The Slovak economy grew 3.3% in real GDP terms in 2011 (est.), slowed by the global economic recession and a drop in cyclical demand for its automotive and consumer electronics products, two major export areas for Slovakia. Unemployment remains high at 13.5%, but is more than 20% in some areas of eastern and southern Slovakia. Structural unemployment in the disadvantaged Roma community is often greater than 50%. Slovakia succeeded in reducing its fiscal deficit to 4.6% of GDP in 2011 and public debt increased only slightly from 42% to 43.4% (as a percentage of GDP), still relatively modest in comparison with many European Union neighbors. Standard and Poor’s recently downgraded Slovakia from A+ to A with a stable outlook. The rating downgrade took place on January 12, 2012 along with the downgrades of eight other Eurozone countries.
Comprehensive structural reforms adopted by the Slovak government from 2000-2005, including a flat income tax at 19%, led the World Bank to name the country the world’s top reformer in improving its investment climate in its "Doing Business in 2005" report. Slovakia’s relatively low-cost, yet skilled, labor force, low taxes, a liberal labor code and favorable geographic location within the European Union (EU) have helped it become a favorite investment destination. The Financial Times at that time, described Slovakia as the "Detroit of the East," and Forbes magazine called it the world's next Hong Kong.
The 19% flat income tax remains in place, but the election of the center-left Smer party (2006-2010), led by then-Prime Minister Robert Fico at the head of a leftist/nationalist coalition, slowed reform momentum and started a period of roll backs of earlier reforms in labor, pension, and social and health insurance legislation. The Fico government’s commitment to adopting the euro in 2009 tempered proposals to overhaul the all previous reforms, however, and Slovakia joined the European Monetary Union on January 1, 2009. Nonetheless, the Business Alliance of Slovakia has reported a continuous downward trend in the quality of the business environment since 2006. They cite the slow, non-transparent and ineffective legal system, an increasing bureaucratic burden on companies, and an ineffective political system as the primary negative characteristics of the Slovak business environment. In the first half of 2010, due to a perception of worsening corruption, Slovakia dropped to new lows in several international measures, including Transparency International’s Perceptions of Corruption Index and the World Bank’s Worldwide Governance Indicators. In September 2010, the global competitiveness chart released by the World Economic Forum showed Slovakia falling 13 places to 60th position, its worst ranking ever. Of particular interest within this ranking, “Cronyism” was listed as Slovakia’s largest competitive disadvantage, and the report placed Slovakia in 127th position in that category out of 139 countries. This was especially alarming for Slovakia, an economy heavily dependent of foreign direct investment. On the Heritage Foundation’s Economic Freedom rankings, Slovakia dropped five places to 50th position on the score related to protection of ownership rights, due to lengthy court proceedings and what the report called “firmly rooted corruption” in the judiciary.
Elections in June 2010 brought a new four-party, center-right coalition government into power in Slovakia with a razor-thin majority in parliament. With a sovereign debt crisis swirling in the euro zone and Slovakia’s own government deficit projected at 8% of GDP for 2010, the new government, led by Prime Minister Iveta Radicova, made reducing the fiscal deficit its number one priority. The Slovak parliament duly passed a budget that aimed to reduce the fiscal deficit to around 5% of GDP by the end of 2011 and included a “temporary” VAT increase from 19% to 20%. In December 2011, the Government of Slovakia adopted a constitutional budgetary Act on Fiscal Responsibility, limiting public debt to 60% of GDP as agreed among Eurozone members. Finance Minister Ivan Miklos aims to reduce Slovakia’s fiscal deficit to 3% of GDP by 2013, in line with EU mandates.
In addition, the coalition parties campaigned on a promise of reducing corruption and increasing transparency in all aspects of the public sector: civil service, subsidies and EU funds, free access to information, public procurement, the judiciary, territorial authorities, funding of political parties and politicians, health, police and media. The Slovak government has made some progress on these issues by requiring disclosure on the internet of all contracts, invoices and financial transactions relating to the public as a condition of their taking effect; the introduction of electronic auctions as a mandatory form of procurement; access to public inspection at the sale of state properties; open processes for hiring and procurement; the disclosure of all court decisions on the Internet; and electronic recording of all hearings. However, few cases of corruption for public officials have been prosecuted under the new government.
