FDI facts and medium term outlook for Slovakia
Bratislava, 29 November 2011
Vladimir ZlackýChief Economist
2
Some Facts About Foreign Direct Investment
3
Total stock of FDI / GDP comparable to other CEE coun tries
0
20
40
60
80
100
120
PL RO SK CZ HU BG
FDI STOCK (% of GDP, 2009)
Source: Eurostat
� Total stock of FDI in Slovakia at 58% of GDP i.e. foreign investments worth almost EUR 35 bn came into Slovakia over the last twenty years
4
Slovakia has a strong record in attracting FDI
FDI (% GDP)
Source: UniCredit Bank, EUROSTAT, NBS
� Due to a favorable relationship between labor cost and productivity, Slovakia has a strong record of attracting FDI
� Recent slow-down in FDI inflow to be addressed via reform efforts
???
1,7%2,5%
8,4%
-0,1%0,6%
6,9%
5,0%4,8%5,1%
0,9%
16,9%
-2,0%
0,0%
2,0%
4,0%
6,0%
8,0%
10,0%
12,0%
14,0%
16,0%
18,0%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H2011A
5
0
2
4
6
8
10
12
14M
anuf
actu
ring
Fin
anci
al In
term
.
Util
ities
Tra
de
Rea
l Est
ate
Bus
ines
s S
ervi
ces
Com
mun
icat
ion
Con
stru
ctio
n
Tra
nspo
rt&S
tora
ge
Min
ing
Hot
els
& R
est.
Oth
er S
ervi
ces
Agr
icul
ture
Manufacturing and financial sector attracted most F DI
FDI stock by sectors (bn. EUR, 2008)
0
0,5
1
1,5
2
2,5
3
3,5
Transporteq.
Basicmetals
Refinery Machinery Chemicals Food Plast &Rubber
Wood &Priniting
Electricaleq.
Textile Other man.
6
Apart from NL, Germany and Austria invested most
0
1
2
3
4
5
6
7
8
9
NL DE AT HU CZ IT CY FR BE LU KR US GB BR CH Other
NL27,7%
DE15,5%
AT14,4%
HU6,5%
CZ5,9%
IT5,7%
CY3,4%
FR3,2%
Other17,7%FDI by country (bn. EUR, 2009, stock)
7
Will Slovakia remain competitive in the medium -term ?
� Sound macroeconomic environment� Strong micro-foundations of the economy� Reasonable likelihood of continued reform efforts
Three main reasons why the answer is YES:
8
Sound Macroeconomic Environment
9
Slovakia a top growth performer of the past decade
Index 2000=100 CAGR 2000-2010
Slovakia 159,7 4,8%
Lithuania 153,3 4,4%
Romania 149,2 4,1%
Bulgaria 148,8 4,1%
Poland 146,4 3,9%
Estonia 145,9 3,8%
Latvia 143,2 3,7%
Czech Republic 136,9 3,2%
Luxembourg 135,1 3,1%
Cyprus 132,1 2,8%
Source: UniCredit Bank, EUROSTAT
� Due to structural reforms and forces of convergence, Slovak economy was the fastest growing one in the EU(27) in the past decade with the average annual growth rate of 4.8%
10
Macroeconomic outlook is positiveUniCrChapter Title – Chapter Section TitleUniCredit Bank ako ččččlen skupiny UniCredit
2010 2011 2012 2013 2014 2015 2016GDP bn EUR 65,9 69,0 71,2 74,8 79,8 85,3 91,0GDP real growth, % 4,2% 2,9% 1,9% 3,4% 4,7% 4,6% 4,5%CPI avg, % 1,0% 3,9% 2,5% 3,0% 3,3% 3,5% 3,5%Unemployment avg, % 14,4% 13,3% 13,4% 13,2% 12,6% 12,2% 12,1%Government debt, % GDP 41,0% 44,2% 47,6% 48,2% 48,1% 48,1% 47,0%Current Account, % GDP -3,5% -1,4% -0,9% -0,8% -0,8% -0,7% -0,7%
Source: UniCredit Bank, EUROSTAT, NBS, SO SR
� This year the economy will grow by about 2.9% � After a slowdown in 2H11 and 2012, the economy should
accelerate to about 3-4% annual growth � Slovakia poised to grow much faster than most Eurozone
countries
11
Slovakia compares favourably in gov debt/ GDP (%) UniCrChapter Title – Chapter Section TitleUniCredit Bank ako ččččlen skupiny UniCredit
7
16 18
31
