R 261544Z JAN 09
FM AMEMBASSY BRATISLAVA
TO SECSTATE WASHDC 2255
INFO DEPT OF COMMERCE WASHDC
DEPT OF TREASURY WASHDC
CIM NTDB WASHDC

UNCLAS BRATISLAVA 000045 
 
 
STATE FOR EUR/NCE 
STATE FOR EB/IFD/OIA JNHATCHER AND GNHICKS 
 
E.O. 12958: N/A 
TAGS: EINV ETRD OPIC KTDB USTR LO
SUBJECT:  SLOVAKIA - 2009 INVESTMENT CLIMATE STATEMENT 
 
Overview 
 
¶1. Slovakia's once troubled economy has been transformed in the last 
ten years into a business friendly market-model, which led the 
region with GDP growth of 7.1 percent (est.) in 2008.  Comprehensive 
structural reforms adopted by the Slovak government in the first 
several years of this decade led the World Bank to name the country 
the world's top reformer in improving the investment climate in its 
"Doing Business in 2005" report.  Slovakia's relatively low-cost yet 
skilled labor force, low taxes, liberal labor code and favorable 
geographic location have helped it become one of Europe's favorite 
investment markets. The Financial Times described Slovakia as the 
"Detroit of the East," and Forbes magazine called it the world's 
next Hong Kong or Ireland.  The election of the left-leaning Smer 
(or Direction) party in 2006 has slowed reform momentum and led to 
some less business-friendly changes in labor, pension, and social 
insurance legislation.  The Business Alliance of Slovakia, for 
instance, has reported an eight-quarter downward trend in the 
quality of the business environment, citing a slow and ineffective 
legal system, unequal treatment in the legal system, and an 
ineffective political system.  The government's commitment to 
adopting the euro in 2009, however, tempered proposals to overhaul 
the previous reforms and contributed to stable macroeconomic 
policies.  Slovakia succeeded in joining the European Monetary Union 
on January 1, 2009. 
 
¶2. Slovakia is a member of the European Union (EU), the North 
Atlantic Treaty Organization (NATO), and the Organization for 
Economic Cooperation and Development (OECD), and it holds investment 
grade ratings from all three major rating agencies.  The Wall Street 
Journal and Heritage Foundation's 2008 Index of Economic Freedom 
ranked Slovakia 36 of the 183 countries examined, a slight drop from 
the previous year.  In the Global Competitiveness Report 2008-9, 
compiled by the World Economic Forum, Slovakia places 46 (of 134) on 
the global competitiveness index, a drop of 5 places from the 
previous year. The F.A. Hayek Foundation, in a ranking developed 
with the Swiss Institute for Management Development (IMD), confirmed 
that Slovakia had moved up four places to stand 30th in a 2008 
ranking of 55 countries evaluated according to the competitiveness 
of their economies. 
 
¶3. With the election of Prime Minister Mikulas Dzurinda in 1998, 
Slovakia instituted a number of investment liberalization policies 
that enabled it to surpass its neighbors in FDI inflows.  Since 
1998, cumulative FDI has increased sevenfold to USD 18.45 billion by 
the end of 2006; in 2007, inflows were roughly USD 1.1 billion.  In 
recent years, Slovakia recorded several investment success stories, 
such as attracting a USD 1.5 billion investment from Kia for its 
first European assembly plant; USD 400 million from Getrag Ford for 
a gearbox production plant and a USD 100 million commitment from 
Sony for the production of LCD TVs.  Korean electronics manufacturer 
Samsung decided to place its USD 400 million investment into an LCD 
flat panel screen production facility in Slovakia in 2007.  A 2008 
survey by the U.S. Embassy showed U.S. investments in Slovakia at 
approximately USD 4 billion for current and future commitments. 
(Note: official Government of Slovakia (GOS) statistics differ 
because some U.S. investments are credited to third countries, 
depending on corporate structure). 
 
