Page 64 - bne magazine February 2024_20240206

64 Opinion
bne February 2024
Four (V4) countries of Central Europe to enter the Eurozone in 2009, giving the reassurance of European Central Bank control of monetary policy and banking supervision.
Yet since then reform of the business environment has
stalled under Fico’s populist governments, which have alternated with fractious centre-right coalitions. Moreover, the weaknesses of the Dzurinda model have become more and more apparent.
The Dzurinda governments and their successors invested little in infrastructure or the fabric of the state, particularly the health and education systems. Nor did they use EU funds properly to tackle the country’s deep regional inequalities, worsened by the poor infrastructure.
“The auto sector, which produced 1mn cars last year, represents
a massive 40% of industrial production. It proved a vulnerability in the global financial crisis and could be again”
Though the country still manages to attract manufacturing investments – with Volvo’s €1.2bn car plant in Eastern Slovakia and the Gotion/Inobat battery plant the pick of the latest successes – it ranks low in terms of competitiveness and productivity.
Slovakia remains overly dependent on its big foreign car assembly plants and their investments. The auto sector, which produced 1mn cars last year, represents a massive 40% of industrial production. It proved a vulnerability in the global financial crisis and could be again.
The country has failed to develop an ecosystem of domestic small and medium-sized enterprises (SMEs) that could provide an independent boost to investment and innovation.
Slovakia also lacks a vibrant start-up scene, including venture capital funds and a functioning stock market. Slovakia finished the second worst of the EU countries in the Global Innovation Index.
The weakness of the SME sector lies behind the country’s productivity gap. Fitch says Slovakia's labour productivity was the third lowest in the EU at 73.3% of the EU average at end-2022, and it has visibly decreased over the last decade.
Michal Simecka, leader of the liberal Progressive Slovakia party, told bne IntelliNews before the election that one of his priorities was to reform the business environment to help
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SMEs grow. “We need to help companies upgrade and scale up to be able to export,” he said.
Brain drain
Another looming problem is the brain drain of graduates and professionals, put off by the lack of interesting job opportunities and low wages. Almost one fifth or more than 30,000 Slovak students are studying abroad, and many do not return after their studies. In total almost 10% of Slovaks are living abroad, often in Czechia, which is double the rate of other OECD countries.
“We can’t attract highly qualified graduates,” says Martin Barto, chairman of the stock exchange. “We don’t have the jobs for them here.”
“We have to have a new model which would create new space for talented people, using new technologies,” he says.
This brain drain is already creating skills shortages. “We need more people because a lot of very good people are going abroad,” Alexander Matusek, head of the ZAP automotive association, told bne IntelliNews.
An outgoing minister in the technocrat caretaker government warned bne IntelliNews before the election that the brain drain will only get worse if Fico gets back in. “It means that the future of this country would be stopped for decades. The smartest and bravest will leave,” he said.
Relatively low wages are one cause of this exodus, with real wages still falling after the price spike following the outbreak of the Ukraine war. Food prices are the most expensive in the region apart from Estonia. Those close to the Polish border buy food there, which is a quarter cheaper than in Slovakia.
According to Vasecka, housing costs in Bratislava are so out of kilter with real incomes that some workers are now choosing to live in nearby Vienna and commute, while in the regions people often commute across the border to earn a higher wage. “So of course people are frustrated,” he says. “They are not living a decent life.”
Vasecka argues that the general disappointment with the pace of economic convergence with Western Europe has led to a wider disillusionment with the EU and liberal democracy.
“Slovakia has turned in recent years into the most anti- Western society in CEE, the most pro-Russian and pro-Putin society, the most anti-American, and a strong believer in conspiracy theories, with a very low mutual trust both on the horizontal and vertical levels,” Vasecka wrote in an op-ed for bne IntelliNews.
Up to now Fico has benefited from this malaise, which feeds populism, and he may be content for it to continue, but if Slovakia is to progress it cannot afford another four wasted years.