In October 2011, the government coalition was forced to call for early elections following an unsuccessful confidence vote centered on Slovakia’s participation in the 599 billion USD European Financial Stability Facility (EFSF). Slovakia ultimately approved its participation in the EFSF by the second vote in October 2011 with support from the opposition SMER (Direction) Party under the condition of early elections (scheduled for March 2012).
Openness to Foreign Investment
The flow of FDI per capita in Slovakia is comparable to that in neighboring Hungary and the Czech Republic. The inward flow of FDI to Slovakia reached 389 million USD in 2010, and the cumulative FDI inflow to Slovakia increased to 50 billion USD (September, 31, 2010 data, National Bank of Slovakia estimates). An informal survey by the U.S. Embassy showed U.S. investments in Slovakia at about 4.5 billion USD for current and future commitments, making the U.S. the third largest source of FDI. Official Government of Slovakia (GOS) statistics differ because most U.S. investments are credited to third countries, depending on their corporate structure. For example, U.S. Steel Kosice is registered as a Dutch entity. According to GOS sources, the largest foreign investors in 2010 (as of 3Q 2010) were: the Netherlands, Cyprus, Germany, Austria, Japan, the United Kingdom and the Czech Republic.
Conversion and Transfer Policies
Foreign exchange operations are governed by the Foreign Exchange Act (312/2004 Z.z.) allowing for easy conversion or transfer of funds associated with an investment. As a member of the OECD, Slovakia meets all of the international standards for conversion and transfer policy. In 2003, an amendment to the Foreign Exchange Act liberalized operations with financial derivatives and abolished the limit on the export and import of banknotes and coins (domestic and foreign currency). Since January 2004, an amendment to the Foreign Exchange Act authorized Slovak residents to open accounts abroad and eliminated the obligation to transfer financial assets acquired abroad into Slovakia. Non-residents may hold foreign exchange accounts. No permission is needed to issue foreign securities in Slovakia, and Slovaks are free to trade, buy and sell foreign securities. There are very few controls on capital transactions, except for rules governing commercial banking and credit institutions, which must abide by existing banking and anti-money laundering laws.
Expropriation and Compensation
The constitution of Slovakia and the commercial and civil codes permit expropriation only in exceptional cases of public interest, with a requirement to provide compensation. The law also provides for an appeal process. In December 2007, the GOS approved a new expropriation or eminent domain law that allows the state to construct highways on private property without prior consent of the landowner if the construction parcel is considered "strategic" for Slovak interests. Owners would be compensated by the state after the fact. The legislation was aimed at speeding up highway construction projects to finish the connection between Bratislava and Slovakia’s second city, Kosice. It was challenged by several civil society groups and MPs in the Constitutional Court in 2008. On January 26, 2011 the Constitutional Court ruled that the provisions of the Law on Extraordinary One-Off Measures in Preparation of Road and Highway Construction are in contradiction with the Constitution of the Slovak Republic and international agreements.
Slovakia is a contracting state of the ICSID, the World Bank's Commercial Arbitration Tribunal (established under the 1966 Washington Convention), and is a member of the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitrage Awards.
In 2008 the Fico government passed a law that banned private health insurance companies from paying dividends to their shareholders, severely limited allowable overhead costs, and required companies to plough their profits from public health insurance back into the healthcare system. In response, one of the shareholders in the health insurance company Dovera, Health Insurance Companies of Eastern Europe, and Eureko BV, a shareholder of Union Zdravotna Poistovna filed for international arbitration seeking compensation of 685 million USD. A group of 49 MPs also filed an extensive complaint in the Constitutional Court in October 2008, objecting to the law's stipulations and claiming that it violates the Slovak Constitution and international agreements to which Slovakia is a signatory. On January 26, 2011 Slovakia's Constitutional Court overturned the Fico-era legislation, saying it is not in line with the Slovak Constitution.
