The snow-peaked Tatra mountains of Slovakia may be famous for their skiing, but the country also has a reputation for introspection and post-Soviet cronyism. But the current prime minister, Iveta Radicova, who has a reformist agenda, hopes to change that.

Trends in FDI have been much steadier than trends in politics: there was promising growth right up until the small matter of the global financial crisis. But internal reform plus a healthier external economic climate could reboot Slovakian FDI.

Slovakia’s potential was noticed soon after its independence in 1993, particularly in the automotive industry when Volkswagen opened a factory in capital Bratislava.

By the early 2000s, Slovakian FDI was booming. In 2004, it acceded to the EU and around that time car production saw huge growth again when Peugeot-Citroën and Kia Motors came aboard.

The car components industry also developed and now accounts for about 10% of investment projects, according to fDiMarkets. Concurrently, electronics companies, such as Sony and Samsung, also set up shop.

Growth story

From 2004, like most countries in the EU, FDI inflows saw continued increases. According to fDiMarkets, the total number of FDI projects in Slovakia increased in 2004 and 2005 by more than 30% in each of those years, and again in 2006, but by a more modest 1%. Then the global financial crisis hit and FDI projects plummeted in 2007, 2008 and 2009.

The most recent statistics from the Slovak Investment and Trade Development Agency show that recovery is slow. Inflow of investment through the agency fell again between 2009 and 2010 from €330m to €123m.

The government’s total FDI figures show a much more dramatic negative for 2010 from €839m to €107m. However, this may have more to do with the fact that the government recalculates its FDI figures when foreign businesses are sold on.

Slovakia has many positives; however, one of which relates to its attractive labour market, well-known for its engineering and industrial production skills. Boxperfect, a UK-based company that makes presentation boxes, opened a factory in Kojsov in eastern Slovakia in May 2011.

Mark Bottjer, its managing director, explains why the company chose Slovakia: “It suited us and our industry. We are labour-intensive and so we were attracted by a highly educated workforce and competitive wage rates. Various education tables put their education standards as very high and there is a very strong work ethic.”

Strong work ethic

According to locals, they owe this work ethic in part to their Soviet history, as Mr Bottjer discovered. “When I asked local Slovakians about the work ethic, they said that 20 years ago they were under the communists and you either worked or went to prison. Also, they are glad to be employed because there is high unemployment in some areas [of Slovakia].”

Stefan Hofbauer is managing director of Deutsche Telekom Shared Services (DTSS), which provides financial and accounting support for Deutsche Telekom’s business arm, T-Systems. DTSS came to Slovakia in 2006 when it bought a small shared service provider, Gedas, which had itself only arrived in 2006.

Mr Hofbauer agrees that domestic talent is part of the attraction and that one of the reasons DTSS opened there was “because of [Slovakian workers’] language skills. They can speak to customers in their native language whether they are German, Czech, Austrian or Hungarian.”

Heart of Europe

Plus there is Slovakia’s geographical location at the “heart of Europe” (as the brochures call it). Bratislava is only about 65km from Vienna (they are said to be the two closest capitals) and 555km from Berlin. Deutsche Telekom has a significant customer base in the immediate vicinity and, as Mr Hofbauer says: “We wanted the right timezone for them.”

Mr Bottjer agrees that, for his business, geography is a factor. “Strategically, [Slovakia] is very central and within striking distance of the markets of Austria and Italy, but also the new markets of Eastern Europe and places such as the Ukraine,” he says.

“Even if people talk about taking your business to Asia, the price differential that it used to offer is narrowing and the increasing fuel and transport costs mean that to have a business more or less on the doorstep of your market is a good thing these days.”

Resilient economy

In the aftermath of the global economic crisis, Slovakia appears to be coping. The country continues to attract big names – for example, Amazon recently chose Bratislava for one of its seller support centres. And joining the euro in 2009 has boosted the country so far – although with Italy and Spain teetering on the abyss, the full effects of joining the eurozone remain to be seen.

Slovakia is relatively stable, with its government debt at 41% of GDP, according to data from Eurostat. And the World Bank’s Doing Business 2011 report ranks it 41st, which is higher than the Czech Republic, Slovenia or Poland.

Added to this, there are hopes that a degree of internal reform could go some way to eradicating the country’s less attractive reputation for post-Soviet corruption. Prime Minister Radicova is Oxford-educated and wears $10 shoes, facets which, her supporters say, demonstrate, first, a more open, international approach, and second, the fact that she can’t be bought.

Reforms against corruption

Ms Radicova has plans to clean up the political scene and there has been talk of reforming the judiciary including, most recently, separating out powers of specific individuals to prevent abuse, and setting up an evaluation scheme for judges.

In addition, the prime minister is aiming to rebuild relations with Hungary, which had been severely damaged by nationalistic laws and rhetoric at the expense of the Hungarian minority who live and work in Slovakia.

The current government also has some specific offerings for investors: it announced new rules which came in on August 1 this year reducing the minimum investment required to benefit from certain regional incentives.

For Slovakia then, it needs greater global stability to attract potential investors – and more snow for the ski slopes, of course.