Over the past months the Government has been engaged in major reforms within all the different sectors of the economy, mainly with the view to join the EU in 2004. Can you give us a brief overview of the main achievements of your Ministry over the past 3 years?
When the Government got into power in 1998, we mainly focused on improving the business environment. We actually planned to reform the financial sector, especially the tax reform as well as getting rid of the administrative barriers. Inside the economic sector, we mainly focused on restructuring the energy sector and we prepared for the privatization of natural monopolies. When it comes to the integration process into the EU, we cooperated on the chapters under the Ministry of economy. We worked on brand new concepts of industrial politics, the development of small-and-medium sized companies and we also looked at the competition chapter. We also cooperated on chapters concerned with foreign liaisons and partnerships. We have had programs supporting small-and-medium sized companies, in addition to projects supporting pro-export activities of Slovak businesses.
We worked on the development of tourism and legislative support for regulating the natural monopolies in the energy sector. We worked on legislative issues concerning the topics mentioned and where necessary created the institutional background. Some laws introduced by the Government within their first year of power weren't always accepted positively. However, I would say that our economy is on the rise, I consider the inflation rate to be appropriate for our economy. I do not expect the inflation rate to exceed 6.5 or even 6.7% this year. I can predict the inflation rate for next year to be between 4 and 5%.
The GDP growth was expected to be 3% this year, I expect it to be at 3.6% for next year. The development of the Slovak economy is widely influenced by the development of the German economy, since it is our biggest partner and we are a small open economy. According to our experience, even with the decline of the German economy, the impact on the Slovak economy doesn't have to be negative. We consider foreign direct investments to be the main force behind the GDP growth. Last year we were placed first among the Visegrad group regarding FDI, we are still a little bit behind our partners like Hungary, Poland and the Czech Republic. I consider this to be due to our slower development in 1993, 1994 and 1995 and to our badly prepared business environment for foreign investors. Today I am pleased to say that we are on the right track and are judged to have a better business environment for FDI. We passed a few laws, one in particular was a law on investment stimulus that permits a foreign or local investors to a 10-year tax holiday and to receive financial support ranging from 30,000 to 160,000 SKK regarding the creation of new job opportunities.
Are all those laws and incentives in accordance with EU requirements?
We discussed this before passing the laws. It wouldn't be fair if our neighbors would be able to offer these conditions and Slovakia couldn't. During the integration process the EU commission wasn't against offering incentives to investors and without mentioning other incentives I would like to emphasize that creating a standard business environment is our priority. During this process we created industrial zones and new infrastructure. We passed a law that enables us to create technical equipment compatible with all European laws.
What is the timeframe for the completion of those industrial zones?
It is in a process of realization. There are already some greenfield projects. A fine example of this is a car factory being built about 20 km from Bratislava where all the sub-contractors of Volkswagen Bratislava are located.
Are those industrial zones meant to serve the national or the regional market?
Slovakia is a small country, so all of these investments serve the national market, and usually these products are exported. As a few examples there is a zone being created in the north of Slovakia, where Punch International is located, a major supplier of Phillips. In the East of Slovakia we have US Steel who very successfully invested in the area. The car and chemical industries are our main exporters so it is understandable that we are looking for investors in these areas.
You recently concluded a free trade agreement with Croatia. What impact do you believe this agreement will have on the export of domestic products?
Croatia is not a dominant foreign partner
when it comes to trade. We signed this treaty
because Croatia is in a pre-accession period
for joining CEFTA. In order to become a member
they have to sign a bilateral agreement with
every member. Within CEFTA, Slovakia, Poland
and Czech Republic are the force behind the
liberalization programs. For example Romania
and Slovenia are more protective about their
markets. But to come back to foreign direct
investments, we created an Agency for the
support and development of Slovak business.
