Placement of industrial parks in regions: case of

Slovakia

Vladimír BenčResearch Centre of the Slovak Foreign Policy Association, n.o.Hlavná 11, 080 01 Prešov, Slovak Republice-mail: benc@sfpa.sktel./fax: +421 51 7721 018web: www.sfpa.sk

Cimislia, 30.09.2014

Investment localisation factors Country: political and macroeconomic stability, the

country's credit rating, monetary stability, taxation, investment incentives, investment risk, cultural proximity, geographic location, legislation, level of corruption, law enforcement

Region: market extent, access to major consumer markets, transport and technical infrastructure, prices of inputs: labour costs, energy costs, material, raw materials, the quality and availability of the labour force and its education, labour productivity

Location: transport distance and transit costs, efficient logistics, modern infrastructure, supply of industrial zones and areas, costs of land

Self-government: local autonomy, strong institutional support for foreign direct investment inflows, strong support institutions and technical services, favorable conditions for investors and their families

Why to invest in Slovakia ? “Regional” competition for foreign

investment in the Central Europe

Macroeconomic factors

Political and security factors

Unique reforms in Slovakia 1999-2005 on the eve of the EU accession

1999 – 2005: Fiscal reform 2000/2001: Banking system reform 2002: Administration reform – 8 higher self-

governments, transfer of competences to municipalities 2003: Tax reform – unitary tax (19% - VAT and income

tax), programming in government budget 2003/2004: Social system reform – decrease of social

benefits, active searching for a job, public works, retraining

2004: Pension system reform – private accounts, private pension funds

2000-2005: Privatisation of state monopolies (telecommunication, gas distribution, energetic sector, banks)

Unsuccessful reforms: health care system, educational system, justice

Real GDP growth

Sources of GDP growth

Tax reform (2004) 21%

Privatisation by foreign investors (1998-2002) 17%

Entry to the EU (2004) 12%

Labour Code Amendment (2003) 10%

Reforms before 1998 10%

Pension reform (2004-2005) 4%

Other sources 26%

Source: INEKO survey among SK economists, March 2007

Public deficit (% of GDP)

Source: Eurostat

SK and EU Strong synchronization of

economies (SK – export oriented)

SR – healthy banking system Huge inflow of foreign

investment (esp. car industry)

-8

-6

-4

-2

0

2

4

6

2000Q01 2002Q01 2004Q01 2006Q01 2008Q01

-10

-5

0

5

10

15

Eurozóna (ľavá os) Slovensko (pravá os)

GDP, %-growthPublic support of

banking sector in EU 27 during crisis (% of GDP), end of

2011

0

500

1000

1500

2000

2500

3000

3500

4000

4500

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

FDI Inflows into Slovakia 1993-2007 (mil. USD)

Where to invest in Slovakia ? Incentives

Availability of infrastructure + human resources

Public and/or private services for investment

Regional “status” of SlovakiaGDP per capita to EU 28 average in % 1996 2000 2004 2007 2008 2009 2010

growth

Prague (CZ) 128 139 163 177 175 176 172 +44Central Morava (CZ) 65 58 62 64 64 66 64 +1Chemnitz (GE) 81 77 81 83 81 80 83 +2Stuttgart (GE) n.a. 143 139 141 142 133 144 +1Észak-Magyarország (HU) 36 35 41 39 40 40 40 +4Wien (AT) n.a. 182 170 160 161 163 165 -17Mazowiecke (PL) n.a. 74 78 87 89 97 102 +28Podkarpackie (PL) 34 34 35 37 39 41 42 +8Bratislava region 104 109 129 160 167 177 176 +72West Slovakia 48 47 54 66 69 68 68 +20Central Slovakia 41 41 47 54 59 58 59 +18Eastern Slovakia 38 38 42 46 51 49 49 +11

- Slovakia is doing great in economic policy making > growth strategy- but week in fighting with regional disparities + facing local problems→ treat and challenge for the future

Investment incentives Four categories of projects that can be supported by the

investment incentives:a) industrial production

b) technological centresc) shared service centresd) tourism

The incentives are provided in the form of:a) a subsidy for the acquisition of material assets and

immaterial assets (cash grant),b) an income tax relief,c) a contribution for created new jobs (cash

grant),d) transfer of immovable property or exchange of immovable property at a price lower than a

general asset value (discounted price)

Conditions & Aid (case industry) Minimum investment

Maximum aid of eligible costs:

Land acquisition Building acquisition Costs of technology equipment and

machines (only new) Intangible assets - licenses, patents,

etc.

