Why are the investors coming to Slovakia.

Slovakia is very attractive country for the foreign investors. Every day new investors are coming to Slovakia and there are interesting in to investing their money over here or just start with some kind of production. Just a few years ago Slovakia was not very investor’s friendly and a lot of companies rather choose different country. Nowadays the situation is different. Every day present government is doing changes which are very good for investors. A lot of experts in economy claims that Slovakia is know one of the best countries for investors in middle Europe. Investors are choosing Slovakia because of many reasons such as low taxes, cheap and high educated labor, state support, stable and secure country, and because their customers start production in this country.




One of the biggest advantages of Slovakia is the tax reform. Slovak minister of economy made a lot of tax reforms in last two years and recently this country has one of the best tax systems in Europe. Slovakia has one flat tax rate. Everybody is paying same taxes, 19 percent .



“In one sweeping bill Slovak policymakers collapsed five income tax brackets into one, eliminated virtually all exemptions and tax deductions, repealed several forms of double taxation (transfer taxes, donation taxes and inheritance taxes), and set their corporate tax rate equal to their flat individual income tax rate. That's a shocking political accomplishment that should serve as a beacon of hope for tax policymakers everywhere” (as cited in Slovakia's Tax Reform Miracle). This is very beg competitive advantages for Slovakia because in some other European countries can the tax rate reach 40 percent. For every businessman the tax rate is very important and therefore when they are choosing a country for the potential plant they are very interested in it. Each company is doing a business in order to make some kind of profit and if you make 20 percent higher profit just because of lower taxes why do not choose country based on this criterion.



Slovakia made very good reform by doing this tax reform. Even the fact that Slovakia has lower income from certain amount of money, more companies are coming to this country and they are turning here huge amount of money which creates more money. This step was very rational and it brings more money to the state budget then older system with higher tax rate (FM Ivan Miklos: Tax Reform Attractive for Investors 2004).



Of course the tax system is not the only support which the company can get when they are coming to make a business in Slovakia. Strategic or let say big investors are also gaining from state financial support. There are existing straight rules about the state support in the European Union and Slovakia has to follow this rules. These rules are important because some countries would like to give higher support for some companies in order to attract more investors. These roles create “fair play game” for all countries of European Union. For example KIA is getting 1, 2 billion of Slovak crowns in state support. Of course that money is not just giving to an investor. That money is investing in infrastructure, land or some other kind of help. Few years ago there was very common that the companies were also receiving the tax holidays once they come to country for example for period of three or five years but this is over know. As it was said there are strict rules about the financial support from the state and those rules must be followed by each state in order to achieve healthy competition.



The other big advantage of Slovakia is cheap labor. Slovakia has one of the cheapest labors in Europe; companies can save up to eighty percent on labor. One of the highest expenses in each companies are wages and if you can lower these expense by more than half why not to move to Slovakia? If an investor is planning to employ over two thousand people it makes sense. It is big different if you pay four hundred or twelve hundred euros per month per employee. Four hundred Euros is the average wage in Slovakia while in Italy the average salary is around twelve hundred Euros by comparing just those factors future investor can save sixty percent on salaries.



Slovakia has not only cheap but also high educated labors. A lot young people in this country have college education but they have big problem to find a job. In Slovakia there is high number of unemployed people and young population without any practical skills has hard time to find a job. If they find a job usually it is low paid and they are overqualified for it. This is big advantage for future investors because they do not have to invest as much money in to the education and training for the people whom they want to hire. Also for those reasons foreign investors are coming to Slovak Republic .
(Lithuania, Slovakia most attractive EU investment destinations, n.d.)



If a country is doing research where they want to invest money they are also looking on the stability of the country. Slovakia is stable country and it is member of all important groups such as European Union, NATO, or OECD. For an investor it is important because in past Slovakia was communist country with no democracy and no free market. Today Slovakia is country with well establish democracy and almost with the free market economy. Government does not give any restrictions to do producer and nationalization of private properties will not happen again. More over there is free movement of goods and labor in European Union and this is great opportunity to export their products to the different countries of the Union without paying any additional taxes (Mitropolitski, 2004).



Slovakia has also good position in Europe and good railway and road infrastructure. For example KIA has chosen Zilina for its production hall because it is very close to important railways in Europe. This city is also close to the other European countries such as Poland, only 30 kilometers or Check Republic, only 65 kilometers. The highway infrastructure is in the process of construction and Slovak Government is doing maximum in order to join East and West part of Slovakia by highway. Once the highway will be ready there will be also easy connection to the non Europan Union countries since the fact that Slovakia has border with Ukraine. This country is some kind of Entrance to countries of former Russian Federation. The only infrastructure which is missing in Slovakia is water. In this country are only small rives besides Danube which is on the south borders of Slovakia between Austria and Hungary. Slovakia also do not have straight access to any sea or ocean (Balogova 2004).



Once Slovakia started attracts investors it also attracts their suppliers. If a company comes to a country a lot of its direct suppliers also come to the country because they can save money on transportation of their goods to their customers. More over them will be more flexible to the request of their customers. Each company requires flexible suppliers and there for a lot of small companies are starting to establish in Slovakia as well. And this is not all once the money is turning in this country the living standards are increasing. For example Sky Europe airlines are now popular in Slovakia and they have regular flight inside and outside the country. Few years ago there were no daily flights from Bratislava, the capital town of Slovakia, to Kosice, the second biggest city on other side of Slovakia. Today the situation is different there is three flights every day between those two cities. Furthermore there is new international airport in Slovakia in the city close to Zilina. This was request of the KIA Company to have close international airport. As it was said the new investors are bringing with them suppliers and other companies (Interview with Christian Mandl, CEO of SkyEurope Airlines, 2005).



There is another advantage which is coming from our membership in European Union. The advantage is called Euro, the union got their own currency and that’s mean that companies can pay with Euro almost in all countries of European Union. Slovakia should take over Euro in January 2009. Since this time businesses in this country will not loose money on exchanging currency. Slovakia should have Euro earlier than other countries form this region. For a company which wants to make business in European Union this factor present huge advantage because it can saves a millions of Euro for them (Balogova 2004).



All in all, Slovakia is one of the most attractive countries for direct international investment. Slovakia has now one of the best tax systems in the European Union. The Slovak government is supporting businessmen, in form of state support as well. The state support has solid rules and is mostly use on building production hall or on infrastructure. A lot of big Companies such as Peugeot or KIA are coming to Slovakia in order to start production over here. These investors are not coming alone but together with their suppliers. Slovakia is strong democratic country and this fact is also important for future investors. As a result of these changes is higher living standards and lower unemployment rate in Slovakia.