Slovakia is Open for Business

09.14.15

Slovakia is Open for Business

09.14.15
ReutersReuters

By Louis-Claude Perrault-Carré for Global Risk Insights

‘Tatra Tiger” refers to the massive growth of the Slovakian economy in the early 2000’s. The growth was attributed to economic liberalization, including decisions by the government to lower taxes and barriers to foreign investment.

The government of Prime Minister Mikuláš Dzurinda removed various business regulations and incorporated a 19% flat tax rate for personal and corporate incomes.

The privatization and semi-privatization campaign led by Dzurinda, encompassing health care, social security systems, and tax reforms, made the economy at the time very attractive to foreign investors.

Most significantly, Slovakia saw a push by automakers from around the world expanding into the country. This included Volkswagen Slovakia in Bratislava in 1991, PSA Peugeot Citroën Slovakia in Trnava in 2003, and Kia Motors Slovakia in Žilina in 2004.

The automobile industry has effectively become the most noteworthy aspect of the Slovak economy, with growing research, development, and a more educated labour force. Slovakia has become the international front-runner for automobile production per capita.

Jaguar Land Rover expanding

Recently, Jaguar Land Rover Automotive PLC (JLR) announced its plans to build a factory in Nitra, Slovakia, which by 2018 will have a yearly output of approximately 300,000 vehicles.

Other locations were considered, but Slovakia’s proximity to the United Kingdom, where JLR is headquartered, as well as its central location within the company’s largest market, nearness to Germany, a major automobile-parts builder, and low labour costs made it the most attractive option.

JLR has experienced five consecutive years of growth, selling 462,678 cars in 2014, up 9% from the previous year. The company needs to ensure that it is building a solid and stable foundation, which will become essential in its ambitious goal of becoming a major competitor in the luxury vehicle market.

JLR has also recently finished negotiations for other projects in China and Brazil.

The Slovak automotive industry

Slovakia’s auto-industry makes up the largest single aspect of its economy.

43% of Slovakia’s industrial production lies in the automotive sector, building the most cars per capita in the world. Unemployment has improved recently, lowering from 13.2% in 2014 to 11.8% in the first half of 2015.

The inception of JLR in the Slovak economy will provide people with more jobs, as well as boosting the growing demand for Slovakian-trained experts, and a need for work in research and development.

Lack of diversification, but with increased transparency

Becoming more reliant on the automotive industry will develop the Slovak economy in the near future, but the reliance on the industry may cause long-term risks for companies involved.

If demand for vehicles decreases in the future or differences emerge in the industry, the effects on the hugely invested Slovak economy may be devastating. Diversification should be the number one priority of the government, in an attempt to maintain growth in the industry while creating jobs in others.

Having become the world leader in building cars has reinvigorated the Slovak economy, and JLR’s expansion shows that the industry is ready to continue growing. Regardless of this fact, investing in just one sector is never a good idea, even if it may seem very positive at the time.

For the good of the economy and all companies invested, it is imperative that the Slovak economy begins a gradual diversification, maintaining the auto industry, but also investing in new endeavors.

Besides the lack of diversification, many other positive changes to the Slovak government have been seen recently, including the introduction of new laws to tackle corruption.

As per the Slovak chapter of Transparency International, the government is forced to “publish its contracts, receipts and orders automatically online, without anyone asking for them. Moreover, no government contract would come into effect unless it was published online.”

This allows tax payers to track more effectively where and how their government is spending money. These changes have brought Slovakia, which historically has had much trouble with corruption, to the forefront of the European Union (EU). The government’s actions here simply show foreign companies that they are willing and want to change.

Assessing the main aspects of this situation shows that Slovakia has much promise and potential for the future. Recent growth and a significant shift in anti-corruption is attracting companies, creating a specialized economy for the automakers of the world.

Jaguar Land Rover is likely just the beginning in a series of foreign companies to invest in Slovakia.

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