VZCZCXYZ0001
RR RUEHWEB

DE RUEHSL #0004/01 0041427
ZNR UUUUU ZZH
R 041427Z JAN 08
FM AMEMBASSY BRATISLAVA
TO RUEHC/SECSTATE WASHDC 1425
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS BRATISLAVA 000004 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS TO USAID FOR MDUGAN AND SEASTHAM 
 
E.O. 12958: N/A 
TAGS: ECON EAID EFIN PGOV LO
 
SUBJECT: Enterprise Legacy Foundation: Making the 
Most of Limited Funds 
REF:  A) Post/USAID conference call 12/18/07 
 
B) Laitinen/Eastham emails 
 
¶1. Summary: With the end of active investment operations in March, 
the Slovak American Enterprise Fund (SAEF) is completing its plans 
for a legacy foundation with assets of approximately USD 8 to 10 
million.  SAEF proposes creating an entrepreneurial center that will 
offer support and assistance to targeted groups of entrepreneurs and 
small companies.  We are concerned that SAEF's current proposal 
would not be an effective use of taxpayer resources: it duplicates 
well-funded Slovak government efforts to develop regional innovation 
centers; a significant portion of the resources would be lost in 
unusual and inappropriate high administrative costs; and it lacks 
flexibility in how the funds can be used, thus lessening prospects 
for the success we all seek.  A lean grant-making foundation 
supporting entrepreneurial initiatives and new project proposals 
based on U.S. models would be a better fit to continue SAEF's legacy 
of strengthening private sector development in Slovakia, a goal that 
Post strongly shares.  Slovakia needs to emphasize development for 
the future in the area of information technology to move toward a 
knowledge-based economy and society.  For this reason we would ask 
SAEF to consider a foundation targeting information and high 
technology.  Partnerships could be developed with Slovak technical 
universities and the impact increased by leveraging through matching 
funds.  End Summary. 
 
SAEF's VISION 
------------- 
 
¶2. The SAEF Board is currently developing plans for legacy 
activities after the fund ceases active investment operations in 
March 2008.  Following the December Board meeting in Washington, DC, 
SAEF board member Maria Hurajova and staff members Matej Fekete and 
Peter Spron met with Emboffs in mid-December to brief us on their 
current proposal for the expected 8 to 10 million Dollars that will 
be available to the legacy foundation as the fund's assets are sold 
off.  SAEF proposes establishing an entrepreneurial center, The 
Slovak American Entrepreneurial Center (SAEC), on the premises of 
its current offices in Bratislava, employing four current SAEF staff 
members.  The SAEC would offer support and assistance to start-ups, 
to existing SME's in growth stages, and to university students and 
women in business.  SAEC would also contract out some of these 
services.  The SAEF board plans to send its final proposal to USAID 
by the end of February and expects to establish the center in April. 
 
 
¶3. The SAEF board has asked Maria Hurajova, who is currently Head of 
the small Bratislava stock exchange, to be director working with up 
to three additional members from the current SAEF staff. Although 
SAEF acknowledges its lack of operational experience for an entity 
like the SAEC, Hurajova told Emboffs that she does not envision the 
need to bring in new staff.  The center plans to work with partner 
organizations (NGOs, government, universities, private sector, 
etc.), but would not provide direct grants.  SAEF plans to expend 40 
percent of the budget on administrative expenses.  That figure could 
actually rise in a couple of years when the legacy foundation is no 
longer able to share administrative costs with SAEF. 
 
FINDING A NICHE IN AN ACTIVE ENTREPRENEURIAL SECTOR 
------------------------------ -------------------- 
 
¶4. The environment for a legacy fund has changed significantly in 
recent years and even months.  Although SAEF was one of the first 
programs in Slovakia with the specific goal of strengthening and 
promoting private sector development, there are now several 
initiatives that have been organized or are being planned by the 
government, NGOs, universities and the private sector designed to 
encourage innovation and an entrepreneurial spirit in Slovakia.  The 
largest source of funding that is pursued by all of the above 
sectors is EU Structural Funds.  The GOS is set to receive more than 
Euro 150 million (USD 220 million) in Structural Funds targeted at 
innovation projects through 2013, as well as an additional Euro 150 
million targeted at education.  The innovation funds are managed by 
the Ministry of Economy, while the Education Minister controls the 
education resources.  The government has also pledged to contribute 
an additional 300 million Slovak Crowns (USD 13 million) per year 
for innovation programs. 
 
