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_Slovakia economic analysis _
By: Anonymous
Country: Slovak Republic Formation of the Slovak Republic The Slovak Republic,
or Slovakia, is located in Eastern Europe with a population of 5.4 million
people and borders the countries of Poland, Austria, the Ukraine, and the
Czech Republic (The World Bank). As originally part of the former nation of
Czechoslovakia, the Slovak Republic has only recently begun to write its own
history (Abizadeh, p. 171). During 1989 many revolts took place against
eastern European governments under communism, including Czechoslovakia
(Slovakia.Org, “20th Century”). Both Slovaks and Czechs staged massive
protests against communism in Czechoslovakia and ended the communist regime in
November 1989 (Slovakia.Org, “20th Century”). Under the new non-communist
system of government, the two republics of Czechoslovakia were established:
the Slovak Republic and the Czech Republic (Embassy of the Slovak Republic).
In June 1990, with the federal and republic-level governments in place, free
elections were held for the first time in the country since 1946
(Slovakia.Org, “20th Century”). The main concern of the new government was the
transformation of Czechoslovakia from a state-controlled to a free market
economy (Embassy of the Slovak Republic). Disputes arose between the two
republics about reform process which focused on privatization, the
encouragement of foreign investment, policy of macro-economic stabilization,
price liberalization, and liberalization of foreign trade (Slovakia.Org, “20th
Century”). The Czech Republic was more economically developed than the
industrial-based economy of Slovakia (Slovakia.Org, “20th Century”). The
transition to a market economy left the Slovak Republic to endure greater
economic hardships than the Czech Republic (Sovakia.Org, “20th Century”). For
example, the federal government chose to dramatically cut the country’s
defense industry, resulting in a large decrease in industrial production and a
large rise in unemployment in Slovakia (Slovakia.Org, “Slovak Economy”). This
took place because the economy that rose out of the communist era in Slovakia
was based on industrial production, particularly on weapons and military
equipment (Slovakia.Org, “Slovak Economy”). There was a great difference of
opinions between the Slovaks and Czechs about the nature and pace of economic
reform in Czechoslovakia (Slovakia.Org, “20th Century”). The disagreements
delayed the reform process and also the acceptance of a new constitution
(Slovakia.Org, “20th Century”). It became obvious that the current form of
government could meet the demands of both republics. As a result, Slovakia
declared its sovereignty in July 1992, in other words, its laws took higher
priority than those of the federal government (Slovakia.Org, “20th Century”).
During November the federal parliament chose to officially break up the
country, and on January 1 1993, the Slovak and Czech Republic replaced the
Czechoslovakia as two independent countries (Abizadeh, p. 171). Recent Growth
levels of the Slovak Economy The economic problems that began in the early
1990s still plagued Slovakia after it claimed independence in 1993 (Abizadeh,
p. 172). After its first year of independence Slovakia’s economy was in poor
shape with a negative GDP growth of 3.7%, and inflation rate of 25.1%, and an
increasing unemployment rate of 14.4% (National Bank of Slovakia). Overall,
gross domestic product in Slovak Republic decreased a substantial 23.7% during
the years 1990 to 1993. Through a slow reform process, however, positive
macro-economic results have been accomplished over the recent years
(Slovakia.Org, “Slovak Economy”). GDP growth has been positive since 1993 and
recorded an annual growth of 4.4% in 1998 (The World Bank). Slovakia’s 1998
GDP per capita of 3,832 USD was very competitive with other central European
countries (Embassy of the Slovak Republic). The budget deficit has been
brought under control, and at the beginning of 1999, the inflation rate of
5.6% was the lowest among all transition economies (Embassy of the Slovak
Republic). The decline in the inflation rate was due to developments in the
capital markets and the banking sector, a decrease in food prices, price
deregulation, and lower producer prices (Abizadeh, p. 172). Unemployment, on
the other hand, is still a major problem in the Slovak republic. Since the end
of the communist regime the rate of unemployment has been 10% or higher with
no signs of improvement (Slovakia.Org, “Slovak Economy”). Unemployment is
related to the consistent regional disparities and the “inevitable”
restructuring of large companies (Embassy of the Slovak Republic). The most
important part for Slovakia to convert to a market economy is to continue
privatization of state-owned businesses and capital formation within the
country (Abizadeh, p. 171). Although the privatization of small firms is
complete, this sector still faces challenges such as government policy that
favors large enterprises, obtaining financing at affordable interest rates,
and an increase in corruption and organized crime (Tradeport). The
privatization of large enterprises has also begun. Two major banks have been
recently declared available for privatization (Tradeport). A government policy
has also been approved that will allow the privatization of up to 25% of
Slovak telecommunication (Tradeport). The government’s efforts toward
privatization have been limited by the amount of capital available in the
Slovak economy (Tradeport). Unlike the past, the government is now encouraging
foreign investors to participate in the privatization process to provide the
needed capital (Abizadeh, p. 178). However, foreign investors seem to have a
“wait and see” view involving changes in government policy that could open or
close doors to industry growth and the return on investments (Tradeport).