It is in charge of foreign direct investors
in terms of finding the right location, and
analyzing information and legislation. We
can already some see results, Sony foir example
has expanded its acquisitions in Slovakia,
Matsushita is localized in two places already. |
Which sectors in particular do you foresee the best opportunities for foreign investors?
I will list some sectors regardless of their importance. We have excellent conditions in our wood manufacturing industry and also paper manufacturing companies as Slovakia produces high quality wood mass. We are the third most densly forested country in Europe behind Finland and Sweden and we also have a very qualified labor force wthin this sector.
Another sector is machinery and electrotechnic industries, information technologies. Especially in this sector we can offer fine conditions with highly qualified labor force. The majority of international programming competitions are won by our high schools and college graduates. I would welcome cooperation with IBM and Microsoft, although we are aware that Microsoft has small companies all over the world. The Energy sector offers excellent conditions as well, especially when considering the strategic location of Slovakia. This country lies at the crossroads for transporting oil, gas and electricity in the region.
The gas sector should be mentioned in more detail, out of the 137 billion cubic meters of gas are transported from East to West, two thirds are transported through Slovakia, last year a total of 90 to 92 billion cubic meters were transported. This year due to smaller demand it is estimated to be about 70 to 80 billion cubic meters. Our analysts expect in the years 2008 to 2010 to transport 250 billion cubic meters a year. The transit is technically safe, it is well monitored. We decided to privatize 49% of SPP, the Slovak Gas Company and we want investors to provide the capital for our growing transport needs. This is why Slovakia is interested in the Yamal pipline project in the north as we want it to be connected to our pipline. Italy is also deeply interested in this, because they want to be supplied by Russian and Caspic oil. This connection should be able transport 60 billion cubic meters per year. Our country has fine underground natural containers, which are very important for leveling up the supply during summer and winter season.
How far are you with this privatization process?
The foreign interest in SPP is huge. I am not going to list the actual prize, but we are aware of the significant value of the company. We want to diversify Slovakia's gas sources. In the future we want to be connected to Norwegian gas supplies. We are very interested in participating in building transport systems from Caspic sources and also in shipping liquidified gas to the ports of former Yugoslavia. There is also an oil transport system that goes through Slovakia. It ends in the Czech Republic if OMV are interested they could be connected to this transport system in the future. In order to diversify our sources, Slovakia also participated in the creation of an oil transport system from Odessa, through Poland and to Slovakia. This transport system will enable us to transport not only Russian oil, but also the new found oil in Adzerbaidzan and Arabic oil.
When it comes to the electroenergy sector, about 46% of the electricity is produced in nuclear power stations. The rest is divided into the production of water and heat power stations. We are only using upto 56% of our hydro potential. At the moment we are completing the restructuring of power plants in Slovakia which means that we are excluding transmission subsystems. Doing this, we liberalize the electricity market and every producer will have the same access to the transmission system. We plan to liberalize the internal electricity market within the next few years. By the beginning of next year every comsumer with more than 100 Gigawatt/hour may choose his own supplier. We would like an investor willing to support alternative sources of electricity as we have huge resources of geothermal energy and biomass. These are replaceable resources and we want to set this trend. We have three distribution companies within the Slovak territory. The third subsystem is the transport system. 49% privatization concerns the production and distribution. The transport system is going to be a 100% state owned joint stock company. We have to define an operator within the market. We are planning to put it onto the stock exchange. In 8 or 9 years we can privatize the transport system as well because we have a regulation time frame for the privatization of oil, gas and electricity.
Tourism should also be a prospective sector for investments. We are eager to see American investors. European tourists prefer close destinations and the European population is growing old, that is why Slovakia is becoming a very interesting tourist destination. The energy sector used to own a lot of recreational retreats, we want to keep the core business and offer those recreational sectors to investors as well so we need to change the mentality of Slovak people towards the tourists.
Note: World Investment News Ltd cannot be held responsible for the content of unedited transcriptions. |
V.I.P. INTERVIEWS 
