TRADE IN VALUE ADDED: SLOVAK REPUBLIC

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1 TRADE IN VALUE ADDED: SLOVAK REPUBLIC The international fragmentation of production in global value chains (GVCs) challenges the way we look at the global economy. Today, what you do - the activities a firm or country is involved in - matters more for growth and employment than what you sell - the products that make up final sales or exports. Understanding how GVCs work and how they affect economic performance is essential, as is determining which policies help derive the greatest benefits, and reduce the risks. The OECD-WTO Trade in Value Added (TiVA) database facilitates analysis of GVCs by measuring trade in value-added terms to generate new insights about the commercial relations among economies and the process of value creation. Drawing on the third version of the TiVA database, this note describes the Slovak Republic s trade patterns in valueadded terms, with a view to informing policy debates in a range of areas, including trade, innovation, and investment. Accompanying this note is a User Guide designed to assist interpretation and provide context to the indicators presented: Key findings The Slovak Republic is significantly integrated within global value chains, with nearly half (46.7%) of the total value of exports reflecting foreign content, the third highest share in the OECD. Integration is primarily via German and Czech Republic value-chains which imported over one-third of all the Slovak Republic's intermediate exports in value-added terms in The Slovak Republic's manufacturers had the fourth highest rates of export orientation in the OECD, with just under 8 of total domestic value-added driven by foreign final demand, with rates of around 9 in its key export sectors: Basic Metals, ICT & Electronics and Motor Vehicles. Nearly three-quarters (67.4%) of all intermediate imports were used to produce exports, with close to 9 in ICT & Electronic products and motor vehicle parts. Nearly half the value of exports (47%) reflected services value-added in 2011, below the OECD average (54.3%).

2 The role of foreign and domestic value added in exports The Slovak Republic's integration into global value chains has increased significantly in the last two decades with the foreign content of exports increasing significantly from 31.8% in 1995 to 46.7% in 2011 (Figure 1). Figure 1. Foreign value added content of gross exports by country percent, 2008, 2009, and 2011 (right insert = time series for Slovak Republic) Of the Slovak Republic's total exports of domestic value-added in 2011, 60.4% reflected exports of intermediates, higher than the equivalent share in 2009 (53.5%), in part reflecting the rebound in GVCs that were disproportionally affected by the crisis, and higher than in 1995 (58.1%) (Figure 2), but lower than the OECD average of 61.5%. Figure 2. Domestic value added content of gross exports by end-use category by country percent, 1995 and Intermediate goods and services 2011 Final goods and services 2011 Total 1995 Intermediate goods and services

3 Agriculture Wood & paper Non-metallic minerals Other manufactures Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Total Agriculture Wood & paper Non-metallic minerals Other manufactures Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Direct exports by the industry generated the greatest source (both direct and upstream) of domestic value added in 2011, accounting for 8.5% of the total value added of exports. The next three most important industries were Wholesale, retail & hotels (8.1%, reflecting tourism and upstream distribution services), (3.8%), and Transport & telecoms (3.5%) (Figure 3a). The largest foreign contributions were in the and industries, which together contributed 19.2% of the Slovak Republic's total exports. The three industries with the highest foreign value added shares in the Slovak Republic's exports in 2011 were (86.6%), (64.7%) and (60.9%), compared to 50.3%, 46.5% and 46.3% in 1995 (Figure 3b). Figure 3a. Slovak Republic's industry share of domestic and foreign value content of gross exports percent of total gross exports, 2011 DVA contribution to gross exports, 2011 FVA contribution to gross exports, % 2 15% 1 5% Figure 3b. Slovak Republic's foreign value added content of gross exports 1995 and 2011 FVA share of gross exports, 2011 FVA share of gross exports,

4 Agriculture Wood & paper Non-metallic minerals Other manufactures Utilities Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services Total Of the total value of the Slovak Republic's imports of intermediate products and services, 67.4% was subsequently embodied in exports, significantly higher than the OECD average (39.3%) and higher than in 2009 (65.5%) (Figure 4). The products with the highest shares were (89.3%), ICT & electronics (85.4% ) and, (77.2%). Figure 4. Slovak Republic's imported intermediate inputs used for exports, by import category percent of intermediate imports, 2008, 2009, and The destination of domestic value added produced in Slovak Republic Of the total domestic value added produced by the manufacturing sector in the Slovak Republic, 77.1% reflected foreign final demand in 2011 (the fourth highest share in the OECD), higher than in 2009 (74.1%) and 2008 (74.1%) (Figure 5), and significantly higher than the OECD average (41.9%) in Figure 5. Manufacturing domestic value added in foreign final demand by country percent of total manufacturing value added, 2008, 2009, and 2011 (left insert = time series for Slovak Republic) Note: Final demand excludes inventories: See also 3

