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Successfully investing in Slovakia

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last updated on 19 May 2021 | reading time approx. 3 minutes

 

 

 

How do you assess the current economic situation in Slovakia?

The strong economic expansion of recent years is giving way to slower growth. After experiencing 4.0 per cent growth in 2018, Slovakia’s economy has grown at 2.3 per cent in 2019 and fell to -5 per cent in 2020. It is expected to grow at 4 per cent in 2021 and 5.4 per cent in 2022. Amid record-low unemployment and rising wages, household incomes and private consumption will continue to grow. Trade is likely to recover after its less dynamic performance, which was due to weaker demand and changes to production in the automotive industry, which is a key part of Slovakia’s economy.

In 2020, the foreign trade balance was in surplus amounting to 714.4 million Euro.

 

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

Maintaining productivity growth, the backbone of Slovakia’s economic convergence, will require sustained structural reforms and targeted investment into infrastructure, research and innovation. Improving the quality and inclusiveness of the education and training system, reducing regional disparities and improving the quality of public institutions can help Slovakia to safeguard its competitiveness, move up the value chain and become more sustainable. A smart and low-carbon transport and energy system can contribute to greening the economy.

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 a suitable location mainly for the automotive industry.

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

  • Stable investment environment;
  • Favorable geographical location;
  • Dynamic economic growth;
  • The Euro as the official currency;
  • Continuous expansion of the infrastructure;
  • High quality labor 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 Covid-19 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 Slovak legislation differs from the German system in some areas (e.g. labor law). In addition, in Slovakia relatively frequent changes of tax and legal rules have been observed (compared to Germany).
 
The shortage of labor force was becoming one of the biggest problems for foreign investors in Slovakia in the course of the previous years. Some assessed the critical situation on the labor market led to the opening of the labor market to foreigners.  
 
After last parliament elections in March 2020, a new government has come into the office, with strong anticorruption measures (including improvements in judicial system), which all together should make Slovakia even more stable and a demanded place for business.

 

What importance does Germany have for the Slovakian economy?

The strongest country of the Euro Area is Slovakia's most important business partner. In 2020, Germany accounted for about 22 per cent 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 2020, produces Touareg, Audi Q7 and Q8 as well as Porsche Cayenne. From 2021, the production of VW Passat and Skoda Superb is located in Bratislava as well.
 

In your opinion, how will Slovakia develop?

The further development of the economy depends very much on the further worldwide development of the Coronavirus crisis.

Pursuant to the Ministry of Finance the second wave of the pandemic will slow down the dynamics of recovery in this year. The updated forecast expects that the second wave will last longer although its economic impact will be smaller. The forecast for growth of the Slovak economy in 2021 is based on the assumption that the restrictions related to the pandemic will remain on the current level during the 1st quarter and will ease subsequently up to the 3rd quarter approx. to the level of September 2020. The pandemic will negatively affect also the economies of our business partners, the foreign demand will be weaker for most of the year. On the other hand the grow will be helped by the release of a Covid reserve of one billion Euro to support the economy and in the second half of the year also by the commencement of the Recovery and resilience plan. In general, the economic dynamics will be weaker, in particular in the first quarter, the job creation restart will be postponed to the end of the year. In consequence thereof the employment will decline moderately by 0.2 per cent in 2021.

Starting from 2022 the economy will gain dynamics again, in particular due to allocation of EU resources.

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