More than a year has passed since the referendum on the United Kingdom’s exit from the European Union, yet no one can be sure of its impacts. Due to uncertainty, British entrepreneurs in Slovakia and Slovaks in the UK today need to prepare for potential risks.
Though citizens of both countries may return to their homelands when the actual separation occurs, entire companies that depend on profits from operations will be rather limited in their activities and development. Some manufacturing companies with sales on the European continent will give preference to their continental sites, according to Peter Kremský, executive director of the Business Alliance of Slovakia (PAS).
“Some shared business service companies, mainly those offering services to banks and financial institutions, will move part of their activities to less expensive locations in the euro area,” Kremský told The Slovak Spectator.
Slovak cities with shared service centres, like Bratislava and Košice, may reap the benefits of such a development, Kremský said.
Since 2002 the state-run Slovak Investment and Trade Development Agency (SARIO) has helped bring a total of 21 British investment projects to Slovakia at a value of €1.484 billion, generating 3,949 jobs. Today the business service company Dun&Bradstreet records 405 companies in the country with a parent company in the UK.
Biggest construction in Nitra
Investments over the last 15 years in Slovakia have gone to sectors producing rubber and plastic products, metal products and motor vehicles.
The statistics include the €1.4 billion investment by the British carmaker Jaguar Land Rover (JLR) that is, despite the Brexit referendum, currently building a new plant near Nitra with an expected start of operation in autumn 2018.
British Ambassador to Slovakia Andrew Garth thinks that JLR has been very clear from the very beginning that the result of the referendum was not going to play a role in their decision to invest in Slovakia. The investment volume linked to this project does not stop with the assembly plant itself, he said.
“Several of JLR’s UK suppliers are also considering establishing a presence in Slovakia to support JLR here,” Garth told The Slovak Spectator.
One of JLR’s main suppliers, Horiba Mira, has already considered the construction of a test and development centre at the airport in the spa town of Piešťany. The investment would significantly help that airport that the authorities threatened to close in 2016 due to its debts of €1.7 million, the Sme daily reported.
Of the other British companies operating in Slovakia, SARIO’s spokeswoman Simona Čerešníková mentions chemical producer DS Smith; automotive supplier Arlington Automotive; service centre Insignia; metal engineering company KMF Slovakia, and pharmaceutical company Innopharma.
Garth pointed to Tesco, which employs over 10,000 people across Slovakia, and that regularly invests into its operations.
Slovaks focus on exports
Similarly, approximately 30 Slovak companies currently have a branch in the UK, according to Igor Skoček from the press department of the Slovak Foreign Affairs Ministry.
The Slovak embassy in London considers the largest investor to be real estate developer HB Reavis, which has been in the UK since 2013. After the referendum, the company managed to sell its first development project, 33 Central, to the American bank Wells Fargo, Skoček said.
“It was one of the largest commercial real estate acquisitions in London after Brexit, worth 300 million pounds,” Skoček told The Slovak Spectator.
Slovak businesses in the UK also include exporters in engineering, mining, metallurgy, clothing and the beverage industry, as well as providers of finance and IT services.
The entry of JLR and the weakening of the pound after Brexit has also affected trade between the two countries. While exports from the UK make up 3 percent of the total Slovak imports, Slovak exports to the UK are less than 7 percent of the country’s total exports, the HNonline.sk website reported.
No impact on global players
Over the next 10 years, the number of foreign direct investments in the UK may fall by 22 percent, according to an analysis by the Centre for European Performance. Martin Vlachynský, an analyst with the INESS economic think tank, however, does not assume that any of the sense-making scenarios will affect the global corporate players.
“If the reason for the arrival to the UK was an effort to enter the global market, Brexit would not affect companies’ decisions,” Vlachynský told The Slovak Spectator, adding that it could instead make the entry more difficult for small and niche-focused entrepreneurs.
SARIO expects stabilisation of companies’ positions on the EU markets when the UK leaves the group thanks to the benefits of the common market. Čerešníková noted that the EU will still remain the UK’s most important trade partner.
Attracting people back
The investment agency, together with the Labour and Foreign Affairs ministries and some companies, are currently preparing a plan to persuade Slovak citizens working in the UK, mainly those affected by Brexit, to come back home.
The project focuses on information about prospective job opportunities available in Slovakia, especially in the service sector with higher added value, said Čerešníková. Though the agency should kick off a pilot project in summer 2017, it remains in the preparation phase aiming at the project’s concept, appearance and functionality.
Unlike employees, companies are making decisions based mainly on profitability, according to business experts. If the changes bring a loss of business and lower the return on investment, Slovak companies will certainly think about optimising or even shutting down their British activities, Kremský said.
Bilateral trade between the countries will face an additional cost item that can consist of compliance costs, or also tariffs, Vlachynský said.
In the future, Slovakia may attract not only domestic companies but also foreign investors looking for a new location, a favourable geographical position, a stable political and economic situation and high labour productivity, said Čerešníková. The effect of the referendum on companies depends on the business model and supply chains.
Being the second largest economy in Europe, the UK is a good market for Slovak goods, for Slovak companies to raise finance and use it as a stepping stone to global markets, according to Garth.
“Despite the uncertainty, the UK continues to receive significant investment from local and overseas firms,” Ambassador Garth emphasised.
19. Aug 2017 at 9:30 | Peter Adamovsky