Slovakia eyes economic boost from Jaguar Land Rover

Slovakia eyes economic boost from Jaguar Land Rover
By Robert Anderson November 30, 2015

Slovakia could record 4% economic growth next year thanks to a boost from carmaker Jaguar Land Rover (JLR), insists Peter Kazimir, Slovak finance minister.

“We can touch 4%,” Kazimir said in an interview with bne IntelliNews during a visit to Prague. “A possible big investment can add 0.5 to 0.6 [percentage points] of GDP.”

Most estimates for Slovak growth next year are closer to 3%, with the Ministry of Finance itself recently dropping its forecast by 0.6 percentage points to 3.1%. Growth of 4% in 2016 would put Slovakia back among the leaders in Central and Eastern Europe, alongside Romania, which the European Commission forecasts will record 4.1% growth.

Economists argue that 4%  is possible, although it depends on how big the investment from JLR is (estimates are up to £2bn), how quickly it begins to invest, and how much is sourced from within Slovakia. The Indian-owned carmaker signed an MoU to build its first European plant outside the UK in August.

While wary of jinxing the deal by bragging, Kazimir admits “we are just before the last step”. The final investment deal is expected to be signed in the next few weeks. Construction (the first investment boost for the economy) should begin near Nitra next year; production itself is expected to begin in 2018, eventually creating up to 4,000 jobs and turning out some 300,000 cars a year.

“It’s the biggest investment in the last 10 years,” says Zdenko Stefanides, chief economist at VUB bank in Bratislava. “It can make a big difference to the growth rate. It all depends on what they use locally.”

VUB predicts the plant could boost GDP by 0.3 percentage points next year, and around 0.7 points in 2017. However, the bank forecasts growth will only reach 3% in 2016, as the end of the current European Union financing period will halve EU-related capital spending to around €1.1bn.

Although VW’s Bratislava plant has part-assembled top-end sports utility models such as the Porsche Cayenne, Kazimir says the JLR plant would be qualitatively different because it will focus exclusively on luxury models. The plant could assemble the next generation Land Rover Defender model or the Discovery Sport, according to the Financial Times.

That should help mitigate worries that Slovakia is becoming too dependent on the car industry, the finance minister claims. “JLR is really different,” Kazimir says. “This is the cherry on the top.”

Slovakia, with a population of 5.4mn, already produces the highest number of cars per head in the world, turning out 971,000 vehicles in 2014, or 178 per 1,000 people, according to Sario, the Slovak investment promotion agency. It says the Slovak car industry employs 80,000 directly, and represents 43% of industrial production and 35% of industrial exports.

The entry of JLR would give the country its fourth big car assembly plant, adding to VW, PSA Peugeot Citroen in Trnava, and Kia in Zilina. But it would also reduce its dependence on VW - which is being battered by the emissions fraud scandal - and on the lower end of the car sales market.

Kazimir is keen to emphasise that Slovakia has moved away from being just an assembly location and has now developed its own supplier network, serving the car industry throughout Central Europe and beyond. “Now we are not just talking about assembling cars,” he says. “We have a chain of more than 350 suppliers now. We are producing everything connected with the production of cars.”

He argues Slovakia should embrace that destiny. “This is our speciality,” he says, “this is our advantage. In 2009, during the deepest crisis, the auto industry saved us” by keeping the economy ticking over.

Nevertheless there remain concerns that Slovakia could struggle to staff the new plant, particularly given that all four of its auto assembly plants will be in the west of the country, rather than the depressed east on the Ukrainian border. “I think they will not find enough people locally and they will have to import them,” says Stefanides.