Manufacturing in Slovak Republic Machinery Sami Humala & Petr Hornicky Finpro Czech Republic February 2011 20.2.2011 Finpro 1
Slovak Republic Introduction Quick facts: - Population 5.5 mio - Labour force 2.5 mio - Area: 48,845 sq km - Biggest cities: Bratislava 421 151 Kosice 236 806 - GDP 63 bn EUR (2009) - Inflation 1.1% (09/2010) - EU 2004 / euro 2009 - Avg. (gross) wages in industry: 775E (11/2010). - Social costs for employer 35,5% 2006 2007 2008 2009 2010f Nominal GDP (EUR, bn) 43 54.9 64.8 63.3 66.5 Per capita GDP (EUR) 11073 10165 11968 11722 12311 Real GDP, yoy (%) 8.5 10.6 6.2-4.7 4.7 Inflation (CPI), yoy, avg. (%) 4.5 2.8 6.3 1.0 0.7 Unemployment rate (%) 10.4 11 9.6 12.1 14.4 Current account balance/gdp (%) 7.0 5.3 6.5 3.5 3.7 FDI/GDP (%) 7.5 4.4 2.5-0.3 1.5 Converted in EUR with average yearly exchange rates. Data up-date on 2Q/2010 Key Industries: - Transport equipment and Automotive - Machinery, Equipment and Tool production - Steel fabrication, - Electrical and optical equipment - Plastics and chemistry production Materials: Steel production amounted 5,089,000 metric tons in 2007. Key producers: US Steel, ArcelorMittal Sources: Bank Austria CEE Quarterly, Slovak Statistical Office, Finpro Country Analytics, Eurofer 20.2.2011 Finpro 2
Logistics and infrastructure Slovak Republic benefits from it s location between West and Eastern Europe: - Provides relatively well developed infrastructure in both Transport and Communications - Extensive network of roads and railway, highway connection west-east is targeted to be completed by 2014. - Developed and flexible public transportation in large cities - 5 airports, west Slovakia easy accessible from Vienna airport - Danube water way easy accessible from south Slovakia (Bratislava, Komarno) -High speed internet connection -Cost of a full 40 container from Bratislava to Helsinki is app. 2300 Eur (combined transportation via Hamburg). - Average price of electricity for industry (consumption 2000 MWh / year) was 13.8 Eur/100kWh (9/2010) - 95 mobile subscriptions per 100 inhabitants (2008) - 45% of households with internet access (2008) Railway network Highway network 20.2.2011 Finpro 3
Key manufacturing industries Automotive Industry Electrical & Optical Equipment Machinery & metal Industry - Fast growth since 2006 driven by 2 major production investments: PCA Peugeot- Citroen and KIA -Strong domestic supplier base Delphi, Johnson Controls, Siemens, Continental, Ford Getrag, ZF, and many others - more then 60% of VW car-components subcontracted in Slovakia. - Production 10.5 cars/ 100 inhabitants (2007) -Turnover 15 bn Euro, share of industry output and export over 30% -Main invest. boom weak rapidly -Developing University-industry based cooperation (STUBA,UTC Zilina) -Supported by automotive sector demand -Strong non-automotive, consumer electronic, semiconductor manuf. -Value added (yoy) grew by 20.7% and labour productivity by 18.4% (2006) -20% of Slovakia s total exports (2006) -2 strong players: Sony and Samsung (LCD TV, cons. electronics, players, phones etc.) - Emerson - electronics and energetic eqp. -Traditional sectors -Grown thanks to investment i.e. Whirlpool, INA and SWEP - FDIs attracted by government offered investment incentives development of industrial parks. - #1player SK metal industry is US Steel with 10% of the total sector turnover - Automotive industry subcontracts machinery, electronics and plastics i.e. Delphi, Matador, Clamason etc. Active enterprises in Manufacturing: 11688 (9871 SMEs) SK economy developed similarly to CZ, partly delay -> Price level remains lower and incentives for production investment are lucrative. Kosice region traditionally strong steel production. Western part - majority of investments due to logistical advantage Metal Industry output: 27,190 MEUR (2008), of which basic metals = 10,174 MEUR, mach.& eq. n.e.c = 3,051 MEUR, Transport equipment = 13,965 MEUR (Export of machines & equipment: 2,152 MEUR (2008) = 54 % of the total exports. Other export products: manufactured goods classified by material 18,197 MEUR (20%), Miscellaneous manufactured articles 9,448 MEUR (11%), Chemicals and related products, n.e.c. 5,247 MEUR (6%).) 20.2.2011 Finpro 4