Structure of the Slovak Economy The three primary sectors of the Slovak
economy are services, industry, agriculture, and construction (Embassy of the
Slovak Republic). These sectors make up the following percentages of GDP in
1998 of 20.1 billion USD: Services 58% Industry 27% Agriculture 5%
Construction 5% Other 5% (The World Bank) The increase in services over the
years is due to Slovakia converting to a market economy (Embassy of the Slovak
Republic). Agriculture has remained stable throughout the transition process
(Embassy of the Slovak Republic). At the end of 1998, output from the private
sector was responsible for 83.1% of GDP compared to 39% in 1993 (Embassy of
the Slovak Republic). Key Sectors of the Economy The main service areas
include transportation, telecommunications, and banking and insurance services
(Abizadeh, p. 172). Because of the increase in domestic demand in 1996, new
service areas were developed such as real estate firms, computer engineering,
and sports and cultural activities (Abizadeh, p. 172). The Slovak industry
that evolved out of the Communist era had become inefficient and produced
goods that could not compete in the world market (Slovakia.Org, “Slovak
Economy”). A major part of this industry was heavy industry, which was aimed
towards arms production (Abizadeh, p. 172). The demand for arms production
decreased after the breakup of the Soviet Union and the development of many
eastern European countries (Abizadeh, p. 172). Industry is still an important
part, however, in the growth of GDP and employment (Embassy of the Slovak
Republic). Firms with more than a thousand workers, mostly state-owned
companies, account for the largest share of the production of goods (Embassy
of the Slovak Republic). The small and medium sized firms, which represent the
private sector, are not responsible for a relatively large proportion of goods
production (Embassy of the Slovak Republic). Overall, state-owned companies
are still dominant in industry (Embassy of the Slovak Republic). Slovakia can
increase its productivity the most by applying improved technology and
processes to industry (Embassy of the Slovak Republic). However, foreign
investment is required to continue modernizing industry and retraining workers
(Slovakia.Org, “Slovak Economy”). Manufacturing is one of the key sectors in
the Slovak Republic (Slovak.Org, “Slovak Economy”). Exports of manufactured
products are responsible for almost one-fourth of total production (Embassy of
the Slovak Republic). Manufactured goods range from assembly lines and
consumer goods to large investment operations such as plant construction
(Embassy of the Slovak Republic). Top manufacturers produce steel, petroleum
products, machinery, chemical products, ceramics, processed food, and textiles
(Embassy of the Slovak Republic). The fuel sector involves activities
including coal mining, purchasing, transportation, and distribution of natural
gas, crude oil, and gas recovery (Embassy of the Slovak Republic). The power
sector includes generating electricity, distribution and sales of heat, and
construction and assembly works (Embassy of the Slovak Republic). The Slovak
Republic’s principal mineral resources are lead, copper, manganese, zinc,
iron, and lignite (Slovakia.Org, “Slovak Economy”). Mining was unable to
compete in the market economy after Communism fell in Czechoslovakia in 1989
(Slovakia.Org, “Slovak Economy”). Representing one-seventh of the total
production in Slovakia, the metallurgical industry produces nearly five
million tons of crude steel annually which is processed primarily into plates,
strips, ingots, and seamless and non-seamless tubes (Embassy of the Slovak
Republic). Because supply exceeds domestic consumption, one-third of
metallurgical goods are exported (Embassy of the Slovak Republic). The
chemical industry represents nearly 18% of the total industrial output in the
Slovak Republic (Embassy of the Slovak Republic). Most plants are located in
the capital of Bratislava (Embassy of the Slovak Republic). Many projects have
been proposed, in conjunction with foreign companies, that involve organic and
inorganic chemistry, plastic production and processing, the production of
chemical fibers, and painting materials (Embassy of the Slovak Republic). The
clothing industry is focused on brand clothing with the use of new materials
(Embassy of the Slovak Republic). The production of footwear is concentrated
on luxury footwear for men and women as well as sports footwear (Embassy of
the Slovak Republic). The most important crops in the Slovak Republic are
wheat, maize, potatoes, barley, and sugar beet production (Embassy of the
Slovak Republic). Livestock including cattle, pigs, sheep, and poultry is also
important in agriculture (Slovakia.Org, “Slovak Economy”). Viticulture, the
cultivation of grapes, is practiced on some mountain slopes in Slovakia
(Slovakia.Org, “Slovak Economy”). A small amount of tobacco is also grown in
the Vah River valley (Slovakia.Org “Slovak Economy”). Much of the landscape in
Slovakia is made up of rugged mountains in the northern and central regions,
however, one-third of the land in Slovakia is cultivated (Slovakia.Org,
“Slovak Economy”). Despite steady growth in economic results since 1993,
substantial growth in agriculture cannot take place because of the soil,
topographical characteristics, and the need for technology and updated
machinery (Abizadeh, p. 172). Large construction companies play a key role in
industry (Embassy of the Slovak Republic). The production of building
materials has increased in recent years as Slovakia converts to a market
economy (Embassy of the Slovak Republic). Future developments in the industry
will highly depend on the amount of investment that is needed for further
construction and reconstruction activities (Embassy of the Slovak Republic”).
