Successfully investing in Slovakia

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last updated on 27 May 2020 | reading time approx. 3 minutes

 

 

 

How do you assess the current economic situation in Slovakia?

Pursuant to the expectations of the Ministry of Finance, the recession due to the worldwide corona crisis in 2020 is estimated to be around 7,5 percent. A significant part of the economy is connected to the car industry. Although there have been important investments in 2019 – e.g. Jaguar Land Rover – the automotive industry will have to deal with sales problems at present as well as in the near future. Furthermore, it is necessary to consider a certain decrease of personnel cost and increase of unemployment.

 

How would you describe the investment climate in Slovakia? Which sectors offer the largest potential?

Slovakia has been one of the most popular destinations in the region in recent years now. Hundreds of prominent investors – including those from Germany – have selected Slovakia as the suitable location mainly for the automotive industry.

 
As the main factors that attract them to Slovakia, investors mention the following:

  • Stable investment environment;
  • Favourable geographical location;
  • Dynamic economic growth;
  • The Euro as the official currency;
  • Continuous expansion of the infrastructure;
  • High quality labour force.

 

The branches of industry, which have been most dynamically developing already in the long term include mechanical engineering, electrical industry and, of course, the automotive industry. The launch of production of the Jaguar Land Rover has even more strengthened the dominance of this branch in Slovakia.

 

We expect that the aforementioned prerequisites will not change after the end of the corona crisis. To the contrary, we can expect that the state will take appropriate measures to revive the economy, which may positively influence the investment environment in the future.

 

What challenges do German companies face during their business ventures into Slovakia?

Already before starting operations in Slovakia it should be taken into account that the Slovakian legislation differs from the German system in some areas (e.g. labor law). In addition, relatively often changes of tax and legal rules have been observed in the country (compared to Germany).

 

The shortage of labor force was becoming one of the biggest problems for foreign investors in Slovakia in the course of previous years. Some assessed the situation on the labor market as critical and demanded that the Slovakian government open the labor market to foreigners, what then slowly happened.  

 

Currently, the “Country Report Slovakia 2019” by the European Commission praised Slovakia's high economic growth and low unemployment rate, but was critical of regional imbalances and the low quality of public institutions, education, science and research. It was also critical of the effectiveness of tax compliance measures in reducing the high value-added tax gap, which is one of the highest in the EU.

 

After last parliament elections in March 2020, new government has come into the office, promising strong anticorruption and state effectivity measures, including improvements in judicial system, which all should make Slovakia even more stable and demanded place for business.

 

What importance does Germany have for the Slovakian economy?

The strongest country of the Euro Area – Germany – is Slovakia's most important business partner. In 2019, Germany accounted for about 25 percent of the country’s total exports. Slovakia has generated trade surplus with Germany for several years now.

 

German companies are important players in the Slovak market. However, their exact number is hard to determine because many companies are owned by subsidiaries registered in other countries. It is estimated that about 2,400 companies with direct or indirect participation of German capital operate in the Slovak market.

 

German companies are also the largest employers in Slovakia. The largest foreign employer – Volkswagen Slovakia – currently employs approx. 15,000 people. Volkswagen, as Slovakia's biggest private sector employer with revenues of more than 10 billion Euro in 2019, produces Touareg, Audi Q7 and Q8 and Porsche Cayenne in Bratislava.
 

In your opinion, how will Slovakia develop?

The further development of the economy depends very much on the further worldwide development of the corona crisis. Pursuant to the Ministry of Finance, there are three possible scenarios:

  1. The restrictions will continue for 2 months. In the 3rd and 4th quarter a revival of the economy and restart of the production in the automotive industry up to 50 percent of the capacity is expected.
  2. The stoppage will continue for 3 months. The setback of the economy will be more obvious, the revival of the economy will have a similar dynamics as in scenario one.
  3. The stoppages will occur repeatedly worldwide, the revival will be unbalanced and slow.  

 

Thus the further development depends very much on the development of the big economies worldwide.  

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