SLOVAKIA ECONOMIC UP-DATE 2003 / 2004
A. Bilateral Trade figures:
In mil. USD 2000 2001 2002 2003
Export from Slovakia 6.7 4.9 8.6 14.0
Export from Israel 9.2 11.9 7.9 10.2
Source: Central Bureau of Statistics, Israel, http://www.cbs.gov.il
Commodity structure of bilateral trade
The most exported commodities from Israel to Slovakia were: electronics, machinery, chemicals, metal products, plastics and agricultural products.
Main exported commodities from Slovakia to Israel were: machines, transport devices, chemicals and industrial goods.
The trade figures do not reflect the real potential of both countries and we have a lot of opportunities for further improvement. Israeli imports represent over 33 bill. USD yearly and the Slovak Republic imports make almost 20 bill. USD yearly. Israel represents in the Slovak foreign trade the share of less than 0.1%. More than 2/3 of Slovak foreign trade is realized with the OECD countries.
B. Slovak economy:
Slovakia has mastered much of the difficult transition from a centrally planned economy to a modern market economy. The government of the prime minister Dzurinda has made excellent progress in 2001-2003 in macroeconomic stabilization and structural reform. Major privatizations are nearly complete, the banking sector is almost completely in foreign hands, and foreign investment has picked up. Slovakia's economy exceeded expectations in 2001-2003, despite the general European slowdown. Unemployment, at an unacceptable high of 15% in 2003 and remains a crucial problem. The government faces other strong challenges in 2004, especially the cutting of budget and current account deficits, the containment of inflation, and the strengthening of the health care system.
Slovak economy in 2004 will be affected by a number of institutional changes, including Slovak accession to the EU on May 1, 2004, the introduction of tax and pension reform plans, as well as reforms to the health care sector and public finances.
Slovakia was traditionally an agricultural country. In 20th century, Slovakia as a part of the Czechoslovakia became industrialized. The heavy industry was mainly emphasized also politically, including coal mining and the production of machinery and steel. Although heavy industry has declined in importance, manufacturing is still one of the most important sectors of the Slovak economy. Nowadays, building on a long-standing tradition and a highly skilled labor force, main industries with potential of growth are following sectors:
· Automotive (20%)
· Mechanical engineering
· Chemical engineering
· Information technology
· Wood processing, pulp and paper industry
Thanks to the opening to the foreign investments Slovakia has rapidly developed the automotive industry beginning 90ties (Volkswagen) and this trend continued in 2003 (PSA Peugeot-Citroen). Slovak automotive industry is export-oriented and spins-off many subcontractors in the fields of: machinery, electronics and plastics industry (more details http://irc-slovakia.sk/tt/tool/index-en.shtml).
The basic technological innovations in the decisive branches of industry are carried out through restructuralization and modernization of those branches in a form of investment building or with the help of foreign capital.
Slovakia's service sector grew rapidly during last 10 years and now employs about 44% of the labour force and contributes with over 66% to GDP.
Over 40% of the land in Slovakia is cultivated. The southern part of Slovakia is known for its rich farmland. Growing wheat, rye, corn, potatoes, sugar beets, grains, fruits and sunflowers. There are also vineyards in southwestern Slovakia. The breeding of livestock, including pigs, cattle, sheep and poultry, is also important. Agriculture accounts for 10% of GDP. Agriculture occupies about 6.2% of the labour force.
With EU accession, Slovakia will also become a member of the Common Agricultural Policy, which will push food prices up in 2004.
Slovak agro-business producers have to harmonize with EU norms by 29 Feb. 2004, many smaller producers will close their business.
Foreign `natural persons` are not allowed to buy land in Slovakia 7 years after its accession into EU; but there are no restrictions for `legal entities`.
Slovak government will support export of milk and dairy products in the 1Q 2004.
In 2004, Slovak farmers will receive 300 mil. EUR in direct payments from EU.
