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Successfully investing in Slovakia

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last updated on 16 June 2023 | reading time approx. 4 minutes

 

 

 

How do you assess the current economic situation in Slovakia?

Despite the ongoing uncertainty related to the new global challenges, the Slovak economy is expected to grow. This year’s double-digit price growth reflects mainly cost factors such as energy, inputs and wages. In the com­ing years the inflation is expected to slow down. The economy is gradually recovering but high energy prices are still translating into rising prices for con-sumer goods and services, which will limit household consumption. Nevertheless, GDP could grow by 1.5 percent this year and by 3 percent next year (2024). The main driver of economic growth in 2023 will be the uptake of EU funds.
 
A combination of a more favorable external environment, a decline in commodity input pric-es and an easing of component shortages should support Slovakia’s export performance. In the labor market, the pool of workers is shrinking, as reflected in slower employment growth in the second half of last year. Most job vacancies are be­ing filled by foreign workers. Labor demand will again pick back up and, amid an adverse demographic situ­a­tion, will likely be met by incoming foreign workers.

Inflation and geopolitical conflicts are the biggest threats in the forthcoming 12 months. In the long-term peri­od, it will be also the cybersecurity risks and climate changes. Companies need to be prepared for the Artificial intelligence (AI) development that seems to grow in next years.

 

How would you describe the investment climate in Slovakia? Which sectors offer the largest potential?

In recent years, Slovakia has become one of the most popular destinations in the region. Hundreds of promi­nent investors (also from Germany) have chosen Slovakia as a suitable location, especially for the automotive industry. The location factors have remained good in Slovakia.
 
As the main factors attracting them to Slovakia, investors cite:
  • stable investment environment;
  • favorable geographic location;
  • dynamic economic growth;
  • the euro as the official currency;
  • continuous development of infrastructure;
  • high quality of labor force;
  • high productivity.
We expect that the above conditions will not change after the end of the inflation period and war. On the con­tra­ry, it is expected that the state will take appropriate measures to re-vive the economy, which may positively influence the investment environment in the future. Among the industries that have been developing most dynam­ically for a long time are me-chanical engineering, electrical industry and, of course, the automotive in­dustry. The start of production of Jaguar Land Rover and Volvo will further strengthen the dominance of the industry in Slovakia. 
 
The growing competitiveness of the Slovak economy is also reflected in the long-term rise in the Global Com­pe­ti­tive­ness Ranking (World Economic Forum). The rise in the ranking is the result of long-term and systematic im­plementation of measures in favor of entrepreneurs. Examples of such measures are the regular anti-bureau­cracy packages.

What challenges do German companies face during their business ventures into Slovakia?

The general political situation in Slovakia is considered to be stable. According to the Cred-it Insurance Group Credendo, Slovakia is one of the safest and politically most stable coun-tries in Europe. Slovakia has the lowest risk among EU countries, especially in the following categories: Risk of political unrest, Risk of state inter­vention in private property, Currency risk and Transfer risk.

Even before starting business in Slovakia, it should be taken into account that Slovak legis-lation differs in certain areas from the German system to some extent (e.g., labor law). Fur-thermore, (compared to Germany) relatively frequent changes in tax and legal regulations have been observed in Slovakia. The unemployment rate, which has been very low for years, represents one of the greatest challenges in Slovakia. In addition, the struggle of employers to attract qualified workers over many years has led in part to an increase in labor costs. During the pandemic, the pressure on labor costs eased somewhat, but is now increasing again, mainly due to rising inflation.

 

What importance does Germany have for the Slovakian economy?

German companies belong to the largest employers in Slovakia and are therefore important players on the Slo­vak market. However, it is difficult to determine their exact number, as many companies are owned by subsi­diaries registered in other countries. It is estimated that about 2,400 companies with direct or indirect partici­pation of German capital are ac-tive on the Slovak market.
 
The strongest country in the euro zone is also Slovakia’s most important business partner. In 2022, Germany accounted for around 21 percent of the country’s total exports. Slovakia has been running a trade surplus with Germany for several years now. In April 2023, another German company announced a large investment in Slo­vakia, also with state support, in re-sponse to increased interest in heat pump technology and the need for alternative energy sources.
 

In your opinion, how will Slovakia develop?

The further development of the economy depends to a large extent on the further develop-ment of the global crisis caused by war and price growth. Apart from the current uncertain-ties, Slovakia as an investment loca­tion is likely to remain at the top of the most popular European countries in Central and Eastern Europe. Last but not least, it is also due to the ability to respond quickly and flexibly to existing trends and needs in the mar­ket. The eco-nomic growth that has been sustained for years is expected to continue, although probably not with the same momentum and to the same extent as before. Sustaining productivity growth – and thus the basis for Slovakia's economic convergence – requires sustainable structural reforms and targeted investments in infrastructure, research and innovation. Im-proving the quality and integration of the education and training system, reducing regional disparities and improving the quality of public institutions can help Slovakia secure its competitiveness, move up the value chain and become more sustainable. In addition, the economy is ex­pec­ted to regain momentum in the coming years, mainly due to the provision of EU funds.

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