Slovakia to hand cash incentives to investors

By bne IntelliNews April 15, 2013

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Battling stubbornly high unemployment, the Slovak government is ready to hand investors hard cash in return for jobs. Bratislava is ready to pay €50m in return for 13,000 new jobs - in addition to other indirect incentives and tax relief - SME reported on April 12, as it fights to prevent the country's jobless figure of just under 15% from growing further.

Heavily dependent on foreign investment for the development of the economy over the past decade or so, Slovakia has faced a growing chorus of demands from investors for additional incentives since the global crisis broke in 2008. As bne reported on April 11, budget airline Ryanair is mulling a CEE base in the country, but stated boldly that it would depend on how much Bratislava is willing to stump up.

The same week, German tyre maker Continental announced Slovakia has beaten off regional competition to attract a €250m investment in a new plant. Neither the company, nor Prime Minister Robert Fico, were willing to discuss the details of incentives on offer to the company, which will add 600 new jobs over the next two years at its plant in Puchov in the west of the country.

However, according to Hospodarske noviny, Bratislava has agreed a two-year tax holiday, offering the investor relief worth an estimated at €20m. In other words, the state will pay over €33,000 per job. The company will also invest in jobs in research and development, Fico has said, although the potential levels of R&D that can be absorbed at a tyre factory are unclear.

According to SME, Continental will be paid in the form of tax relief. However, other investors are set to collect straight cash. Slovak rail wagon maker Tatravagonka is set to create 350 jobs in the east of the country, while an investment from US wood products company Grandwood Holding will offer the depressed employment picture in the east another 390 jobs. The direct payments would be a repeat of a strategy last used in 2011, the newspaper reports. The government claims such payments are justified by the high unemployment in the area.

Persistent unemployment has depressed domestic demand to leave exports as the only significant driver of the economy. Meanwhile, a growing line of potential and existing investors calling for incentives is a challenge for a government struggling to raise the tax revenues needed to meet ambitious fiscal targets. A trend which South Korean electronics manufacturer Samsung did much to promote over the past couple of years, Bratislava is now facing demands from several large investors to top up incentives or risk losing them.

That has seen the left-leaning Prime Minister Robert Fico forced to haggle with large international companies over how much the struggling Slovak budget can afford to offer. Last month, the PM announced that after several months of talks, he has finally thrashed out a deal to persuade US Steel not to sell its Kosice plant - the country's biggest employer.

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