Foreign Trade International trade is an important and essential part of Slovak
economic growth (Abizadeh, p. 173). The total volume of foreign trade in
Slovakia increased by 16% in 1998. Economic growth in the future will depend
on the country’s export performance (Embassy of the Slovak Republic).
Slovakia’s primary exports include consumer goods, machine and machine
equipment, industrial products, chemicals, raw materials, natural fuel, and
foodstuffs (Embassy of the Slovak Republic). Exports increased by almost 16%
in 1998 (Embassy of the Slovak Republic). Leading imports in Slovakia
increased by 16.4% in 1998, which included machine and machine equipment,
natural fuels, consumer goods, chemicals, industrial products, foodstuffs, and
raw material (Embassy of the Slovak Republic). Foreign trade with European
Union countries increased 35.4% in 1998 as compared to 1997 (Embassy of the
Slovak Republic). The European Union is the Slovak Republic’s main trading
partner, which accounted for 52.9% of foreign trade in 1998 (Embassy of the
Slovak Republic). An Association Agreement was made between the European Union
and the Slovak Republic in 1993 which has had substantial implications for
foreign investment and trade in Slovakia (Embassy of the Slovak Republic). The
Slovak Republic applied to the European Union in 1995 (Embassy of the Slovak
Republic). Accession to the European Union is now the main economic and
political objective of the Slovak Republic (Slovak Web). Slovakia and the
World Trade Organization The former Czechoslovakia became part of the General
Agreement on Tariffs and Trade in 1947 (World Trade Organization). After its
independence, the Slovak Republic became a member of the World Trade
Organization on January 1, 1995 when the GATT was replaced by the WTO as a
permanent international organization (World Trade Organization). One of the
main principles of Slovakia’s foreign trade policy is to continue the
liberalization of exports and imports (Embassy of the Slovak Republic). This
principle is best applied by using market mechanisms to promote exports while
protecting domestic producers and consumers (Embassy of the Slovak Republic).
The WTO provides the framework for Slovakia to apply the use of market
mechanisms to promote free and fair trade among domestic and foreign
companies, all in conformity within international law (Embassy of the Slovak
Republic). Unlike the GATT, the WTO deals with tangible as well as intangible
goods. This is important to the Slovak Republic because of the increase in
services during recent years. References Abizadeh, Sohrab. The Return of
Mitteleuropa. Commack, New York: Nova Science Publishers, Inc., 1998. Embassy
of the Slovak Republic, “Business and Economy”, Washington, D.C., December
1999. (Located in the World Wide Web at http://slovakemb.com). National Bank
of Slovakia, “Selected Macro-economic Indicators”, Bratislava, Slovak
Republic. (Located in the World Wide Web at http://www.nbs.sk). Slovakia.Org,
“Slovak Economy”. (Located in the World Wide Web at http://www.slovakia.org).
Slovakia.Org, “20th Century”. (Located in the World Wide Web at
http://www.slovakia.org). SlovakWeb, “The Slovak Republic and Its Economic
Development”, 1999, (Located in the World Wide Web at
http://www.slovakweb.com). The World Bank Group, “Slovak Republic at a
Glance”. (Located in the World Wide Web at http://www.worldbank.org).
Tradeport, “Slovakia Economic Trends and Outlook”, September 1999. (Located in
the World Wide Web at http://www.tradeport.com). World Trade Organization,
“About the WTO”, Geneva, Switzerland, March 2000. (Located in the World Wide
Web at http://www.wo.org).
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