The Slovak judicial system is comprised of general courts and the Constitutional Court. General courts decide in civil and criminal matters and also review the legality of decisions by administrative bodies. The 54 District courts are the first instance courts, and eight regional courts hear cases as appeals courts. The Supreme Court of the Slovak Republic is the final review court. A special court for corruption, organized crime and crimes of highest public officials was created in 2005, though it was subsequently abolished by a judgment of the Constitutional Court in 2009 and replaced with another, similar court with a more limited scope. Judges of general courts are nominated by the Judicial Council of the Slovak Republic and are appointed for life by the President. They may only be removed for cause. The Constitutional Court of the Slovak Republic is an independent judicial body that decides on the conformity of legal norms, adjudicates conflicts of authority between government agencies, hears complaints, including complaints of individuals regarding their human rights, and interprets the Constitution or constitutional statutes. Judges of the Constitutional Court are appointed for 12-year terms by the President from a list of candidates selected by the parliament.
The legal system generally enforces property and contractual rights, but decisions may take years, thus limiting the utility of the courts for dispute resolution. Slovak courts recognize and enforce foreign judgments, subject to the same delays. Although generally the commercial code appears to be applied consistently, the business community considers corruption and political influence to be significant problems in the legal system. U.S. and other companies have reported to Embassy officers instances of multi-million dollar losses that were settled out of court because of doubts about the court system’s ability to offer a credible legal remedy.
Slovakia accepts binding international arbitration, and the Slovak Chamber of Commerce and Industry has a court of arbitration for alternative dispute resolution; nearly all cases involve disputes between Slovak and foreign parties. Slovak domestic companies generally do not make use of arbitration clauses in contracts.
The current law on bankruptcy and restructuring entered into effect on January 1, 2006. Its main aim was to shorten the duration of cases and to increase the volume of revenues recovered. The law allows companies to undergo court-protected restructuring and individuals to discharge their debts through bankruptcy. According to the International Monetary Fund, the act overhauls ineffective bankruptcy procedures by speeding up their processing, improving creditor rights, reducing discretion by bankruptcy judges, and randomizing the allocation of cases to judges to reduce the potential for corruption. As of January 2012, the Amendment on Bankruptcy and Restructuring, and on Amending and Supplementing Certain Acts, came into force. Its objective was to simplify the procedure for lodging creditors’ receivables claims, including situations in which a creditor can lodge multiple unsecured receivables claims by means of one application. Under the new law, a creditor is obliged to lodge its claim with the trustee only, and creditors can submit their receivables even after the primary 45-day filing period has lapsed from the moment bankruptcy is declared.
Slovakia recognizes secured interests in real property, normally secured by physical possession of, or a conveyed title to, the property in question until the loan is repaid. There is a recognized procedure for foreclosures, which specifies how evictions are handled, debts are repaid and any remaining funds are returned to the titleholder. Since 2003, Slovakia has had one of the most advanced frameworks in Europe for registering security interests in moveable property.
Increase in electricity grid connection fees of several major private manufacturing companies were questioned in 2011. The Regulatory Network Authority has increased the electricity connection grid fees for self-producers of the electricity from 30% of the regular fees to 100% of the fees. Private companies which have invested in building their own private power plants within the company compound and solely for the company’s own use, now must pay 100% of the electricity grid connection fees, a situation which many companies consider grossly unfair. Recently, the Economy Ministry announced a willingness to resolve this issue by offering a compromise solution to the private companies. No details of this possible solution are available yet.
The Radicova government also in 2011 introduced an 80% tax on profits from the sale of excess CO2 emission quotas, a step that significantly impacts U.S. investors in Slovakia. The Finance Minister explained the high level of taxation on profits from excess CO2 emission quotas as an attempt to correct for the fact that in many cases the emission quotas were set too high originally in a less-than-transparent process for assignment of quotas. But the tax applies both to those companies who may have an excessive quota and those companies whose quotas were set at appropriate levels, including American companies. The issue remains under discussion.
