Business and Investment in SLOVAKIA The Gateway to Success in an Enlarged EU Embassy of the Slovak...
-
Upload
stephanie-anis-bennett -
Category
Documents
-
view
225 -
download
0
Transcript of Business and Investment in SLOVAKIA The Gateway to Success in an Enlarged EU Embassy of the Slovak...
Business and Investment in SLOVAKIA
The Gateway to Success
in an Enlarged EU
Embassy of the Slovak Republic in the USA
Compiled by Tomas Bican, Economic Officer of the Slovak Embassy in the USA
Crossroads in the Heart of Europe
Strategic location
Slovakia General Facts & Figures
Area in square miles: 18,935
Population: 5.4 million
Population density: 285 per square mile
Capital: Bratislava (450 000)
Major Cities: Košice, Prešov, Banská Bystrica,
Nitra, Žilina, Trnava
Largest navigable rivers: Danube, North and Black Sea connection
Time zone: US Eastern Time plus six hours
Currency: Slovak koruna (1USD cca 26 SKK)
GDP in PPP: about 56% of EU average (2005)
Membership: EU, NATO, OECD, OSCE, WTO, IMF...
GDP created by private sector 90%
•January 1, 1993 - independent Slovakia
•30. member of Organization for Economic Cooperation and Development since Dec. 2000
•NATO member state since April 2004
•EU member since May 2004
Journey of Modern SLOVAKIA
Benefits of EU membership for business partners and investors
Full benefits resulting from the free movement of goods, services, capital, and labor in the EUOpen and easy access to sophisticated suppliers and
customers in EU's single marketNo customs or duties on any transactions within the
EU Legislative and regulatory framework fully compatible
with the rest of the EU More than 85% of Slovak export and 71% of Slovak import
in 2005 was realized with EU countries
Source: Statistical Office of SR 2006
Reform of Economic Environment in Slovakia
„What Slovakia needs is economic freedom, a better structure of reforms and better business environment. Concerning economic freedom, Slovakia should be ranked among the top ten in two years. „Ivan Mikloš, Former Deputy Prime Minister and Minister of Finance, 2002
“Slovakia was praised for cutting in half the time it takes to start the business, radically improving procedures for recovering debt and introducing flexible working hours. The country is now in the top 20 best countries, according to the World Bank report.” The Washington Times, September 8th, 2004
“The country now has one of the most attractive business climates in the region, creating supportive conditions for economic performance to remain robust.” Fitch Ratings on Slovakia, London, September 21st 2004
„Minister of Finance 2004“ Euro money Award
for excellent performance was awarded to than Deputy Prime Minister and Minister of Finance of Slovakia Ivan Miklos.
World Bank on Doing Business in Slovakia
world's best reformer according to the World BankSlovakia #1 in Doing Business 2005Slovakia #4 in Doing Business 2006
Slovakia among top countries in the world regarding the quality of business environment
SLOVAK TAX REFORM
Main Principle:
Tax system should be fair, simple and transparent
radical simplification of the tax system elimination of virtually all exceptions, exemptions, deductions,
special rates, and special regimes elimination of dividend, inheritance, gift taxes, and real estate
transfer tax
introduction of low nominal rates 19% flat individual income tax 19% corporate tax 19% unified VAT on all goods and services - without any exceptions 100% repatriation of profits
shift from direct to indirect taxes
Results of Slovak Tax Reform
no decrease in tax revenues increased revenues from indirect taxes less scope for tax evasion and tax avoidancemore motivation to pay taxes
better incentives for investment and work thanks to lower marginal rates thanks to more transparent and equitable taxation
Effective Tax Rate Faced by Investor
0% 10% 20% 30% 40% 50% 60%
USA (New York)
Ireland
France
UK
Japan
Germany
Poland
Czech Republic
Hungary
Finland
Estonia
Slovakia
Corporate tax rateEffective tax rate on investment income faced by a private investor (combined corporate tax and dividend tax)
Source: Ministry of Finance of the SR, December 2004
Reforms
pension reform radical reform of the pay-as-you-go pillar introduction of a fully-funded pillar (private pension
accounts invested in capital markets) health-care
make the system financially self-sustainable improve the quality of services provided