(other info: Concept of Agricultural and Food Policy until 2005, http://www.mpsr.sk/english/dok/apk1.htm)
Selected Economic Indicators
GDP (in bill. EUR): 25.1 (2002)
GDP per capita (in bill. EUR): 4,640 (2002)
GDP real, growth on yearly basis (in %): 2.2 (2000), 3.3 (2001), 4.4 (2002), 3.9 (2003), 3.7 – 4.3 (est. 2004)
Gross Domestic Products composition by sectors (in %):
Services 66.9, industry 24.4, construction 4.6, agriculture and forestry 4.1
Export (in mil. EUR): 12,782 (2000), 14,102 (2001), 15,180 (2002), 18,300 (2003), 18,200 (est. 2004)
Export represent 74% of GDP.
Export commodities: machinery and transport equipment 39.4%, intermediate manufactured goods 27.5%, miscellaneous manufactured goods 13%, chemicals 8%
Export partners: Germany 30.1%, Czech Republic 16.4%, Austria 10.7%, Italy 7.2%, Poland 5.7%, Hungary 4.6%
Import (in mil. EUR): 13,740 (2000), 16,486 (2001), 17,440 (2002), 19,300 (2003),19,800 (2004)
Import commodities : machinery and transport equipment 37.7%, intermediate manufactured goods 18%, fuels 13%, chemicals 11%, miscellaneous manufactured goods 9.5%
Import partners: Germany 24.8%, Czech Republic 16%, Russia 13.5%, Austria 7%, Italy 6.4%, France 4%
In 2003, the deficit of the trade balance significantly decreased; caused mainly by the increased exports of vehicles.
Unemployment (in %): 18.2 (2000), 18.3 (2001), 17.8 (2002), 15.3 (2003), 14.9 (est. 2004)
Budget balance (in % of GDP): -3.9 (2000), –4.8 (2001), –7.2 (2002), –5.1 (2003), –4.1 (est. 2004)
Current account (in % of GDP): -3.3 (2000), –8.6 (2001), –8.2 (2002), –1.8 (2003), –4.6 (est. 2004)
Gross foreign debt (in % of GDP): 54.9 (2000), 55.1 (2001), 55.7 (2002), 48.8 (2003), 44.5 (est. 2004)
Actual rating for country’s debts in foreign currencies:
Moody’s Investment Services: A3, stable (last up-date: 12 Nov. 2002)
Fitch Ratings: BBB+, positive, (last up-date: 22 Jan. 2004)
Standard&Poor`s: improved from BBB/A-3 to BBB+/A-2 (last up-date: March 2004)
S&P loans analysts expect Slovakia's loan ability could improve in the coming two years if the general cabinet deficit continues to decrease and if there are further economic reforms, for instance in the railway sector.
S&P anticipates that Slovakia will join the eurozone in 2009.
FDI inflow, net (in mill. EUR): 2,077 (2000), 1,674 (2001), 4,070 (2002), 1,200 (2003), 1,700 (est. 2004)
On 2 March 2004, the South Korean automaker Hyundai Motor Company announced at the Autosalon in Geneva the decision that it has chosen Slovakia ahead of Poland as the site of its €700 million factory investment in Central Europe. With annual revenues of $12 billion (€9.65 billion), Kia Motors Corporation is among the world's fastest growing carmakers and it aims to be one of the top five by 2010.
The contract between the Slovak Republic and Hyundai Motor Company should be signed on March 16 or 17, 2004 and the cornerstone of the new plant laid on April 7, 2004.
The plant at Zilina, northern Slovakia, is expected to produce 200,000 cars per year from 2006.
Germany's Volkswagen has had a major factory outside Bratislava since the early 1990's, and France's PSA Peugeot-Citroen is currently building a 300,000-car-a-year production line at Trnava city (will start in 2006), 55 km east of the capital.
Main incentives for investment in Slovakia:
a) 19% flat-tax-rate for corporations and individuals incomes, and VAT
b) tax break for profit from investments and worker retraining grants,
c) the good ratio between productivity and cost of labour force.
Slovakia's cumulative FDI since it became independent in 1993 stands at approximately USD 9 million; mainly into manufacturing (over 40%), particularly automotive components, consumer electronics, and precision engineering. Other sectors attracting foreign investment include telecommunications, retail, banking, and insurance.