Performance Requirements and Incentives
In 2011, the Radicova government approved a new Act on Investment Incentives - number 231/2011. The new legislation regulates the conditions under which investment incentives are made available to foreign and domestic investors. The new legislation has established a preference for tax breaks and tax holidays over direct cash support to the investors, and the period for potential tax breaks benefits has been increased from five to 10 years. Investments into the regions with high unemployment and industries with higher added value are also given preference in the government approval process.
Slovakia has no formal performance requirements for establishing, maintaining, or expanding foreign investments. However, such requirements may be included as conditions of specific negotiations for property involved in large-scale privatization by direct sale or public auction. (See the "Openness to Foreign Investment" section for details on incentives). There are no obstacles for foreign entities to participate in GOS-financed and/or subsidized research and development programs and to receive equal treatment as domestic entities. There are no domestic ownership requirements for telecommunications and broadcast licenses.
The current law regarding defense offsets has been in effect since January 1, 2008. The law outlines the basic principles and responsibilities of the supplier and the relevant state institutions (Ministry of Defense, Ministry of Economy, interdepartmental offset committee) for offset programs in Slovakia, based on similar legislation in other EU and NATO countries. The law requires offsets of 20% direct or 30% for a combination indirect and direct offsets of the value for defense contracts worth over EUR 6 million ($8.2 million). The offsets can be reduced by a set formula if applied in specific areas such as technology transfer, R&D, education, IT and direct investments.
Right to Private Ownership and Establishment
Foreign and domestic private entities have the right to establish and own business enterprises and engage in all forms of remunerative activity in Slovakia. In theory, competitive equality is the standard by which private enterprises compete with public entities. In addition, businesses are able to contract directly with foreign entities. Private enterprises are free to establish, acquire and dispose of business interests, but all Slovak obligations of liquidated companies must be paid before any remaining funds are transferred out of Slovakia. Non-residents from EU and OECD member countries can acquire real estate for business premises. Since January 2004, there are no restrictions for Slovak residents on the purchase, exchange, and sale of real estate abroad.
Protection of Property Rights
Secured interests in property and contractual rights are recognized and enforced. The mortgage market in Slovakia is growing, and a reliable system of recording such interests exists. However, titles to real property are often unclear and can take significant amounts of time to determine. Legal decisions may take years, thus limiting the utility of the court system for dispute resolution.
Slovak courts recognize and enforce foreign judgments, subject to the aforementioned delays, and the commercial code is applied consistently. A bankruptcy law was amended in 2011 by Act No. 348/2011 (new amendment entered into force in January 2011), has improved creditors’ rights and simplified the procedure for lodging creditors’ receivables in bankruptcy cases. Legislation passed in 2009 that provided for easy expropriation of private land for public projects was later overturned by the Constitutional Court. The business community considers corruption to be a significant factor in the court system, however, and sometimes goes to extraordinary lengths to avoid litigation in Slovak courts.
Protection of intellectual property rights (IPR) falls under the jurisdiction of two agencies. The Industrial Property Office is responsible for most areas, including patents, and the Ministry of Culture is responsible for copyrights (including software). Slovakia is a member of the World Trade Organization (WTO), the European Patent Organization and the World Intellectual Property Organization (WIPO). The WTO TRIPS agreement is legally in force in Slovakia, but there have been no cases brought to test actual enforcement. Slovakia also adheres to other major intellectual property agreements including the Bern Convention for Protection of Literary and Artistic Works, the Paris Convention for Protection of Industrial Property, and numerous other international agreements on design classification, registration of goods, appellations of origin, patents, etc. In general, patents, copyrights, trademarks and service marks, trade secrets, and semiconductor chip design appear adequately protected under Slovak law and practice.
In 2006, Slovakia was taken off the Watch List of the U.S. Trade Representative’s annual interagency "Special 301" review in recognition of the significant progress that the GOS had made in addressing concerns related to the protection of pharmaceutical patents in Slovakia. Slovak authorities had adopted legal and administrative measures to ensure that patent-infringing drugs are not given market authorization; some of those measures have since been weakened to accord with current EU norms. The government also built a new secure facility to house confidential pharmaceutical test data.