5 Agriculture Wood & paper Non-metallic minerals Other manufacturing Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Total Manufactures Total At the total economy level, 41.2% of the Slovak Republic's domestic value added was driven by foreign final demand, but significant differences exist cross industries. (94.7%,) and (91.6%) had the highest level of export orientation in Slovak Republic, with the lowest shares in Finance & insurance (24.6%) and Business services (34.4%), (Figure 6). Figure 6. Slovak Republic's domestic value added in foreign final demand percent of value added by industry, 2008, 2009, and Note: Final demand excludes inventories: See also In gross terms, Germany (17.5%), the Czech Republic (13.) and Poland (7.1%) were the three most important export market destinations for the Slovak Republic. While in value-added terms, Poland fell to seventh, and the Czech Republic's share dropped to (8.3%) (Figure 7, top). For imports in gross terms, the Slovak Republic's top three partners were the Russian Federation (16.4%), Germany (13.5%) and the Czech Republic (12.1%), with the same ranking for the top three in value-added terms, although again with a significantly lower share for the Czech Republic, in part reflecting a high degree of integration between the Czech and Slovak Republics (Figure 7, bottom). Figure 7. Slovak Republic's exports to and imports from main partner countries percent of total gross and value added exports and imports, Gross exports Domestic value added embodied in foreign final demand 15% 1 5% 18% 16% 14% 12% 1 8% 6% 4% 2% Gross imports Foreign value added in domestic final demand 4

6 Considering only exports of intermediates goods and services, the Slovak Republic's major export destinations in 2011 were: Germany (17.5%), the Czech Republic (16.6%), the Russian Federation (8.1%) and Poland (7.2%) (Figure 8). Figure 8. Slovak Republic's domestic value added embodied in intermediate exports to main partner countries percent of total intermediate exports, in value added terms, 2008, 2009, and % 16% 14% 12% 1 8% 6% 4% 2% The importance of services In 2011, the service content of total exports in Slovak Republic was 47., below the OECD average of 54.3% (Figure 9). Figure 9. Services content of gross exports by country, gross and value-added terms percent of total gross exports, Domestic VA content Foreign VA content OECD average SNA service export share Note: SNA services export shares include re-exports in the denominator, and include any actual differences in free on board and basic prices (the distribution margin provided by resident distributors to resident exporters) in goods. 5

7 Agriculture Wood Paper, print, publsh Non-metallic minerals Other manufacturing For exports of manufactured goods alone, 38. of the total value reflected services sector value-added, slightly above the OECD average (36.9%). Of this share, the Wholesale, retail & hotels sector accounted for 15.8% of total gross exports, with the Business services and Transport & telecoms industries accounting for 10.6% and 5.8% respectively (Figure 10). Figure 10. Services value added embodied in manufacturing exports, by country percent of total gross exports, 1995 and Construction Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services 1995, Total 45% 4 35% 3 25% 2 15% 1 5% At the individual sectoral level, the services content of exports was around the OECD average in most sectors and was highest in the (42.2%), (41.2%) and (40.1%) industries (Figure 11). Figure 11. Slovak Republic's Services content of gross exports, by exporting industry and service category percent of gross exports by industry 2011 Construction Wholesale, retail & hotels Transport & telecoms Finance & insurance Business services Other services OECD average 45% 4 35% 3 25% 2 15% 1 5% 6

8 The origin of domestic consumption In 2011, 37.5% of Slovak Republic's total final domestic consumption reflected foreign content, of which Europe contributed 25.5 percentage points (pp), NAFTA 1.2 pp, East and Southeast Asia 3.6 pp, South and Central America 0.3 pp and other regions 6.9 pp (Figure 12). Figure 12. Foreign value added content of domestic consumption by country by source region, Europe NAFTA East and Southeast Asia South and Central America Other regions Further Information The information included in this note is based on the 2015 edition of the Trade in Value Added (TiVA) database.» Access the data at Please contact us with your questions at tiva.contact@oecd.org 7