Openness to Foreign Investment 
 
¶4. In the late 1990s, Slovakia had only one-sixth as much cumulative 
foreign direct investment (FDI) per capita as Hungary or the Czech 
Republic.  According to data from the United Nations Conference on 
Trade and Development (UNCTAD), by the end of the 2006, Slovakia's 
per capita FDI (weighted averages by population) was the highest 
among its neighboring countries, amounting to USD 771, compared to 
USD 606 in Hungary, USD 584 in the Czech Republic and USD 362 in 
Poland. Slovakia was ranked 61st on UNCTAD's most recent performance 
index for 2004-2006 based on the country's share in global FDI 
inflows and GDP.  Ernst & Young's "European Attractiveness Survey 
2008" showed Slovakia as 8th in Europe in terms of job creation, 
with 8,479 jobs created by foreign investors in 2007, which 
represents a 37 percent decrease in comparison with the previous 
year and second in the total direct investments per million 
inhabitants. The report ranked Slovakia eighth in Central and 
Eastern Europe with 58 direct foreign investment projects, behind 
Poland, the Czech Republic, and Romania. 
 
¶5. The biggest 2007 contracts included a USD 416 million investment 
by Korean LCD flat panel TV screens manufacturer Samsung and a USD 
100 million investment by Japanese TV sets manufacturer Sony. Since 
2003, Slovakia has attracted three big automotive projects, i.e., a 
USD 850 million car plant by PSA Peugeot Citroen, Europe's second 
largest carmaker; a USD 1.5 billion investment from Hyundai Kia, the 
world's seventh biggest car producer and a USD 400 million gearbox 
plant by Getrag Ford, a joint venture of the second largest U.S. car 
manufacturer, Ford Motors, and German Getrag.  In late 2005, PSA 
Peugeot Citroen announced it would boost its initial investment in 
Slovakia by an additional USD 422 million.  In 2007, Kia expanded 
its investment in Slovakia by USD 280 million, creating an 
additional 663 jobs and doubling its originally forecast engine 
production in Slovakia from 300,000 to 600,000 units per year. 
Altogether, auto makers in Slovakia produced nearly 800,000 vehicles 
in 2008. 
 
¶6. As of January 2008, the GOS enacted a new Act on Investment 
Assistance, which provides varying levels of aid to domestic and 
foreign investors for the period 2007-2013, depending on a number of 
factors including level of unemployment in the proposed region of 
investment, business sector, size of investment, and the type of 
employment that will be provided.  Assistance levels range from 10 
percent to 50 percent of eligible costs. The rules also lay out what 
type of aid is available (tax credit, financial subsidy, discounted 
price for land, etc.), the responsibilities and decision making 
schemes of the state institutions, and the maximum amount of aid 
available to an individual investment based on the relevant 
circumstances.  In general, the new rules were structured to 
encourage investments into less-developed regions with high 
unemployment and/or into more sophisticated production and/or 
research and development. There are four priority areas identified 
in the new rules: industrial production, technology centers, centers 
of strategic services, and tourism.  The new rules provide structure 
and transparency to a process that has been much more ad hoc and 
opaque. 
 
¶7. The legislation, which was prepared by the Ministry of Economy, 
brings Slovak law into compliance with the new and stricter European 
Commission (EC) guidelines and its new "aid map" for 2007-2013.  The 
EC has approved a regional aid map for each member state that 
identifies the regions and sectors eligible for aid and the maximum 
aid amounts allowed.  Under the new legislation, the Slovak 
government does not have to seek EC approval for each individual 
investment project up to roughly USD 4.4 million, which should 
dramatically speed up the application process.  The major changes in 
Slovakia include a reduction in the ceiling of support that can be 
issued in Western Slovakia and the districts of the city of 
Bratislava.  In general, the new rules further encourage investments 
in areas with high unemployment and targeted sectors such as 
information technology and tourism.  Several forms of state aid are 
available: discounted prices for land, financial subsidies for 
acquiring tangible and intangible assets related to the investment, 
tax credits, and grants for the creation of new jobs.  For the first 
time domestic investors have become eligible to apply for state aid 
as well. 
 
¶8. Regional governments can also provide support to companies in 
various forms, including infrastructure and training.  In addition, 
Slovakia currently offers one of the most advantageous tax 
environments for corporations among all OECD and EU states.  In 
2004, the country imposed a flat income tax rate of 19 percent, both 
for corporations and individuals, and eliminated virtually all 
exemptions and deductions.  In addition, the GOS eliminated 
withholding taxes on dividends, thus permitting foreign firms to pay 
back parent companies without being taxed. 
 