Transparency of Regulatory System
In general, transparency and predictability in Slovakia have been problematic for many investors. The process of obtaining residency permits for expatriates to work in Slovakia has been criticized for years as difficult and time-consuming and for the fact that authorities are not always consistent in their knowledge or application of the regulations. On the other hand, the procedure and documentary requirements differ little from other EU countries. Over time, some restrictions have been eased; notably, Slovak authorities no longer require an apostille on FBI criminal background results. An updated law governing the stay of foreigners, effective from January 2012, introduced some improvements while changing other requirements; for instance, applicants must now submit all documents at once, which may prevent applicants who have not prepared in advance from starting the process within a 90-day visit to the Schengen area. Investors have long complained that purchasing land and obtaining building permits are time-consuming and unpredictable processes, but improvements, including the web portal www.katasterportal.sk, which enables interested parties to verify information about land ownership online, have started to ease the process. Since Slovakia’s tax reforms of 2004, many observers consider Slovakia’s flat-rate tax system to be one of the simplest in Europe.
The Commercial Code and the 1991 Economic Competition Act govern competition policy in Slovakia. The Anti-Monopoly Office is responsible for preventing noncompetitive situations. The current Law on Public Procurement, valid from 2006, harmonized Slovak law with all relevant EU directives on public procurement. An electronic tendering system, operated by the Public Procurement Office and the Ministry of Finance, was adopted in 2007 to support the tendering cycle. Nevertheless, concern about the transparency and integrity of public tenders remains a subject of concern which has led to the dismissal of government ministers and to inquiries on the part of the European Commission. Lack of transparency in public tenders ranks among the areas of most concern to foreign investors in Slovakia.
Foreign investors and foreign companies doing business in Slovakia have complained about law enforcement, the transparency of regulatory processes in several industries, and a number of regulatory bodies are considered by the business community to be less than fully independent (among such are the Telecommunication Office and the Regulatory Network Authority). Political pressure on regulators in several offices has at times resulted in changes of leadership in order to influence the outcome in specific regulatory adjudications.
The Telecommunications Regulatory Authority of the Slovak Republic awarded 10-year license fees for the two major Slovak telecommunication operators – French Orange and German Slovak Telekom – that should reach 63 million million USD (Slovak Telekom) and 53.7 million USD (Orange). This decision is being challenged in the Supreme Court because of allegedly inaccurate calculations about the number of potential customers. The Regulatory Network Authority, an independent regulatory body within the Ministry of Economy responsible for approving prices of electricity, natural gas and heat for households, has often come under scrutiny for its decisions, many of which have been considered politically biased.
The government has occasionally used emergency legislative procedures in cases affecting businesses. This practice reduced the public comment period for some proposed laws and regulations to practically nothing, a fact that various business groups vigorously protested. One law resulting from this is the controversial “strategic companies” law introduced in 2009, which effected a major change in bankruptcy and restructuring procedures, allowing the state the right of first refusal in acquiring distressed companies in certain sectors. The law was drafted, introduced, and passed in roughly a week, with no formal period for public comment. Another example, from 2008, changed corporate governance rules for companies in regulated network industries to allow the state to determine utility prices. Again, this highly controversial legislation was brought to a vote in Parliament and signed into law with virtually no public comment period. The validity of the “strategic companies” act expired at the end of the year in 2010 and was not renewed by the current government.
Competition from State-Owned Enterprises
In 2008 the government imposed strict return guarantee requirements and fee limits on private pension funds. Many industry analysts have attributed these moves to a desire to eliminate competition to the state-run pay-as-you-go pension system, and to encourage investors to move their savings back into the state system, which is running huge deficits. There is also a pending EC infringement proceeding against the Slovak government for limiting repatriation of profits in the health insurance industry. This move was widely seen as an effort to limit competition with the state-owned insurance company, which has a 70% market share.