Impact of economical melt-down State Figueres: - 2008 no significant investments of SK Banks to US derivates -> No expenditures on Bank rescue, - No possible EUR depreciation -> reinforce of economic cycle (drop see chart below) - Unemployment rise up to 13%, Inflation dropped to 0% - National dept increased due to drop of Taxation incomes - Fiscal condition requires urgent Pension and Health reform Business Figures : - Slovak Republic experienced an imported economical meld-down caused by fatal drop of business orders. - Entrepreneurs re-act with massive cost-savings programs and price reduction. - Bankruptcy rice by 40% in 2009, Machine and equipment production [Eur] 20.2.2011 Finpro 5
Availability of labour force Recruitment Cost: 2-3 gross wages (4-5 executive position) Time: avg. one month Slovak people in generally more willing to relocate compared to CZ. Workers commute from a range of 80 km. Employers usually provide transport, especially for working on shifts. Language skilled personal: affect labour cost ca. 20-30% Source: Sario - expences Labor Productivity in national currency: GDP per hour worked Unemployment by region (2009) % Bratislava 4.7 Trnava 9.1 Trencin 7.3 Nitra 13 Zilina 10.6 Banska Bystrica 18.8 Presov 16.2 Kosice 15.5 192,6 200,7 214,3 230,1 244,5 250,5 256,7 265,1 285,9 305,4 10.4 316,5 324,6 10.7 11.4 342 12.3 369 381 12.7 1994 1995 1996 1997 1998 1999 Years 2004-2008 converted in EUR with fix exchange rates 30 SK/Eur. 2000 2001 2002 2003 2004 2005 2006 2007 2008 Source OECD 20.2.2011 Finpro 6
Education Technical education - Given in 8 universities, secondary technical schools (pilot and lector centers). - Graduates from technical and natural science faculties amounted 17000 (2008). - Secondary educated technical workforce: ca. 6000 (2009) - Faculties provide theoretical as well as practical insight in all the main technical branches - Research is run by universities, partly by Slovak academy of Science - Applied research mostly by corporation - English and German dominate foreign-language education. Source: Sario, Ministry of Education 20.2.2011 Finpro 7
Wages, taxation, social cost Wages Type Welder CNC programmer Metal worker Labourer Project manager Avg. salary (gross Eur) 760 EUR 750 EUR 640 EUR 500 EUR 1200-1500 EUR Social costs & taxation Type % Social cost for employer 35.5% Corporate tax 19% Personal Income tax 19% VAT 19% (reduced 10%) Source: Finpro market study 2010 Source: Sario Regional differences in salaries Bratislava +36% Western Region Trnava -6% Trencin -8% Nitra -12% Central Region Zilina -10% Banska Bystrica -14% Eastern Region Kosice +1% Presov -18% Comments & additional info Slovak employers usually provide daily lunch vouchers worth of 3-4 EUR Some of the best companies pay for a voluntary pension insurance but otherwise separate insurances for the employees are rare. Source: Sario 20.2.2011 Finpro 8
Investments - Strong Investment into to automotive, electronics industry - CZ becoming technological HUB: Increasing investments in expert solution, software development, research and development, design and high-tech repair centers - European funding support. - Investment concentrated in Region (Bratislava, Trnava, Nitra) - Sario investment promotion agency of SK - Economical recession improved conditions on Labor market FDI [bn. USD] Source: Euroeconom Kone SSC Teräspeikko oy Ixonos Peikko Finland oy ALFARAM oy OJALA YHTYMA Itella SSC 20.2.2011 Finpro 9
Investments Incentives TYPES OF INVESTMENT PROJECTS: Industrial production Technological centers research and development Centers of stategic services Tourism (Each type has separately defined conditions that have to be met in order to apply for state aid.) TYPES OF AID: Corporate income tax relief Contributions for the creation of new jobs Transfer of title to immovable property of the state or municipality at a price lower than standard market price Financial grant Education allowances INTENSITY: Central Slovakia 50% of the eligible investment costs Eastern Slovakia 50% of the eligible investment costs Western Slovakia 40% of the eligible investment costs selected parts of the Bratislava region 10% of the eligible investment costs (until 31.12.2008) CONDITIONS: Minimum investment volume (depends on the industry) Certain share of costs invested into modern technology Specific education structure of employees In case of medium sized companies, the respective aid ceilings may be increased up to 10% and up to 20% for small sized companies. Source: Sario 20.2.2011 Finpro 10
Machinery producers 20.2.2011 Finpro 11
Electronics producers 20.2.2011 Finpro 12