US embassy cable - 04BRATISLAVA246

UNCLAS  BRATISLAVA 000246 
 
SIPDIS 
 
 
DEPT PASS TO USTR FOR RDRISCOLL 
 
TREASURY FOR CHGREWE 
 
USDOC FOR MROGERS AND STIMMINS 
 
E.O. 12958: N/A 
TAGS: ECON, PGOV, LO 
SUBJECT: FOREIGN INVESTORS DISCOVER SLOVAKIA 
 
 
1.  Summary. Seemingly, hardly a day has gone by this year 
without the announcement of new foreign direct investment 
(FDI) in Slovakia.  The Dzurinda government has transformed 
Slovakia's once troubled economy into a business friendly 
state that leads the region in economic growth.  The 
country's low-cost yet skilled labor force, low taxes, 
liberal labor code and favorable geographical location have 
helped it become one of Europe's favorite investment 
markets.  As a result, Slovakia has increased its level of 
cumulative FDI by five-fold since the beginning of 2000. 
American companies are represented in a wide variety of 
industries in Slovakia and their investments have grown 
sharply in recent years to help make the U.S. Slovakia's 
third largest foreign investor.  End summary. 
 
CARS 
---- 
2.  On March 2, Hyundai, the world's seventh-largest 
carmaker, selected Slovakia as the site of its first 
European production plant.  Hyundai will invest USD 870 
million in the new facility, which will produce 200,000 cars 
per year and create 2,400 jobs.  Production will start by 
the end of 2006.  Slovakia won the deal in a long-running 
contest with Poland, its second consecutive triumph over its 
larger neighbor.  Last year, Peugeot, Europe's second 
leading car company, also selected Slovakia over Poland for 
a new plant roughly the same size as Hyundai's. (NOTE: 
Peugeot plant should launch production by 2006 with an 
output of 300,000 vehicles a year.) 
 
3.  As a result of these automotive investments, Slovakia 
has been dubbed "Little Detroit" by the foreign press.  In 
addition to Hyundai and Peugeot, the country is home to 
Europe's largest carmaker Volkswagen, which produced 280,000 
cars last year.  By 2007, the combined annual production of 
all three carmakers in Slovakia is projected to be at least 
850,000 vehicles.  At that level, Slovakia would have the 
world's largest auto production per capita.  In addition, 
Rover MG (UK), Honda and Mazda are also considering 
investments in Slovakia, as is America's specialty vehicle 
manufacturer International Truck and Engine Corp. 
 
CAR COMPONENTS 
-------------- 
4.  Hyundai reported that seven or eight of its component 
suppliers plan to follow it to Slovakia, and American auto 
parts suppliers Dura, Tower, Johnson Controls, Delphi, Lear, 
and Molex are already manufacturing here.  Others, such as 
the U.S.-based Visteon and Arvin Meritor and the world's 
largest tire maker, Bridgestone of Japan, are also 
considering investments in Slovakia.  Recently, German car 
components maker, Hoernlein, announced an investment of an 
unspecified amount in Southern Slovakia.  The company, which 
plans to launch production by year-end, will hire 120 people 
in an area with an unemployment rate of 20 percent. 
 
CHEMICALS 
--------- 
5.  One of the world's largest plastics producers, Germany's 
Mannesmann Plastics, announced it would invest USD 37.5 
million for a green-field factory in Slovakia.  It will 
start production in 2005 and create 150 jobs.  American 
plastic bottle maker, Plastipak Packaging, announced plans 
to build a USD 30 million facility to produce and recycle 
plastic bottles in Eastern Slovakia, providing 100 jobs in 
the first stage alone.  Yet another investment, by the Swiss 
glass company Glas Troesch AG, worth USD 230 million should 
lead to an additional 300 to 400 new jobs. 
 
ELECTRONICS 
----------- 
6.  Swiss recordable media producer Sky Media selected 
Slovakia over bids from Ireland and Germany as the site for 
its new USD 127 million plant that will provide 1,000 jobs. 
Its planned output will make it the largest CD-rom and DVD 
production facility in Europe and the fourth largest 
worldwide.  Samsung, the world's second-largest 
semiconductor maker, is closing a plant in Spain and 
shifting production of TV sets to Slovakia, creating 1,000 
more jobs.  It is also considering building a new home 
appliances factory in the country.  Samsung's move has 
attracted its supplier, Dong Jin Precision, to build a plant 
in Southern Slovakia worth USD 8.1 million that will lead to 
350 new employees. 
 
REAL ESTATE 
 
----------- 
7.  Heitman, a leading U.S. real estate company, has 
established a joint venture with Israel's Engel General 
Developers Ltd., and will spend USD 300 million on 
apartments and houses in Central Europe, including Slovakia. 
In addition, a consortium including the DB Real Estate 
Global Opportunities Fund, a member of Deutsche Bank, and 
Czech developer, Discovery Group, will invest USD 37.5 
million over the next two years in a shopping and 
entertainment center in Western Slovakia. 
 
OTHER 
------ 
8.  Swedish furniture-maker Swedwood, part of the IKEA 
group, will invest up to USD 60 million to expand three of 
its four plants in Slovakia.  Canada's Rockport Homes will 
invest USD 56 million to build four factories to produce low- 
cost reinforced concrete homes, and each factory will 
provide 200 jobs.  Finally, America's Kraft Foods recently 
announced that it was closing its plant in Hungary and 
shifting production to Slovakia and Austria. 
 
COMMENT 
------- 
9.  Prospects have never been brighter for FDI in Slovakia. 
The country has forged a reputation for high quality 
production, low costs and enhanced profitability.  On the 
way, Slovakia has learned to successfully compete with its 
neighboring countries that once dominated it in attracting 
FDI.  Furthermore, it has been able to attract business away 
from Asian and Western European markets.  Privatization was 
the driving force of FDI in the past, but now green field 
projects dominate the inflow of FDI.  Economy Minister Pavol 
Rusko expects FDI to reach USD 2.5 billion per year between 
2004 and 2006 and we have no reason to doubt him.  Slovakia 
has successfully overcome a late start in attracting FDI due 
to the poor business environment that existed prior to the 
election of the Dzurinda government in 1998.  American 
companies have made important contributions to the Slovak 
economy both in terms of the quantity of their investments 
and their practice of good corporate citizenship.  Post has 
contributed to this movement by hosting two large business 
conferences and is currently in the process of planning a 
third. 
THAYER 
 
 
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