Corporate Social Responsibility
The Slovak government has a program which allows corporations to direct up to 2% of their corporate income tax to NGOs, making it one of the most important funding sources for NGOs. As a part of revenue enhancement efforts, proposals have been made to reduce and eventually eliminate this provision during the next several years. The government approved an amendment to the existing tax assignment law, introducing a continuous decrease in the corporate income tax assignment from the current 2% to 1.5% (for the year 2012) and to 0.5% of corporate income tax in the year 2018. Most major foreign investors operating in Slovakia have Corporate Social Responsibility (CSR) programs, ranging from employment and education programs for underprivileged minorities to fundraising for charities and NGOs. For example, Whirlpool has a Habitat for Humanity program; U.S. Steel Kosice has a Roma employment program; and Johnson Controls has a community volunteer program. U.S. companies have been recognized by government and civil society for the excellence of their community service efforts.
There have been no reports of politically motivated damage to property, and civil disturbances are extremely rare. There has been no violence directed toward foreign-owned companies.
In 2000, the GOS passed a national anti-corruption program. Subsequently, it appointed a corruption steering committee, amended the Criminal Code in attempts to strengthen law enforcement, approved a law modernizing public procurement, and enacted a strong Freedom of Information Act. A special court and a special prosecutor for corruption and organized crime were established in 2003. The Special Court was abolished in 2009 when the Constitutional Court ruled it unconstitutional, and in its stead a new Specialized Criminal Court, also focused on corruption and other forms of most serious crimes but with more limited powers, was established. Under the new law creating the 2009 court, judges' salaries were reduced, and judges were no longer required to have security clearances. These changes addressed the Constitutional Court's reasoning for declaring the Special Court unconstitutional.
The current law on conflict of interest, which is generally viewed as weak and even more weakly enforced, came into force in October 2004. A special committee of Parliament supervises the implementation of the law, but it has not sanctioned any official covered by the law for violation of conflict of interest rules since its inception.
Slovakia is also a party to international treaties, among them the OECD Convention on Combating Bribery of Foreign Public Officials, UN Anti-Organized Crime Convention, UN Anti-Corruption Convention, and Criminal Law Convention on Corruption and Civil Law Convention on Corruption. Slovakia is a member of the Group of States against Corruption (GRECO).
The press has taken an active role in reporting on corruption, and public awareness of the issue has steadily increased over the past several years. The Slovak chapter of Transparency International (TI) is active and, along with other civil society groups, monitors public tenders. As a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials, to give or accept bribes is a criminal act. Despite having legislation in place, however, Slovakia is ranked very low in the quality of its implementation of the Convention, according to a TI report. Slovakia ranked 66th on TI’s 2011 Corruption Perception Index (CPI), down (i.e. more corrupt) from 59th in 2010 and 57th in 2009.
Since coming to power in June 2010, the Radicova government has made efforts to increase transparency of public tenders through publishing all government contracts on the web site. The Justice Ministry introduced compulsory disclosure of contracts by public administration and state owned companies in the Central Registry of Contracts in 2011. The register contains now about 110,000 documents, and additional contracts have been published on the websites of the local municipalities. The law was criticized by some large enterprises with a stake in government contracts, however, who fear they will be disadvantaged in comparison to private companies who do not have to disclose the contracts. As of January 2012, some of these companies have received an exception from the rule. Analysts and journalists agree that the disclosure of contracts brought some positive results and helped reduce corruption. However, non-governmental organizations continued reporting a number of corruption allegations, including several allegedly involving senior members of the Slovak government. In 2009 and 2010, several government ministers were relieved of their posts because of concerns about non-transparent or inflated tenders or because of ethical violations. The most serious reports of corruption came out of the Ministry of Environment and the Ministry of Construction and Regional Development, both headed by the ultra-nationalist Slovak National Party (SNS) a partner of the then-coalition government. The PM at the time, Robert Fico, disbanded the Ministry of Environment because he found the situation irreparable, and had the Ministry of Agriculture take over its functions. The Ministry of Environment was recreated in November 2010. Shortly before the end of 2011, an anonymous leak of supposedly secret service tapings has been published on the internet, disclosing potentially corrupt activities of current and previous high-level politicians and Slovak oligarchs during the privatizations in the years 2005-2006.