education improve efficiency and quality of secondary education
system increase capacity and quality of tertiary education
public administration improve the quality of the public servicecontinue the de-centralization of public administration
Standard and
Poor’s
Moody’s Fitch Ratings
Japan Credit Agency
Liabilities in foreign
currency
A (Stable) A2(Positive)
A (Stable) A- (Positiv
e)
Liabilities in local
currency
A (Stable) A2(Positive)
A+ (Stable
)
A (Positiv
e)
Assignment Date
December 19, 2005
January 13, 2005
October 11,
2005
September 22,
2005
Ratings of Slovakia
Sustained robust growth of real GDP
2,2 3,9 3,32
4,4
2,1
4,53,4
5,5 4,66,1
4,3
7,9
012345678
%
2000 2001 2002 2003 2004 2005 2006prediction
Slovakia Other V4 Countries
Source: Eurostat, Statistical Office of Slovakia 2006
GDP growth compared with EU 15
3.3
4,4 4.5
5.56.1
7,9
1,7 1 0,81,9 2,3
0
2
4
6
8percent
2001 2002 2003 2004 2005
EU 15 Slovakia
Source: Eurostat, NBS
FDI INFLOW
0
500
1 000
1 500
2 000
mil. EUR
2003 2004 2005 2006
FDI inflow in EUR millions
FDI
Source: NBS – 2006 is forecast
Vienna Institute for International Economic Studies
Stable Decrease of Unemployment
13,5
16,218,1
17,418,5
19,2
0
5
10
15
20
25
2001 2002 2003 2004 2005 2006
%
Enemployment in % without seasonal influence
Source: Ministry of Labor and Social Affairs 2006
Inflation Development in %
Source: Statistical Office of the Slovak Republic
8,5
5,9
3,73,1
0
2
4
6
8
10
12
14
2003 2004 2005 2006 prediction
Inflation
EURO and Slovakia According to the agreement of the Finance Ministers of
the euro area countries, candidate countries and President of the European Central Bank the Slovak koruna is included in the Exchange Rate Mechanism II (ERM II) as of the 25th of November 2005.
The central rate of the Slovak koruna has been set at 1 euro = 38.4550 koruna. The ERM II standard fluctuation band of plus or minus 15% will be observed around the central rate of the koruna.
With Slovakia's entering the ERM II, the European partners confirm that the economic policies in Slovakia create a stabile environment.
Slovakia will be the first new EU member in Central Europe to adopt the euro in January 2009
Maastricht Criteria
EU member states, which want to adopt euro, have to harmonize their economy and fulfill Maastricht convergence criteria:
State budget deficit can not be higher than 3% of GDP
State debt can not exceed 60% of GDP Inflation rate should not exceed average yearly
amount reached in three EU states with lowest inflation rate for more than 1,5%
Currency should fluctuate in standard fluctuation band of plus or minus 15%
Interest rates should not exceed the average of three EU member states with lowest interest rates for more than 2%.
EU average =100%
Labor Force in Slovakia – Highly Skilled and Inexpensive
Labor costs, 2003(% of EU average)
0
20
40
60
80
100
120
140
EU Germany CzechRepublic
Slovakia
Labor costs Productivity adjusted labor costs
Highly skilled labor nearly 95% of the population
has secondary or university education: 5th highest rate in the world
13% of Slovak population holds a university degree
Very low degree of labor unrest negligent power of labor
unions compares highly favorably
with most EU countries
Source: European Commission, ING
“The Slovak Republic is set to become the world's next Hong Kong or Ireland, i.e., a small place that's an economic powerhouse. Foreign investors are already taking note: Foreign direct investment in this country of 5.4 million people has grown from $2 billion to $10 billion since 1999.”
Investors' Paradise
Steve Forbes, 08.11.2003
Which country has the best business environment?
0% 10% 20% 30% 40% 50% 60%
Germany
Hungary
Poland
Czech Republic
Slovakia
91% of current foreign investors in Slovakia intend to expand their local investment!
Source: Czech-German Chamber of Commerce and Industry, 2004
Source: US Chamber of Commerce in Slovakia, 2003
Investors - Slovakia Has the Best Investment Climate
Here are encrypted all three automotive giants. Missing is only Getrag - FORD Transmissions, which is building
a plant in eastern SLOVAKIA to produce auto parts.
The Reason why Slovakia is called „Detroit of Europe“
Prospects of car production in Slovakia in thousands
2007 Slovakia will be worlds biggest car producer per capita
Volkswagen Touareg, Porsche Cayenne and new Audi Q7
“VW owes a lot of its dynamic growth of the plant to the flexibility and the skill of the local workforce.”