Slovakia – cars producing nation

Sub-suppliers location

Some history and facts until July 2001 - no legal regulation specifying the conditions for setting up industrial

parks Act No. 193/2001 Coll. On Support for the Establishment of Industrial Parks – July 2001 Act No. 565/2001 Coll. on investment incentives among the first parks, there was the Zahorie Industrial Park, providing exclusively

for the sub-suppliers of Volkswagen Slovakia, a.s, and then the Vrable Industrial Park initiated by a foreign developer, as was also the case with the Sladkovicovo Industrial Park.

Conditions for government support: proven commitments of two investors as well as a minimum 30% share in the total

set-up costs plus the obligatory tax on the exemption of land from the Agricultural Land Fund.

Environmental study on placement of parks – 2003 – Slovak Agency for Environment (SAZP) – identified 53 best localities in Slovakia

Ministry of Economy of the Slovak Republic provided in 2001 – 2006 municipalities Vráble, Devínska Nová Ves, Zlaté Moravce with grants in accordance with the Act No. 193/2001 Coll. On Support for the Establishment of Industrial Parks.

In 2004 Industrial Zones in: Nové Mesto nad Váhom, Senica, Hlohovec, Nitra, Zvolen, Kysucké Nové Mesto, Levice, Lučenec.

Grants provided in 2005 – Hlohovec, Vráble, Košický samosprávny kraj, Hurbanovo, Zvolen, Galanta.

Grants provided in 2006 - Prievidza, Zvolen, Hlohovec, Galanta, Sučany, Sereď, Kriváň, Michalovce, Malý Krtíš, Kežmarok, Levice, Trenčín, Malacky, Partizánske.

Currently in Slovakia > 78 parks: 50 industrial - green, 12 industrial – brown, 16 various kind e.g. logistics, scientific and technological

Few remarks According to the Act No 193/2001 on support for the establishment of

industrial parks in Slovakia, the industrial parks are defined as territory determined by townplanning or zone planing scheme, on which industrial production, or service trade by one or several investors is being carried out, or will be carried out.

Industrial park under this Act founds municipality. This territory must be equipped by primary technical infrastructure (water, gas, power, transport, telecommunication, sewage and etc.), the property must be settled and free of easements.

Only a few regions have well prepared plans for establishing industrial parks and have clearly defined objectives for their future operation. If investors discuss their plans with a municipalty that has a clear vision about the park and this vision is supported by a good analysis, success is assured. Feasibility studies and discussions with all involved, including local entrepreneurs, banks, and other interested parties, can help reduce the risk of failure of the project.

Municipalities often lack available and precise information on individual locations, status of land ownership, or information on capacities of utility systems – case: Kosice self-governing “Investment study” > know your territory, capacities + planning & programming / transparency & visibility

EU funds financing the parks

Sectoral Operation Programme Industry and Services (2004 - 2006) and Operational Programme Competitiveness and Economic Growth (2007 - 2013): more than 102 mil. € contribution for building 25 industrial parks in Slovakia

Land only for rental to investors (min. 15 years) Good cases (2004-2006):

Poprad (green, contrib. 4,9 mil. EUR, plan 166 wp, 737 created, 7 companies) Myjava (green, contrib. 2,5 mil. EUR, plan 246 wp, 432 created, 8 companies) Snina (brown, contrib. 3,1 mil. EUR, plan 120 wp, 137 created, 4 comp.)

Bad cases (2004-2006) – all located in the East and South-East: Lucenec (green, contrib. 3 mil. EUR, plan 252 wp, 51 created) Viglas (green, contrib. 1,5 mil. EUR, plan 245 wp, 2 created – photovoltaics

plants) Kojsov (brown, contrib. 1,5 mil. EUR, plan 62 wp, 0 created) Vranov nad Toplou (green, contrib. 3,7 mil. EUR, plan 560 wp, 4 created) Trebisov (brown, contrib. 5,3 mil. EUR, plan 250 wp, 83 created, 1 comp.)

Complete list and info: http://www.siea.sk/priemyselne-parky/c-2409/priemyselne-parky-podporene-zo-strukturalnych-fondov-europskej-unie/

Case 1: Town of Roznava Preparation under PHARE (2000-2003), project was approved for

financing, but town was not able to co-finance it. Plan was to have industrial park that would be spread over 27 hectares in a former iron mines

New project started in November 2008 for an area of 16 hectares and the SK government subsidized the construction of EUR 7 million and park was finalized in 2010

Investors that promised to invest changed their mind and didn’t invest

Only in April 2013 the first investor came: the company Celltex hygiene, ltd. built new plant. Company invested EUR 10 million. Received incentives from the government totaling EUR 4 million, while a part in the amount of EUR 2,5 million was for construction and technology and EUR 1,5 million was in the form of tax relief