The European Commission has sought explanations or investigated corruption complaints in connection with several tenders and regulatory decisions involving EU funds. The most notable cases involved the Ministry of Environment, the Ministry of Construction and Regional Development, the Ministry of Labor, Social Affairs and Family, and the Ministry of Transportation.
Bilateral Investment Agreements
Slovakia has bilateral investment treaties with the following countries: Austria, Belgium, Bulgaria, Belarus, Bosnia and Herzegovina, Canada, China, Croatia, Cuba, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Indonesia, Ireland, Israel, Italy, Lithuania, Luxembourg, Malta, Montenegro, the Netherlands, North Korea, Norway, Poland, Portugal, Romania, Russia, Serbia, Singapore, Slovenia, South Korea, Spain, Sweden, Switzerland, Syrian Arabic Republic, Tajikistan, Turkey, Turkmenistan, Ukraine, the United Kingdom, the U.S., the Socialist Republic of Vietnam, and Uzbekistan. Like other newer EU members, Slovakia had to negotiate an amendment to its bilateral investment treaty with the U.S., because it was considered inconsistent with EU legislation. The amended treaty entered into force on May 14, 2004. In November 2007, Slovakia signed a bilateral Science and Technology Agreement with the US.
OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) offers U.S. investors in Slovakia insurance against political risk, expropriation of assets, damages due to political violence, and currency inconvertibility. OPIC can provide specialized insurance coverage for certain contracting, exporting, licensing, and leasing transactions undertaken by U.S. investors in Slovakia. Slovakia is a Member of the Multilateral Investment Guarantee Agency (MIGA).
The U.S. Embassy purchases local currency at a rate generated by the Department of State and the current rate (January 17, 2012) is EUR 0.781 / $1.00. The Embassy expects to convert roughly $9 million during fiscal year 2012.
A new amended Labor Code came into force in Slovakia on September 1, 2011. It moves Slovakia to among the top 10 OECD countries in terms of the least strict rules regarding employment protection and it enhances the level of flexibility that employers have in the use of temporary contracts. The Labor Code change essentially decreases labor market rigidity, mainly in the areas of lengths of notice period and severance pay, the maximum number of successive fixed term contracts permitted, the maximum duration of the fixed term contracts and compensations after an unfair dismissal. After the previous amendments to the Labor Code in April 2007, the workweek was standardized at 40 hours, and the overtime allowance was decreased to 100 hours per year, pending an agreement between employers and employees. As of January 2012 the minimum wage is 431.90 USD per month. The minimum living standard is established at 250 USD per month. Wages have been rising since 2004 following the country’s accession to the EU and because of increasing demand for labor brought on by growing levels of FDI. A new law on the minimum wage, which took effect at the beginning of 2009, introduced indexing of the minimum wage to overall wage growth in the economy. Slovak social insurance is compulsory and includes a health allowance, unemployment insurance, and pension insurance. The ceiling on social insurance payments affecting both employers and employees was increased under legislation passed in 2007.
The Act on Collective Agreement was amended on December 14, 2010. The January 2010 version of the Act guaranteed that a collective agreement negotiated between a company and the government was automatically extended to all other companies in the same sector. Based on the December 2010 amendment to paragraph 7 of the same Act, the Ministry of Labor has to approach each company in the negotiations about extending collective agreements.
Slovakia’s workforce of more than two million has a strong tradition in engineering and mechanical production. Foreign companies frequently praise the motivation and abilities of younger workers, who also often have good foreign language and computer skills. Slovaks have a reputation for being technically skilled, particularly in heavy industry. Nominally, education levels match or exceed neighboring countries with nearly 86% of Slovaks aged 25-64 having at least a high school education. According to the World Bank’s Student Learning Assessment Database, Slovaks outscored all other Central and Eastern European students in math and placed third (behind Hungary and the Czech Republic) in sciences. Slovaks continue to have good prospects of finding a skilled job, with 85% or more of tertiary educated 25-34 year-olds employed in skilled occupations, indicating those with higher education are in strong demand (OECD Education at a Glance 2009 report).
