Business and Investment in SLOVAKIA The Gateway to Success in an Enlarged EU Embassy of the Slovak...

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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

Transcript of Business and Investment in SLOVAKIA The Gateway to Success in an Enlarged EU Embassy of the Slovak...

Page 1: 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.

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

Page 2: 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.

Crossroads in the Heart of Europe

Strategic location

Page 3: 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.

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%

Page 4: 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.

•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

Page 5: 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.

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

Page 6: 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.

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

Page 7: 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.

„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.

Page 8: 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.

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

Page 9: 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.

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

Page 10: 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.

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

Page 11: 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.

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

Page 12: 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.

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

Page 13: 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.

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

Page 14: 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.

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

Page 15: 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.

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

Page 16: 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.

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

Page 17: 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.

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

Page 18: 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.

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

Page 19: 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.

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

Page 20: 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.

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%.

Page 21: 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.

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

Page 22: 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.

“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

Page 23: 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.

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

Page 24: 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.

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“

Page 25: 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.

Prospects of car production in Slovakia in thousands

2007 Slovakia will be worlds biggest car producer per capita

Page 26: 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.

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

Page 27: 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.

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

Page 28: 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.

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

Page 29: 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.

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.

Page 30: 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.

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.

Page 31: 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.

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.

Page 32: 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.

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

Page 33: 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.

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

Page 34: 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.

Slovakia – Companies Location

Page 35: 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.

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

Page 36: 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.

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?

Page 37: 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.

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