Commission Report 2002 (Slovakia)

• Progress since the last Regular Report
• Overall assessment
• Conclusion

Chapter 15: Industrial policy

Progress since the last Regular Report

Since the 2001 Regular Report, Slovakia has made further progress with the development of industrial policy. Priority has been given to investment promotion and privatisation.

The Slovak industrial strategy has focused on consolidating and improving existing legislation and institutional structures. During the reporting period the Government approved the ``Analysis of Tourism'' strategy paper.

An institutional reorganisation has taken place within the Ministry of Economy. A newly established Expert Advisory Body has replaced the Council for Competitiveness in Industry. The body is made up of ministry representatives and experts from various enterprise associations. Its task is to provide the Ministry of Economy with recommendations on enterprise policy issues. The Benchmarking Information Centre, established within the Ministry, has been granted a budget allocation from the 2002 state budget, which has enabled it to start functioning. Particular attention should be devoted to recruiting and retaining staff. A national Tourism Agency has been established, and it should become operational on 1 January 2003.

The newly established Regulatory Agency for the Capital Market and Securities should improve corporate governance, while the new Commercial Code, which entered into force in January 2002, should strengthen the rights of minority shareholders and employees.

As concerns investment promotion, the investment climate in Slovakia has generally been improving. Since 2000, the trend is a steadily increasing flow of foreign direct investments, with a rising share of green field investments (see also B.2 - Economic criteria). A new Law on Investment Incentives, which entered into force in January 2002, has introduced several advantages for both foreign and domestic investors. Beside a ten-year tax holiday, the new incentive package introduced a subsidy of up to SKK 10 000 for each employee at firms offering re-qualification courses, and other subsidies for the creation of new jobs.

SARIO, the Slovak Investment and Trade Development Agency, was transformed into a specialised agency reporting to the Ministry of Economy and has been undergoing restructuring to improve its performance. In particular, export and investment grant schemes were introduced to improve financial support to Slovak companies.

Privatisation and restructuring has entered its final phase. During the reference period the Government's attention has focused on the preparation and implementation of partial privatisation of natural monopolies in the fields of energy, gas and oil. The finalisation of the partial privatisation of SPP (a major gas industry), Transpetrol (the crude oil pipeline operator), and three regional power distribution companies is to be considered the Government's major achievements in this respect. In August the Government invited bids for the partial privatisation of power producer Slovenske elektrarne (SE). At the end of 2001, Slovenska Poistovna, the main national insurance company, was also privatised.

The legislative framework for large-scale privatisation was improved following the approval of the amendment to the Law on Privatisation in November 2001. The amendment increases the supervision by the Supreme Audit Office of the assets owned by the privatisation agency (National Property Fund - NPF) and empowers the NPF to sell bad loans through a tendering procedure. Additionally, the draft Law on State-owned Companies, was amended to clarify the process of liquidation and to increase management transparency of state-owned companies and adopted in December 2001.

Overall assessment

Slovakia has made significant progress in the field of institutional and legislative improvements to the business environment. However, a big effort is still needed to address shortcomings such as corruption, excessive bureaucracy and inconsistency in legislation. Further improvements are also needed as concerns bankruptcy and insolvency procedures, to enhance the role of creditors, improve the quality of trustees and expand the capacity of the judicial system to implement the bankruptcy legislation in a fully effective manner.

Slovakia continues to make efforts on investment promotion, and has been steadily enhancing its international credibility in the area of foreign direct investment. Actions already taken and proposals being implemented indicate that high priority is consistently attached to improving the investment climate. However, structural weaknesses remain in this area. In particular, most investments continue to be directed to Bratislava and surrounding area. It is hoped that the establishment of Higher Territorial Units by January 2002 will contribute to increasing investment flows in particular to the disadvantaged eastern parts of Slovakia. Actual improvements in the functioning of SARIO are still to be fully assessed.

The privatisation process has progressed successfully and is now almost complete. As a result of the shift from public to private ownership, the scope of political interference that has proved problematic in the past has decreased. While enterprise restructuring should continue, the privatised Slovak steel industry continued operating successfully in a difficult economic environment. No further action from the Government's side appears necessary.

The necessary administrative bodies have been established, and the fragmentation of the institutional structure seems to have been reduced through the reorganisation of several government bodies under the Ministry of Economy. This, however, increases the onus on the Ministry to push the reform process through whilst guaranteeing stability, consultation with relevant stakeholders and consistency.

It should be noted that an important element of any industrial policy is the control of state aid and the compatibility of support schemes with EC rules (see Chapter 6 - Competition policy).

Conclusion

In its 1997 Opinion, the Commission concluded that the integration of Slovak industry into the European market could face difficulties to proceed satisfactorily over the medium term. Integration required diversification away from heavy industry and effective enterprise restructuring. Major shortcomings were considered to be the low level of foreign investments, the bad debt situation and the non-transparent privatisation methods.

Since the Opinion, Slovakia has made good progress in most areas, so that Slovakia's policy towards industry is generally in line with the principles of EC industrial policy, i.e. it is market-based, stable and predictable.

Negotiations on this chapter have been provisionally closed. Slovakia has not requested any transitional arrangements in this field. Slovakia is generally meeting the commitments it has made in the accession negotiations in this domain.

In order to complete preparations for membership, Slovakia's efforts now need to focus on further co-ordinating its administrative structures, and further enhancing competitiveness in the enterprise sector so as to achieve full integration into the Single Market.

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