C. Proposals to encourage bilateral trade and economic co-operation
by multiplicity effective devices:
There is significant potential for business co-operation in tenders in both countries, and from that resulting possibilities in off-set trade.
On the Israeli side, e.g. in the field of infrastructure, referring to the recent projects in the Israeli Railway System that amounts to 4bill. EUR (till 2008).
And on the Slovak side are the following areas of interest:
1. Building sections of motorways (North – 70 km, South – 200 km, to be started in March 2004), at least one Israeli company named “Housing&Construction“ is interested
2. Facilitation of the “Schengen borders“ of Slovakia with Ukraine (in total 99 km, about 42 mill EUR to be invested), four Israeli companies are bidding (“Israel Aircraft Industry“, “Reffael“, “Elbit“ and “Magal Industry“)
3. Up-grading military equipment of the Slovak army as the newly accepted member of the NATO; e.g. with MIG 29, helicopters MIG 24, airline carriers L-410 and others.
Israeli telecommunication companies might be interesting partners for Slovak companies biding for tenders to modernize and introduce new telecomm technique and technologies for the Slovak army.
Serious complain of “Tadiran Communications, Ltd.” that their contract to supply telecommunication equipment (worth over EUR 50 mill.) was cancelled unilaterally without any reason or explanation from Slovak side.
4. Co-operation in the field of commercial satellites. This idea was proposed by the Slovak president Schuster on the occasion of his last visit in Israel (in September 2003).
5. More emphasis on regional development multiply the modernization of regional avionic centers / internationalization of local airports.
- specific plans are already under preparation for the “Zilina Airport”, lot of suppliers will be needed, Israeli companies have very fair chances in the telecom and security fields.
In this respect, we have been advised of an interest to set up a maintenance center for small – medium civilian aircraft at the airport of Bratislava; expressed by the I.A.I. (Israel Aircraft Industry).
6. Tourism, Spa resorts
Spa Piestany has the potential for profitable tourist services and spin-off businesses; also town-twinning is considerable to support economic co-operation; information: www.spa.sk
7. Pharmaceutical industry
Slovak press reported about serious investment interest from Israel (of 700 mil.
EUR) to produce a HIV vaccine in Slovakia in 2004; more information: www.sario.sk
D. Areas / Fields for economic co-operation
The accession of the Slovak Republic into the European Union in May 2004 is a challenge the business partners from Israel.
The focus should be on these areas:
· investments in the export-oriented sectors
· business co-operation in the areas supporting increase in employment
· co-operation in areas that will create higher added value products.
Especially in sectors:
· spare parts for automotive industry
· electronics, communication and information technologies
· up-grade of health sector facilities (also World Bank projects)
· pension funds
· infrastructure (airports)
· industrial building and housing
· alternative energy
· recycling, waste management
· water management
· industrial safeguards products
· application of EU norms and standards
· increase of competitiveness of agriculture, tourism and services for industry.
E. Industrial R&D
a) Being aware of the need for industry in Slovakia to have a modern and competitive R&D, Israel may be helpful in this field. It was proposed to pay a visit of the Israel’s Chief Scientist of the Ministry of Trade and Industry to Slovakia.
b) Israel has an experience in establishing the first venture capital named „Yozma“. Israel is prepared to share know – how that this venture capital has initiated the further creation of tens of private ventures capitals that undertake industrial research.
c) the EU “Sixth Framework Programme” could also support co-operation between Slovak and Israeli partners in R&D and transfer of technologies, there is already established co-operation with good track record by the European Commission, via Innovation Relay Center (IRC) Slovakia; project of exchange of technologies, contact: www.bicba.sk, Mr. Vratny
F. Examples by main sectors
of opened businesses possibilities and investment opportunities in Slovakia
with best prospects for Israeli entrepreneurs:
The sectors that hold the most potential are: information and communication systems, environmental products and services, capital goods, financial services, management services, and production processes.