38 38 39 40 41 44 45 48
60 61 63
68
72
80 80 80 82 83 85
93 96 97
119
143
550
20
40
60
80
100
120
140
160
EE
BG LU RO SI
LT CZ
SE
SK
DK LV FI
PL
ES
CY
NL
MT
AT
EU
27 UK
HU
FR
DE
EA
17 PT IE BE IT
GR
Government debt (2010, % GDP)
Source: UniCredit Bank, EUROSTAT
� In the current difficult market environment, the markets look particularly favorably on a low government indebtedness
� Slovakia’s government debt to GDP is well below 60%
12
Slovakia enjoys a good standing on the financial ma rketsUniCrChapter Title – Chapter Section TitleUniCredit Bank ako ččččlen skupiny UniCredit
Source: UniCredit Bank, Bloomberg
� Compared to PIIGS countries Slovakia commands much lower spread vis-à-vis German bunds
� This testifies to a relatively favorable risk profile of the country
0
500
1000
1500
2000
2500
GR PT IE IT ES SK
13
Fiscal consolidation program
2008 2009 2010 2011 2012 2013 2014Government deficit (% GDP) -2,1 -8 -7,9 -5,1 -4,7 -2,9 -3Government Debt (% GDP) 27,8 35,4 41,0 44,2 47,6 48,2 48,1
Source: UniCredit Bank, MF SR
� After two years of overspending (2009-10), the current and anyfuture government likely to undertake fiscal consolidation
� The main objective is to bring public finance deficit below 3% GDP in 2013
� A new constitutional law should introduce a debt ceiling of 60/50% GDP and an independent fiscal council
� The new law should reduce a room for future fiscal excesses
14
Strong micro-foundations of the economy
15
Favorable relationship between labor cost and produ ctivity
35
13
61
31
0
10
20
30
40
50
60
70
DE SK DE SK
Labour costs Labour productivity
tis. E
UR
64%
50%
Note: Labour costs – compensations per employee, Labour productivity – GDP per employmentSource: UniCredit Bank, EUROSTAT
� Slovakia is a fundamentally attractive place to invest – Slovak workers are relatively productive (50% GER) but cost little (36% of GER)
16
Slovakia has a competitive labor code
Employment protection index - OECD 2008
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
USACANGBRNZLAUS
IRL
JPN
CHEDNK
SK - no
wSW
EIS
LHUNKORNLD
SK -201
1FINCZEPOLAUT
ITA
BELDEUNORGRCFRAPRTESPM
EXLU
XTUR
OECD average - 2008
Str
icte
r re
gula
tions
Source: UniCredit Bank, MF SR
� After a reform of the labor code in 2011, Slovakia has top 10 most competitive labor codes in OECD
17
All-in labor costs still relatively competitive
423
648
1022 1061
1277
2918
891
0
500
1 000
1 500
2 000
2 500
3 000
3 500
BG RO PL HU SK CZ DE
Note: Labour costs – compensations per employee Source: UniCredit Bank, Eurostat
� In the run-up to the euro, labor costs increased in Slovakia but still largely competitive with Hungary and the Czech Republic, much less than in Germany
18
Continued reform efforts
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Slovakia has a track-record of being a reformist co untry
� Fiscal consolidation – necessary to bring the public finance on a sustainable footing
� Labor code – to increase labor market flexibility
� Pension reform – parametric changes to make it automatically immune to worsening demographic outlook
� Project Singapore – complex program to improve the business environment
� Knowledge-based economy – any government should make progress here
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