Direct investments - a priority for Slovakia

A Direct Investments Workshop organised under the auspices of the SR government, European Commission, and Slovak National Foreign Investments and Development Agency (SNAZIR) took place in Bratislava on 18 and 19 February 1999. Some one hundred top managers from Slovak companies and approximately the same number of representatives of foreign companies interesting in SR investments discussed ways how to help Slovakia get through the country transition process in addressing specific problems, related mostly to the country undercapitalised base. The Workshop was attended also by the SR government ministers, the prime minister, ambassadors of certain countries, as well as Martin Bangemann from European Commission, in charge of telecommunication and information technologies. A team of EF journalists addressed some of the participants, but we will first brief the reader on a handful of opinions presented by the government members.

"The government priority in the field of foreign investments is modernisation of production capacities in companies presently with the lowest labour efficiency. We focus our attention to productions with the globally highest development rate. Focusing our attention to areas of a low long-term growth rate does not give much sense. We prefer productions with a relatively higher processing degree, with a substantial value added by qualified labour. We want to support industries with low export dynamics or those stalling compared to the global indices. Mechanical engineering, namely automotive industry, participation in complementary productions such as in steel industry, information technologies, electrical engineering, telecommunication, and power industry are the areas we find as the most important in terms of the foreign capital entry."

"At the end of September 1998 direct foreign investments in Slovakia were 1,8 billion USD and it is our privilege to host investors mostly from Germany and Austria, each bringing a 20 % share of the Slovakia investments inflows. Great Britain and the USA represent one quarter of the overall foreign investments. Other foreign investors are France and, certainly, the Czech Republic. But interesting investors from any safe country bringing interesting projects will be welcome.

We are well aware that the best motivation a government can provide is a stable, economic and legal environment, capable of inspiring and long-term sustainable development. We are prepared to reduce the existing high budget deficit, strengthen the banking, and accelerate corporate restructuring."

You rank among the most successful joint ventures. What is your secret?

I believe that the successful business is in the approach and attitude of people. One of our priorities is for us the issue of training and education especially for managers. I can tell, that in many cases the student is already smarter than his teacher, as confirmed also by our Norwegian partners.

Aluminium in Europe is in short supply, Europe must import it. Selling aluminium is not a problem, it is a challenge to market it at a good price. We drew on the Norwegian know-how, their trading network, but we were forced to improve our production facilities and upgrade our production quality to the top international level.

Most of our small and medium entrepreneurs are not mature enough to swim safely in "international waters". Concluding a co-operation contract with a foreign partner requires an assistance of an experienced foreign consultant, preferably a lawyer. There are already a few consulting agencies in Slovakia already. They are at a service to their customers, their services are reliable and without any secondary motives.

We often fear of the unknown. Our entrepreneurs should not be afraid of the foreign environment. This is why learning how to interface with the foreign influence is vital for them. They should get used to the way of thinking and culture of their foreign partners.

No foreign investor arrives for charity, they come here to make profit. But their philosophy is that he business is good if it is mutually beneficial, if both partners are happy. This is also the case of our Norwegian partner.

What is the perception of the companies with older foreign investments about the draft law and advantages it brings for new foreign investors ? Won't you feel disadvantaged?

Compared to similar legislative initiatives in 1993/94 I consider the present moves to attract foreign capital to be more purpose oriented. There is a better definition of what we want to achieve and under what conditions. Still I recommend to re-value a position of the existing joint ventures such as our company. If a company plans a substantial investment - say one billion crowns - it should also be granted certain benefits. The hook is in possible opening of new affiliates by established companies, only to tap some of the benefits...

Speaking of economic relations and a position of large, medium and small companies, I should mention the second anniversary of the Slovak Association of Corporate Financiers. One of its tasks is to investigate national options in refinancing the reproduction process with the purpose to help out the smaller companies. And our last "Financial Management" conference was focused on creating communicating environment in preparation of the foreign capital entry. Because understanding our information base is essential for the potential foreign investors in order to become adequately informed. We must adapt to this need and help them transform their potential into our reality.

Danish operations have not been too frequent in Slovakia. Will this situation change?

Danish investors in Slovakia cannot match with Germany, Austria, or the USA. Since the market principles cannot work without co-operation, our observers monitor closely political and economic developments in Slovakia. If all goes well and your government specifies conditions for the foreign investors, I believe that Danish companies may appear in Slovakia within a year. We are closely monitoring operations of several renown western companies, Motorola is the latest example. Of course, your companies should also show signs for co-operation. There are several mechanical engineering companies here with no markets, yet with historically the top production quality. However, I have a feeling that some of their managers are not inclined to foreign co-operation. It may be due to lack of command of foreign languages, a major barrier in making the first contacts. It is also my task to map the situation in Slovakia and identify future personnel for the companies planning to establish business in Slovakia. But this means to lead discussions with specific people on specific topics, because unless basic conditions are clarified, it is difficult to open long-term relations.

Your were a producer of the popular Trabant. Presently you are engaged in co-operation with Volkswagen. What motivated you to come to Slovakia?

I can only tell you my own point of view. I am convinced that we took the best way in entering the Slovak market, because we have obtained an assignment for a particular contract. The contracting party is Volkswagen, and we intend to co-operate with them with the assistance of your companies in producing cars in Slovakia. The contract draft has a definite form and it should be performed this year. I think you will hear more about us soon.

We had several objections in mind when we decided to enter Slovakia: We wanted to utilise low cost level, through investments in Slovakia we planned to replace the stoppage in the former Yugoslavia, and we tried to penetrate south-east Asia markets with our products.

Slovakia is a good place to invest. An investor will find suitable and qualified labour here, acceptable cost level and good opportunities to establish his premises and connect it to infrastructure. What is important is a thorough training and education process. Our company is preparing own training and technology centre to train and teach our own staff.

Low labour cost compared to the Western Europe is among the temporary advantages of Slovakia. Absence of higher technical colleges, similar to the Austrian HTL or German Fachhochschulen with higher engineering technology training is a disadvantage in Slovakia.

We anticipate stable economic environment in Slovakia to expand our operations. We expect that the new government will address problems in motivating the unemployed to look for jobs, since the minimal wages are quite near the unemployment benefits limit. This poses a manpower problem for us, and Volkswagen has the same experience.