Many Slovak enterprises are restructuring and need to modernize their equipment and methods.
Israeli companies and products enjoy a positive image in Slovakia and Israeli technology has very good reputation.
General Industrial EquipmentThere are good opportunities for Israeli firms in heating equipment (boilers, valves, etc.) and power generation and distribution equipment. Israeli companies can also successfully provide chemical technologies or equipment.
There is demand for electronic components and for manufacturing equipment for electrical equipment. Opportunities exist for Israeli investors in production and assembly of electronic components (also as subcontracting for automotive sector).
In the sector of IT technologies and sophisticated production income grows by 20% yearly (trend in 2003 - 2005).
Optical, Photo and Measuring EquipmentOptical, photo and measuring equipment consumption have increased, but have become increasingly focused on "high tech" products. Slovak production has stagnated and most equipment is imported. New entrants will face strong competition from the same international competitors they see elsewhere.
Health sector opportunities for subcontracting:
· project of modernization of Slovak hospitals also with assistance of the World Bank (55 mil. EUR loan in Sept. 2003); contact: Mrs. Petra Vehovska, T: +421-2-59337 417, e-mail: email@example.com
· other projects on www.health.gov.sk, under “projekty”
Financial Services Since 2005, the Slovak people will safe half of their pensions on their own accounts. This step of the 2003-pension-reform opens a new market for private pension management fund.
Informatics / e-GovernmentBased on the new public organisational structure there will be from the beginning of 2004 build a new information network /backbone/ for interconnecting of the municipalities and the new authorities of the state administration as a technical base for implementing of the e-government services (projects e-Slovakia, Infovek). Possibilities to supply: server, back-up, HW, SW, system and technology.
· Project: satellite country system GPS for “LPIS Register” (to monitor agricultural land), establishing this system is the precondition by EU to provide direct payments to Slovak farmers; contact / responsible authority: Research Institute of Soil Expertise and Protection, e-mail: firstname.lastname@example.org, tel.: tel: +421-2-43420866
· Slovak citizens will obtain new EU standardize personification documents (as passports, driving licences), Slovak Ministry of Interior, later the National Personification Center are in charge of these projects, opportunities for subcontracting – IT solutions, tech. Equipment; contact: Mr. Pavel Struharik, Department of Informatics and Technical Equipment, Ministry of Interior of the Slovak Republic, e-mail: email@example.com
Drugs and Pharmaceuticals It is expected consumption of medicines to grow steadily over the next decade. This growth, however, could be interrupted or delayed by Slovakia's current crisis in health care financing. The best selling drugs are antibiotics.
ChemicalsConsumption of chemicals is increasing steadily. Slovakia has traditionally been a producer of chemicals, but mostly of large volume commodity chemicals. Israeli companies could also successfully compete by offering chemical technologies or equipment. There are also opportunities for investors and JV in Slovakia.
AutomotiveThe automotive sector is one of the fastest growing in Slovakia in recent years. Domestic automotive production significantly increased, improving prospects for parts suppliers. There are opportunities for investors. A number of companies are also seeking foreign partners for manufacturing; contact: www.zap.sk (Association of Automotive Industry in SR)
Agriculture and Food IndustryDemand for high quality food products is expected to grow as a result of increasing numbers of hypermarkets and food-chain stores. Most high value food products are imported through European intermediaries rather than directly.
Better prospects are in the agro production, on the technological side, and by irrigation systems.
The official visit of the Minister of Trade and Industry of the State of Israel, Mr. Ehud Olmert, together with a delegation of Israeli businessmen took place on 9 March 2004.
We would like to encourage that our respective partners from the Ministry of Economy of the Slovak Republic, SARIO (Investment and Trade Promotion Agency) and other relevant offices will start to discuss with us real possibilities for economic co-operation.
For more information, please contact:
Mr. Joseph Peri
Commercial Counsellor Economic Department Embassy of Israel Anton-Frank-Gasse 20 1180 Vienna, Austria
Tel.: +43-1-476 46 504 Fax: +43-1-476 46 576 e-mail: firstname.lastname@example.org