Financial Times, May 25th, 2004
American Investors in Slovakia
More than 120 major American Companies are writing their success stories in Slovakia
Major Investors: US Steel, Whirlpool, Dana Corp., Molex, Johnson Controls, Jacobs Suchard, Johns Manville, Dell Computers, Citibank, AIG, Pepsi-Cola, Coca-Cola
More on: www.AmCham.sk
“In Slovakia you get a lot of bang for your buck.”Jake Slegers, Executive Director of the American Chamber of Commerce in the Slovak Republic
Success Stories...
US Steel’s purchase of a large steelworks near Košice in 2000 started a successful partnership of Slovak technical skills with American leadership and market experience. The company has developed into the second largest Slovak exporter and is, at the same time, caring for its natural and social environment as an exemplary corporate citizen of eastern Slovakia’s metropolis, Košice. To share its experience and to attract new investors to Slovakia US Steel organizes each year road shows in U.S. and Canada
U. S. Steel
U. S. Steel is satisfied with the business conditions they have in Slovakia. It is not merely the profit of several billions that the steelworks in Kosice are posting that reassures the owner, U.S. Steel Corporation, that the decision to invest in Eastern Slovakia was a good one. They are pleased by the fact that new car plants are being opened in Slovakia. That is one of the main reasons for a new 4 bil. SKK (108 mil. EUR) investment in zinc galvanization. U.S. Steel Kosice is still as confident as it was last year when it was awarded the Company of the Year award by the TREND weekly magazine.
DELL story Michael Dell, one of the icons of international business, often
says “from zero to……” and mentions one of his company’s achievements. For example, we can say that within three and a half years the Slovak branch of Dell grew from zero to about 1 500 people. And the ambition to grow further remains. Its strong position is not based only on its size. The company management has a good feeling about Slovak specialists. It has already started “exporting” them so they can help their colleagues internationally.
Structure of Investors by Countries
Source: Bureau of Statistics of Slovak Republic, 2004
Others8%
France7%
Hungary5%
UK7%
Italy8% Netherlands
17%
USA4%
Austria14%
Germany25%
Czech Rep.5%
With 4,1% of FDI in 2005 US is 8th biggest investor in Slovakia.When we take into account indirect investments like US Steel, Coca Cola, Accenture, Zentiva U.S. would be on 4th place.
Structure of Investment by Sectors
1%
3%
23%
10%
12% 11%
39%
0% 1%
Agriculture, hunting and forestry Mining and quarrying Manufacturing Electricity, gas and w ater supply Construction Wholesale and retail trade, repairs of motor vehicles Transport, storage and communication Financial intermediation Real estate, renting and business activities
Source: Bureau of Statistics of Slovak Republic, 2004
FDI Boom in Slovakia
Emerson Electric
Dell, IMB, Plastic OmniumDelphi, Tower, Brose Johnson ControlsLear corp.
Bleckmann
Molex
Whirlpool
Sony, Peugeot Citroen
US Steel
ON Semiconductor, Punch
Teleflex
Embraco
Siemens FORD
Matsushita
VW
Leoni, Hella
Sauer-Danfoss
SCA
Samsung
KIA/Hyundai
TECO
Slovakia – Companies Location
Countries of the EU constituted in 2005 Slovakia’s most important trading partners, accounting for about 85% of export and 71% of import. The U.S. was Slovakia’s second largest export destination at 4.8% in 2004 and 3,4% in 2005. Exports to the U.S. rose more than twice in the first half of 2004, mostly because of automobiles such as VW’s Touareg sport utility vehicle. Slovak import is constantly growing and will be significantly influenced by purchase of 32 Boeings 737-700 by Slovak based low-cost airline SKY EUROPE. Slovak-American bilateral trade is very dynamic in recent years.
Bilateral Trade
19% corporate income tax rate
0% tax on dividends, real estate transfers, gifts and inheritance
Double taxation avoidance treaty between the Slovak Republic and the U.S.
Satisfaction of established investors
Attractive tax credit system
Grants for newly created jobs and retraining of employees
Industrial parks
What Has Slovakia to
Offer to U.S. Companies?
And more...
• Highly skilled, stable and relatively young labor force Very low labor costs (about 15% of the EU average)
• Membership in the EU, NATO, OECD and WTO
• Stable market-friendly political environment
• Favorable location in Central Europe
• Access to a market of 450 million consumers
• Ample supply of labor