Case 2: Town of Vrable First industrial park in Slovakia – initiative started in 1995, was built in 2000 (1st

Stage) Establishment based on idea of private company United Parts Slovakia (UPS), s.r.o.,

Vráble (producing driving systems for cars VW). German investors created company the Industrie-und Gewerbepark Vrable (IGP) and instead of building 1 industry facility, built 5 and rented it for 15 years. Town of Vrable helped to buy-out land in total area of 6,5 ha and built connecting infrastructure

Problems faced: no legislation – building permit issued after 3 months even all projects and studies were

provided – no experience of state institutions, e.g. they required concrete description of the production even the town was only searching for investors

town didn’t have enough money to build infrastructure, so investors borrowed the money and town was paying back from increased tax incomes, later sold some land and also from GOV subsides it took 1,5 years and engagement of minister of economy to convince “monopoly” energy supplying company to build up new electric connection 22 kV on their costs / state gas company did it without problem

2nd stage began in 2008 with broading the zone and building infrastructure Currently 8 companies are present

Case 3: Industrial & Technology Park Zahorie First idea since 1993, but municipalities Malacky, Plavecký Štvrtok, Veľké

Leváre were able only to prepare documentation In 2002 they created non-profit organisation that applied for state

support In 2003 territorial plan of the park was elaborated, agricultural and forest

land changed status for building plots with status of industrial and technology park

5 zones were created: Zone A for mid-heavy industry 140 ha and housing 34 ha, Zone B for hi-tech 84 ha, Zone C for light production, logistics and services 88 ha, Zone D for housing 40 ha and relax incl. golf course 101 ha, and Zone E for logistics 33 ha

In 2005 – development company joined the initiative and invested 10 mil. EUR in next 4 years

Municipalities received another 10 mil. EUR from state subsidies and EU funds esp. for infrastructure building

But now, the dominant owner of the initiative is the development company

Citizens are complaining that “the business if doing only development company”, accusing municipalities of misusing public and EU funds + degradation of environment (forests, agricultural land) – and only few investors are located …

Best case – Village Kechnec (www.kechnec.sk)

1991: 734 → 2014: 1053 inhabitants (by economic development) – mayor, Mr. Jozef Konkoly is in charge since 1990

Kechnec Industrial Zone - 332 hectares - green field First idea in 1996 – buying land from inhabitants – building basic infrastructure – April 2002

Government grant for infrastructure (6,12 mil. EUR) – October 2003 „Grand“ opening of the Zone (1st investor MOLEX Slovakia – US company) – February 2004 Government grant for completion of infrastructure (0,96 mil. EUR) – now more than 15 companies with more than 2500 employees + BMW is cosidering huge investment

GETRAG FORD Transmissions Slovakia, Kuenz-SK, Magneti Marelli Slovakia, SWEP Slovakia, Doppelmayr Slovakia

New Logistic Center opened in 2011 with 10.000 m2 Plan for the Science & Technology Park with TUKE (University) and KSK (Reg. Gov.) New infrastructure built within 10 years:

Social-healthcare complex, Sporting center, Kindergarten with English classes, European Integrated School (Kindergarten, Elementary school , Vocational school, External school of the Engineering Faculty), Apartment complex, Stores + services, Aquapark (under construction), Congress center and cultural house, Open air cinema, Complex renovation of the village center, Plant for meat processing and production of bakery products – village „social“ company, Connecting bridge over the river Hornad to Hungary + plenty of „soft“ projects

Questions & Conclusions Competitive economy vers. Industrial parks policy / State Aid General investment incentives vers. selective state support Support of foreign investors against local competitiveness of

domestic enterprises (steeling of skilled workforce, ...) Investment / jobs (nat. level) vers. local interests (referendum in

Presov, Petrovany - metallurgy) Misuse of public money and EU funds – big question on

effectiveness and location of some parks (doing business with land)

Ownership rights vers. „state priorities“: Slovakia has introduced a special procedure for the acquisition of land to be used for locating a plant of an investor in case of any “significant investments”. The Slovak government is authorized to decide that an investment in the minimum value of EUR 30 million, and in certain regions of Slovakia with the unemployment rate being at least 15 % even an investment of EUR 15 million, shall be regarded as an investment in the public interest and therefore the land on which the investment shall be implemented may be subject to expropriation proceedings.

KIA indirectly (municipalties building infrastructure) received EUR 144 mil., Peugeot EUR 106 mil., Getrag-Ford EUR 40 mil. ...

Further info

www.economy.gov.sk – Ministry of Economy

www.priemyselneparkyslovenska.sk – all info about industrial parks supported by public money

www.sario.sk – investment agency

Thank you for your attention!