Business culture in Slovakia

Whereas in the past Slovakia had a reputation of an inhospitable economic partner, but in recent years many things have changed. Thanks to the industrial boom, especially in the automotive industry, foreign countries started to designate a small country in Central Europe as a Tiger of the European market. For foreign companies, Slovakia has been a suitable play for investment in recent years. The period of economic crisis has curbed economic growth; many analysts even say that the quality of the business environment has deteriorated. However, Slovakia remains a Tiger of Europe – hungry, but still attractive for investors.  

The Slovak Republic entered the Eurozone last year in January and thus achieved a more stable position on the international market and predictability of the business environment. The quality of the business environment is an important indicator that decides on the arrival of foreign capital in the country. Business conditions remain favourable for foreign partners. There are several reasons for it: relatively cheap labour force, a sufficient number of qualified workers and language skills of people in higher and medium positions. For foreign countries, Slovakia ceases to be a cheap destination with low prices. Its competitive advantages are the strengthening of corporate culture and sufficiently qualified generation of employees in different sectors. The ability to convince and sell is an increasingly stronger factor affecting the decisions of foreign companies on where to invest their capital. Before an investor decides to do business in a country, he or she tries to obtain information about the tax system, GDP, labour market, unemployment, labour code, statutory contributions and wages, infrastructure, language skills, and the level of education. Potential investors showing interest in the Slovak market find a large number of weaknesses, but realise that investment in the Central and East European countries pays off because it is a dynamically developing region. Furthermore, they have the same business conditions as nationals of the Slovak Republic. In case of higher investments, they can obtain state aid, e.g. in the form of tax holidays or other incentives.

;reklama;

In the period of the highest growth of the Slovak economy, foreign countries designated Slovakia as a Tiger of Europe. In 2005, the economy achieved the highest growth in the history of the country, particularly thanks to the arrival of automotive companies. Slovakia thus attracted the attention of foreign media, and in particular potential investors. Offers were arriving and thousands of new jobs were created. Slovakia was a small wonder in the middle of Europe. The following years slackened this breakneck pace – the measures of a left centre government as well as the economic crisis contributed to it. This year’s statistics showed that in spite of unfavourable conditions the Slovak economy had grown, although only slightly. Last year’s negative prognoses have not come true – Slovakia improved its economic standard by 4 per cent. Media designated Slovakia as a „Hungry Tiger“, because in spite of the most dynamic economic recovery in the European region achieved in 2010 the country struggles with its unemployment rate of 13%. Foreign demand and investments contributed to the Slovakia’s highest economic growth in Europe. However, Slovakia has a problem with increasing debt, so the new government had to proceed with the implementation of decisive measures such as the dismissal of thousands of employees in the public administration. The high unemployment rate is not a bad signal for investors, because cheap and qualified labour force is released. The labour market is dominated by competition, and companies can choose the best of the best and fill vacancies at all levels of different positions.

In spite of the positive evaluations of previous years, Slovakia feels weaknesses and constraints in the business environment. According to analysts, it needs to improve the business conditions and win back the confidence of foreign investors. The international business environment quality index in Slovakia decreased this year and the new government undertook to recover the economy and thus improve the flow of investment. The Minister of Economy and Construction Juraj Miškov even declared that during his term he would make Slovakia the „Singapore of Central and East Europe“. However, the World Bank ranked Singapore as the best country in terms of the quality of the business environment. Miškov plans to remove 25% of the administrative burden from the business sector by the year 2012. The Minister also plans in the near future to establish, within the scope of powers of the Ministry of Economy and Construction, so-called „Institute of Business Environment“ to analyse and propose solutions for the improvement of the business environment. The government undertook to the improvement of business conditions in its Policy Statement for the years 2010–2014. One of priorities of the economic policy is to simplify the rules for business, provide for the freedom and stability of conditions, but also eliminate the barriers to the growth of employment, e.g. by the decrease of the tax burden. An amendment of the labour code is also expected that will make the labour legislation more transparent and comprehensible for all parties of labour relations. The flexibility will allow a faster adaptation to the labour market and economic conditions.

The plans of the government are ambitious but not unrealistic. Many of the existing coalition members have experiences with reforms and economic recovery. It was a similar coalition that since 1998 gradually raised the Slovak economy from the bottom until it won the attribute of an „Economic Tiger of Europe“. It is a flattering attribute, but Slovakia cannot take pride in it like before for a long time. The country must eradicate corruption, poor law enforcement, instability of laws, and the high tax burden. The government is already preparing the first steps to increase the effectiveness of the financial management of the state, access to state aid, or application of the principle of equality before the law. Investors also require from the government the fast construction of motorways that would connect all regions in the country. The planned increase of taxes is likely to increase competitiveness. The current tax burden is regarded as relatively low, which together with a cheap labour force and favourable rate of the euro represents for Slovakia one of advantages against the other EU Member States. However, the state deficit ties politicians down and, therefore, these measures are required for the restarting and feeding of the hungry tiger.

Author: Nina Klusová
Photo: sxc.hu

Audio/Video

Photogallery