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Investment stimuli handed out prior to elections

AT ITS final session just three days before the parliamentary elections, the Robert Fico cabinet approved a hefty package of investment stimuli for a handful of companies, some of which have vague and suspicious backgrounds.

(Source: SITA)

“Negotiations about stimuli were led for several months; it is not a new thing that has arrived in the very last moment,” said Economy Minister Vazil Hudák as cited by the SITA newswire after the cabinet okayed the stimuli on March 2, stressing that the investors will receive the stimuli only after they invest the money which they promised to invest and create the declared number of jobs.

Peter Kremský, the executive director of the Business Alliance of Slovakia (PAS) and Martin Reguli, analyst from the F. A. Hayek Foundation, see the approval of stimuli rather as a pre-election strategy to improve the reputation of the ruling Smer party.

“It think this is part of a pre-election fight in which the cabinet tries to utilise also this tool in order to bring earlier results by which it can promote itself in the pre-election fight,” said Reguli as cited by the Hospodarske Noviny economic daily.

The approved investment stimuli total €43.3 million. They will go to five companies that plan to invest €224.6 million and create 1,820 jobs by 2018 in Slovakia. The stimuli consist of direct incentives to be used for purchase of tangible and intangible assets and tax holidays.

Out of the stimuli and investors, the biggest ones raise the biggest questions.

RKN Global Europe which plans to invest €89.4 million in Banská Bystrica and create 1,238 new jobs asked for assistance worth €18 million of which €10 million should be used for purchase of tangible and intangible assets and €10 million should be in the form of tax breaks. Midia Agro applied for investment aid worth €18.5 million to build a new plant for producing milk-based children’s products in Čab (Nitra Region) while it plans to investment €98 million and create 325 new jobs. Of the stimulus, the company wants to use €16.5 million for purchase of tangible property while tax breaks should account for €2 million.

Plans of RKN Global Europe to build a plant to produce duty stamps and blank copies of personal documents in an industrial park near Banská Bystrica has been hitting headlines in Slovak media for some time. The Dubai-based firm, formally run by the former head of Interpol Robert Noble, is seeking to cooperate on this project with Ukrainian firms accused of corruption in the US.

Noble confirmed on March 2 that all patents and know-how for production of secure identity documents are held by his Ukrainian partners, while his explanation of financing the project was unclear, according to the Sme daily.

RKN Global Europe also does not hold, as of now, an industrial security review by the National Security Office (NBÚ), which in case of production of blank copies of personal identification documents is a necessity. Minister Hudák said that the cabinet would require such a review within the agreement with this investor and it must be carried out before the investment stimulus applies.

But Peter Goliaš of the INEKO think tank also pointed out that the proceeding should be reverse and that initially the review should be done and only afterwards the stimulus should be granted.

Midia Agro, on the other hand, unveiled its plans only in late February. Even though Slovak milk producers have welcomed its plan as they are in a desperate situation as there is an excess of milk on the European market due to cancelation of milk quotas within the EU, the Russian embargo and decreasing demand of the Chinese market for powdered milk, the Food Chamber of Slovakia (PKS) has called on the cabinet not to allocate the stimulus.

“It is bewildering then when deciding about financial support for a company, one which does not have listed in its business activities processing of milk and production of dairy products; it was preferred to local traditional producers,” the PKS wrote in its stance, pointing out that an unknown Cypriot company that has no experience with production and sale of powdered milk has launched Midia Agro some months ago.

While also the Environment Ministry pointed to the absence of a licence to process milk, for the cabinet to greenlight the investment it was enough that Midia Agro is in the process of getting it.

The chamber further pointed to unused capacities of existing dairy companies in Slovakia and thus in its opinion it would be more effective and just to financially support these producers than to provide selective state support and create unfair competition in the milk-processing sector.

Moreover, Midia Agro is taking a €50 million loan to finance the project, while the bank is waiting to see whether the company will receive the stimulus. Thus the company is not able to prove that it is capable of financing the investment, Sme wrote.

Remaining stimuli

The cabinet also approved allocation of stimulus of €1.4 million for cheesemaker Bel Slovensko in Michalovce (Kosice Region) that plans to expand production at its existing plant. It plans to invest €4.25 million and create 50 new jobs.

The Jasplastik-SK company in Galanta (Trnava Region) requested €3.9 million in aid for expanding its production capacities in Nitra-Mlynarce. The investment, worth €17.6 million, is to be carried out in 2016-18, and 140 new jobs should emerge by the end of 2017.

The car component manufacturer Mar SK in Sučany (Žilina Region) is seeking €1.53 million in aid to expand its existing plant via a production line for making ball bearings and wheel hubs. The investment worth €15.35 million is expected to lead to 67 new jobs.

During the last four years the cabinet supported investments with an aggregate amount of €1.5 billion, and those supported companies created around 10,000 jobs. But an economic expert warns that huge stimuli may deform the business environment.

“While the investment stimulus supports origination of some investment, on the other hand this money was collected from other businesses, which as a consequence have less for their own investments,” Martin Vlachynský, analyst with the Institute for Economic and Social Studies (INESS), told the TA3 newswire.  

Investment stimulus is a tool widely used by European countries to draw foreign investments and it is questionable whether investors would choose Slovakia if incentives were not offered.

Topic: Election


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