Total nominal hourly labor costs in Slovakia decreased slightly in 2010, reflecting the effects of the economic crisis and associated high unemployment. The unemployment rate which hovered around 20% as recently as six years ago, declined to a range between 7-8% in 2008 due to strong economic growth, entry to the EU, and stricter policies on qualifying for unemployment benefits, but rose to 14.5% in 2010 and finished 2011 at 13.3%. There are significant regional variations in unemployment rates across the country, with a pre-recession rate of less than 6% in Bratislava but up to 33% in some parts of eastern and southern Slovakia (Rimavska Sobota).
Union membership has been on the decline in recent years. According to the Confederation of Labor Unions estimates, 365,541 workers (or approximately 17% of the total Slovak workforce) belonged to trade unions in 2010. The Ministry of Labor, Social Affairs and Family estimates that 24% of all workers are covered by collective bargaining agreements; however, business associations estimate the union membership base at 10%. In 2007 the government re-instituted the so-called "tripartite arrangement," a discussion platform consisting of state representatives, labor unions and the employers' association. The unions generally have been tolerant of the costs imposed on labor by economic transformation, but union leadership has remained politically engaged and is active among its membership. Slovakia is a member of the International Labor Organization and adheres to its Convention Protecting Worker Rights.
Foreign-Trade Zones/Free Trade Zones
Foreign trade zones and free ports were eliminated in Slovakia in 2006.
Foreign Direct Investment Statistics
Slovakia imports more than 90% of its oil and gas from Russia, and its export markets are primarily OECD and EU countries. More than 85% of its trade is with EU members. Germany is Slovakia's largest trading partner, purchasing 19.3% of Slovakia's exports in 2010. Other major markets include the Czech Republic (14%), Poland (7.3%), France (7%), Austria (6.7%), Hungary (6.5%) and Italy (5.8%). Slovakia’s primary import partners are Germany (15.5%), Czech Republic (10.3%), Hungary (4.2%), Poland (4%), France (3.7%), Italy (3.2%) and Austria (2.5%). Slovakia's exports to the United States made up 1.4% of its overall exports in 2009 ($649 million), while imports from the U.S. accounted for 0.9% of its total purchases abroad ($398 million), according to the Ministry of Economy (September 2011 data).
There are over 130 U.S. companies in Slovakia. In December 2011, the U.S. company Honeywell announced a 50.2 million USD investment in Slovakia, creating 446 new jobs in Eastern Slovakia. In 2011, Amazon and Google opened offices in Slovakia. In 2000, U.S. Steel Kosice (USSK) acquired East Slovakian Steelworks to become the largest U.S. investor in Slovakia, with an investment of 1.2 billion USD and over 13,000 employees. Johnson Controls has over 6000 employees in Eastern Slovakia; IBM has roughly 4000 employees in Bratislava, followed by HP with approximately 2000 employees. Whirlpool has 1200 employees and produces two million washing machines annually, making its local unit the largest appliance producer in Europe. Several other American companies have substantial investments in Slovakia, including Emerson Electric, Tower Automotive, Delphi, Crown Bevcan, Citibank, TRW, Visteon, AT&T, HP, Microsoft, CISCO, Johnson Controls and Dell. Other major foreign corporations in Slovakia include Volkswagen, Hyundai Kia, Peugeot Citroen, Samsung, Getrag Ford, Deutsche Telecom, EON, Ruhrgas, Intesa BCI, UniCredito, Raiffeisen Group, Enel and Siemens. The Government of Slovakia approved 25 million USD state aid for the new Honeywell investment, including 15.2 million USD in direct financial subsidies, 600,000 USD in tax breaks and 9.2 million USD in contributions per job created. Other significant foreign investments included 171.6 million USD expansion plans of German-Slovak Continental Matador Rubber, and a 27.7 million USD investment of German Secop (former Danfoss Compressors).