German vim and verve in Slovakia

By bne IntelliNews March 26, 2012

Sherelle Jacobs in Cologne -

Slovakia's recent economic record has impressed and even surprised many foreign investors. Although it tends to be overshadowed by its larger neighbour the Czech Republic, Slovakia's spectacular economic transformation in recent years has not gone unnoticed - experts often compare it to Ireland's metamorphosis in the 1990s - and German companies are by far showing the most vim for investing there.

German firms in particular have woken up to Slovakia's winning combination of cheap labour, low taxes and euro membership. Germany is by far the biggest investor in the country, currently accounting for around a quarter of Slovakia's GDP. Investment is rising - in 2010, German investment climbed to €4.15bn from the €4.0bn the year before, an upward trend largely driven by increased investment from firms that are already active in the country. The German Chamber of Commerce estimates that there are now around 450 German companies operating in Slovakia.

The reasons for Germany's increasing enthusiasm for investing in the country are varied, but all relate back to the country's rapid development over the last few years. "German investors... are satisfied with employees' willingness to perform and their qualifications. The tax burden is considered rather low. And the favourable geographic position has even animated some larger companies to install trade and service centres for the whole of Central Europe in Slovakia," says Markus Halt, a spokesperson at the German Chamber of Commerce in Slovakia.

German firms in the country range from international heavyweights such as Volkswagen and Siemens, to a vibrant range of small and medium-sized enterprises, which in total employ around 86,000 people in the country.

German investment is concentrated in the car industry, which has long been a core sector of the country's economy. Schaeffler Group recently announced plans to invest €700m in a new car parts plant in Slovakia, and in March Volkswagen announced that it expects to double car production in the country this year, after a 46% rise last year. It also announced it will add a third production shift and create hundreds more jobs in its Slovakia branch. "We plan to invest around €1.5bn in Slovakia in the next five years," says Vladimir Machalik, a spokesperson for Volkswagen in Slovakia.

Nonetheless, German companies are becoming increasingly aware of niche opportunities in other sectors. "Activities of German investors stretch across all kinds of businesses - from the production of amino acids up to the production of SIM cards," explains Halt. German activity is also strong in the transport sector, given the high demand for improvements in roads and railway infrastructure in the country. Another up-and-coming area in which German investment is set to take off is in renewable energy and energy efficiency.

Major barriers to doing business nonetheless exist and could jeopardise the future of German investment. Experts point out shortcomings in state infrastructure, patchy enforcement of rule of law and lack of transparency in public tendering as particularly problematic. Labour skill shortages are also becoming an issue. German companies are keen to see the Slovakian government do more to address their concerns. "For us, continuity and stability in the laws and flexibility of labour market are important," says Halt. "The government should also work on balancing the state budget and improving the infrastructure as well as work more on the educational system, especially in technical fields."

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