¶9. In 2007 Slovakia approved state aid totaling USD 140 million to 
15 investment projects, including the U.S. company TRW Steering 
Systems Slovakia, in the form of tax relief, job creation, education 
grants, direct state subsidies for building infrastructure and/or 
acquiring land. One of the largest recipients of the state 
incentives in 2008 was Volkswagen Slovakia, for which the government 
approved investment incentives totaling EUR 14.3 million. The new 
expansion plans of Volkswagen Slovakia worth EUR 298.75 million 
should  create 760 new jobs by the end of  2012, and state aid will 
be offered in a form of tax breaks. The highest numbers of foreign 
investment projects were in the mechanical engineering industry 
(14), electromechanical industry (12) and automotive industry (11). 
The largest finished investment projects in 2007 originated from 
Germany, South Korea, Austria and Great Britain. Most of the 
supported investment projects were located in the Kosice (16), 
Bratislava (9), Nitra (8) and Trnava  (8) regions. The largest new 
projects from an employment point of view were located in the Trnava 
 (3961), Nitra  (3656), Kosice (1877) and Banska Bystrica (1740) 
regions. (Source: Slovak Investment and Trade Development Agency) 
 
¶10. The Industrial Park Law (193/2001 Z.z.) helps municipalities 
develop special industrial zones through funding assistance from the 
Slovak government.  The Slovak government can fund up to 85 percent 
of the overall cost related to the purchase of land and development 
of infrastructure in an industrial park.  In regions with an 
unemployment rate exceeding 10 percent, state co-financing could 
cover as much as 95 percent of all eligible costs (NOTE: this 
exemption applies to virtually all regions of Slovakia, except for 
western Slovakia).  The Slovak Investment and Trade Development 
Agency (SARIO) currently registers 39 industrial parks that are 
capable of housing potential investors within a short period of 
time. The SARIO website (www.sario.sk) offers more detailed 
information. 
 
¶11. The government in Slovakia halted all large-scale privatization 
plans and a number of re-nationalizations of infrastructure have 
also been announced in the last year.  The current law on strategic 
privatization, which was enacted by the previous government, permits 
complete privatization of most businesses and allows for 49 percent 
foreign ownership (with management control) of the natural gas 
distributor, the electric power producer, electricity distributors, 
and an oil pipeline.  All of these privatizations have been 
completed.  The state must still retain ownership of railroad right 
of ways, postal services, water supplies (but not suppliers) and 
forestry companies.  However, the government of Prime Minister 
Robert Fico, which came to power in mid 2006, is very reluctant to 
proceed with further sales of state assets.  It cancelled a 
privatization tender for the rail cargo company, reversed the 
privatization of the Bratislava airport, stopped privatizations of 
regional heating companies, and imposed a ban on further 
privatization of designated "strategic" companies. 
 
Conversion and Transfer Policies 
 
¶12. Slovakia entered the European Monetary Union and adopted the 
euro as its currency as of January 1, 2009, with the conversion rate 
set at 30.126 Slovak crowns (SKK) to 1 euro. It will be possible to 
exchange Slovak crowns for euros through 2009. The Slovak crown was 
fully convertible for current account and capital account 
transactions. 
 
¶13. Foreign exchange operations are governed by the Foreign Exchange 
Act (312/2004 Z.z.), and one can easily convert or transfer funds 
associated with an investment.  As a member of the OECD, Slovakia 
meets all international standards for conversion and transfer 
policy.  In 2003, an amendment to the Foreign Exchange Act 
liberalized operations with financial derivatives and abolished the 
limit on the export and import of banknotes and coins (domestic and 
foreign currency).  Since January 2004, an amendment to the Foreign 
Exchange Act authorized Slovak residents to open accounts abroad and 
eliminated the obligation to transfer financial assets acquired 
abroad into Slovakia.  Non-residents may hold foreign exchange 
accounts.  No permission is needed to issue foreign securities in 
Slovakia, and Slovaks are free to trade, buy and sell foreign 
securities.  There are very few controls on capital transactions, 
except for rules governing commercial banking and credit 
institutions, which must abide by existing banking laws. 
 
Expropriation and Compensation 
 
¶14. In 2004, Slovakia witnessed one expropriation case, widely 
considered an anomaly.  The GOS began an expropriation process for 
land from local farmers to use for the site of Hyundai/Kia's car 
plant - the country's largest foreign greenfield investment ever. 
An independent panel established the market value of the land and 
the GOS paid this amount; some landowners appealed.  The 
constitution, as well as the commercial and civil codes, permits 
expropriation only in exceptional cases of public interest, and 
compensation must be provided.  The law also provides for an appeal 
process.  There were no cases of expropriation in 2007. In December 
2007, the GOS approved a new expropriation or eminent domain law 
that allows the state to construct highways on private property 
without prior consent of the landowner if the construction parcel is 
considered "strategic" for Slovak interests.  Owners would be 
compensated by the state after the fact.  The legislation is aimed 
at speeding up highway construction projects to finish the 
connection between Bratislava and Kosice. 
 