¶5. The Ministry of Economy's (MOE) primary goal for these funds is 
to set up Regional Innovation Centers (RICs) throughout the country. 
 RICs will be new entities designed to provide consulting and 
counseling services to entrepreneurs and small businesses. The RICs 
will also help individuals and small companies obtain funding from 
both the EU and private sector sources.  The MOE does not plan to 
provide EU or GOS resources to other projects or initiatives, but 
MOE noted that the centers are designed to run in partnership with 
regional governments, NGOs, educational institutions and the private 
sector.  Although the program is still in the planning stages, MOE 
expects to begin building the basic infrastructure in the first half 
of 2008. 
 
 
¶6. The Regional Innovation Center program is similar to earlier 
efforts by the National Agency for Development of Small and Medium 
Enterprises (NADSME), which is a joint GOS/EU project founded in 
1993 to support the growth and development of Slovak SMEs.  NADSME 
still operates incubators and innovation centers in at least 16 
cities and towns throughout Slovakia, although the individual 
programs are no longer financed by the GOS.  Although the RICs are 
similar to the already functioning NADSME center, the GOS decided 
not to combine the two projects. 
 
¶7. In addition to government efforts, several universities have 
established incubators and/or innovation centers to help 
commercialize research and innovations developed by staff and 
students.  These programs offer cheap rent for start-ups and a basic 
level of services.  Other NGOs and private companies provide 
training for entrepreneurs, business plan contests, lecturers and 
other initiatives to support entrepreneurs.  There is also an 
American aspect to some of these initiatives: the University of 
Texas is working with a local NGO to bring together some of the more 
successful university initiatives into a cohesive program based on a 
U.S. public/private partnership model that has been successfully 
implemented in other central European countries. 
 
FUTURE DIRECTION 
---------------- 
 
¶8. As outlined Reftel, we are concerned that the current proposal to 
create a new entrepreneurial center is not the most efficient or 
effective use of taxpayer resources for the following reasons: 
 
-- The SAEC proposal is almost identical to the well-funded RIC 
initiative proposed by the GOS and previous and ongoing efforts by 
NADSME.  We question whether entrepreneurs would utilize the SAEC as 
opposed to the RICs, especially if SAEC charged fees for the 
services, while the government-funded program is free and seen as an 
avenue for obtaining EU funds for individual projects.  It is also 
not clear that there is a large pool of entrepreneurs looking to 
take advantage of the types of services proposed for the SAEC or the 
RICs; 
 
-- SAEC could struggle to attract EU financing to leverage the SAEF 
resources if the program is similar to ongoing EU initiatives. This 
would hurt the long-run sustainability of the project; 
 
-- High overhead costs in establishing and maintaining a center with 
a four-person staff mean significantly less money for program 
activities; 
 
-- SAEF acknowledges that it does not have experience operating a 
non-profit foundation, but wants to use only its staff and not hire 
anyone with such expertise from the outside; and 
 
-- Putting all of the resources into establishing a new center 
limits the flexibility of how the resources can be used. 
 
¶9. To address these concerns, meet the current needs in the market, 
and help provide the best of U.S. entrepreneurship practices, we 
recommend a fundamental change in the concept outlined by SAEF.  We 
propose a lean grant-making foundation that would support 
entrepreneurial initiatives and new project proposals.  As we 
mentioned in the summary, Slovakia needs to emphasize development 
for the future in the area of information technology to move toward 
a knowledge-based economy and society.  For this reason we would ask 
SAEF to consider a foundation targeting information and high 
technology.  Partnerships could be developed with Slovak technical 
universities and the impact increased by leveraging through matching 
funds.  With the board as the primary advisory unit, the foundation 
could exist with limited staff (possibly one person) and much lower 
administrative costs, which we understand is a model that has been 
successfully used in other neighboring countries.  This would extend 
the reach and impact of the legacy foundation by maximizing the 
amount going to program activities. 
 
OBSITNIK