nitra itself 8.4 percent.

Jaroslav Holeček, vice president of the Slovak Automotive Industry Association (ZAP), is not afraid of problems with the qualified labour shortage, comparing the current situation with that in 2004 and 2005 when Kia and PSA arrived in Slovakia when despite fears they managed to find enough professionals. But he also sees the arrival of JLR as a chance for the state to make systemic changes related to re-qualification and mobility of the labour market, pointing to one of the local labour market’s hottest points and this is the unwillingness to move for work.

Too many cars?

Economic analysts are not afraid of too extensive focus of Slovakia on the automotive industry, when it makes up 12 percent of Slovakia’s GDP and 35 percent of exports.

“In the world of globalisation, small open economies are destined for specialising,” said Ľubomír Koršňák, analyst with UniCredit Bank Czech Republic and Slovakia, as cited by Pravda.

A disadvantage is that the automotive industry is a cyclical sector, but this can be mitigated. In this respect Jesný pointed out that wealthy clients buying premium cars, like the ones made by JLR, would secure a stable demand. Koršňák agrees that the sector of luxury cars can better resist economic crises.

Slovakia already has three car manufacturers, Volkswagen Slovakia in Bratislava, Kia Motors Slovakia near Žilina in Teplička nad Váhom and PSA Peugeot Citroën Slovakia in Trnava. Last year the three carmakers manufactured 993,000 vehicles, or 183 per capita, according to the European Association of Carmakers. That makes Slovakia the biggest car producer in the world based on per capita production.

About one-third of the total industrial production in Slovakia is linked with carmakers. The automotive industry makes up about 12 percent of Slovakia’s GDP while it is expected that the new investment would add about 3 percentage points.

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