Dispute Settlement 
 
¶15. On December 29, 2004, the International Center for Settlement of 
Investment Disputes (ICSID) ruled in favor of the Czech bank 
Ceskoslovenska Obchodna Banka (CSOB) in its claim against Slovakia 
and ordered the GOS to pay the bank SKK 24.7 billion (USD 800 
million).  CSOB's claim dated back to 1993, when it provided a loan 
to a special state agency set up to assume CSOB's bad debts as part 
of a division of assets between Slovakia and the Czech Republic as 
the successor states of the former Czechoslovakia. 
 
¶16. A law passed in October 2007 banned health insurance companies 
from paying dividends to their shareholders and severely limited 
allowable overhead costs.  In response, one of the shareholders of 
health insurance Dovera, Health Insurance Companies of Eastern 
Europe, has filed for international arbitration in the amount of 
nearly EUR 500 million. 
 
¶17. There have been no other major investment disputes in Slovakia 
in recent years.  Slovakia is a contracting state of the ICSID, the 
World Bank's Commercial Arbitration Tribunal (established under the 
1966 Washington Convention), and is a member of the 1958 New York 
Convention on the Recognition and Enforcement of Foreign Arbitrage 
Awards. 
 
¶18. The Slovak judicial system is comprised of general courts and 
the Constitutional Court.  General courts decide in civil and 
criminal matters and also review the lawfulness of decisions by 
administrative bodies.  District courts (54) are the first instance 
courts, and regional courts (8) hear cases as appeals courts.  The 
Supreme Court of the Slovak Republic is the final review court.  A 
special court for corruption, organized crime and crimes of highest 
public officials has been operational since 2005, though its 
constitutionality has been challenged by members of Parliament 
during  the past year.  Judges of general courts are nominated by 
the Judicial Council of the Slovak Republic and are appointed for 
life by the President.  They may only be removed for cause.  The 
Constitutional Court of the Slovak Republic is an independent 
judicial body that decides on the conformity of legal norms, 
adjudicates conflicts of authority between government agencies, 
hears complaints, including complaints of individuals regarding 
their human rights, and interprets the Constitution or 
constitutional statutes.  Judges of the Constitutional Court are 
appointed for 12-year terms by the President from a list of 
candidates selected by the parliament. 
 
¶19. The legal system enforces property and contractual rights, but 
decisions may take years, thus limiting the utility of the courts 
for dispute resolution.  Slovak courts recognize and enforce foreign 
judgments, subject to the same delays.  The commercial code appears 
to be applied consistently.  Slovakia accepts binding international 
arbitration, and the Slovak Chamber of Commerce and Industry has a 
court of arbitration for alternative dispute resolution; nearly all 
cases involve disputes between Slovak and foreign parties.  Slovak 
domestic companies generally do not make use of arbitration clauses 
in contracts. 
 
¶20. A new law on bankruptcy and restructuring entered into effect on 
January 1, 2006.  Its main aim was to shorten the duration of cases, 
which average between 3 and 7 years, and to increase the volume of 
revenues recovered from the current average of 5 to 10 percent.  The 
current law allows companies to undergo court-protected 
restructuring and individuals to discharge their debts through 
bankruptcy.  According to the International Monetary Fund, the act 
overhauls ineffective bankruptcy procedures by speeding up their 
processing, improving creditor rights, reducing discretion by 
bankruptcy judges, and randomizing the allocation of cases to judges 
to reduce the potential for corruption.  A new law on trustees 
entered into effect on July 1, 2005.  Its main goal was to increase 
requirements for professional skills of trustees.  Trustees must now 
graduate from accredited institutions or private companies, receive 
a license from the Ministry of Justice, and will be subject to 
continued monitoring by the ministry and bankruptcy courts. 
 
¶21. Slovakia recognizes secured interests in immovable property, 
normally secured by physical possession of, or a conveyed title to, 
the property in question until the loan is repaid.  There is a 
recognized procedure for foreclosures, which specifies how evictions 
are handled, debts are repaid and any remaining funds are returned 
to the titleholder.  Since 2003, Slovakia has one of the most 
advanced frameworks in Europe for registering security interests in 
moveable property. 
 
Performance Requirements and Incentives 
 
¶22. Slovakia has no formal performance requirements for 
establishing, maintaining, or expanding foreign investments. 
However, such requirements may be included as conditions of specific 
negotiations for property involved in large-scale privatization by 
direct sale or public auction.  (Note: see the "Openness to Foreign 
Investment" section for details on incentives).  There are no 
obstacles for foreign entities to participate in GOS financed and/or 
subsidized research and development programs and to receive equal 
treatment as domestic entities.  There are no domestic ownership 
requirements for telecommunications and broadcast licenses. 
 
¶23. A new law regarding defense offsets has been in effect since 
January 1, 2008. The law outlines the basic principles and 
responsibilities of the supplier and the relevant state institutions 
(Ministry of Defense, Ministry of Economy, interdepartmental offset 
committee) for offset programs in Slovakia, based on similar 
legislation in other EU and NATO countries.  The law requires 
offsets of 20 percent direct or 30 percent for a combination 
indirect and direct offsets of the value for defense contracts worth 
over EUR 6 million.  The offsets can be reduced by a set formula if 
applied in specific areas such as technology transfer, R&D, 
education, IT and direct investments. 
 
Right to Private Ownership and Establishment 
 
¶24. Foreign and domestic private entities have the right to 
establish and own business enterprises and engage in all forms of 
remunerative activity in Slovakia.  Competitive equality is the 
standard by which private enterprises compete with public entities. 
 
In addition, businesses are able to contract directly with foreign 
entities.  Private enterprises are free to establish, acquire and 
dispose of business interests, but all Slovak obligations of 
liquidated companies must be paid before any remaining funds are 
transferred out of Slovakia.  Non-residents from EU and OECD member 
countries can acquire real estate for business premises.  For a 
transitional period of seven years starting May 1, 2004, foreign 
legal entities can buy agricultural and forestry land, as well as 
land in residential areas only if they establish a legally 
registered Slovak company. Since January 2004, there are no 
restrictions for Slovak residents on the purchase, exchange, and 
sale of real estate abroad. 
 
Protection of Property Rights 
 
¶25. Secured interests in property and contractual rights are 
recognized and enforced.  The mortgage market in Slovakia is 
growing, and a reliable system of recording such interests exists. 
However, titles to real property are often unclear and can take 
significant amounts of time to determine.  The GOS recognizes this 
problem and is taking steps to resolve it.  Unfortunately, legal 
decisions may still take years, thus limiting the utility of the 
system for dispute resolution. 
 
¶26. Slovak courts recognize and enforce foreign judgments, subject 
to the aforementioned delays, and the commercial code is applied 
consistently.  A new bankruptcy law adopted in 2006 has improved 
creditors' rights in bankruptcy cases.  The business community still 
considers corruption to be a significant factor in the court system. 
 
¶27. Protection of intellectual property rights (IPR) falls under the 
jurisdiction of two agencies.  The Industrial Property Office is 
responsible for most areas, and the Ministry of Culture is 
responsible for copyrights (including software).  Slovakia is a 
member of the World Trade Organization (WTO), the European Patent 
Organization and the World Intellectual Property Organization 
(WIPO).  The WTO TRIPS agreement is legally in force in Slovakia, 
but there have been no cases brought to test actual enforcement. 
Slovakia also adheres to other major intellectual property 
agreements including the Bern Convention for Protection of Literary 
and Artistic Works, the Paris Convention for Protection of 
Industrial Property, and numerous other international agreements on 
design classification, registration of goods, appellations of 
origin, patents, etc.  In general, patents, copyrights, trademarks 
and service marks, trade secrets, and semiconductor chip design 
appear adequately protected under Slovak law and practice. 
 
¶28. In 2006, Slovakia was taken off the Watch List of the U.S. Trade 
Representative's annual interagency "Special 301" review in 
recognition of the significant progress that the GOS has made in 
addressing concerns related to the protection of pharmaceutical 
patents in Slovakia.  First, the Slovak authorities have adopted 
legal and administrative measures to ensure that patent-infringing 
drugs are not given market authorization.  Second, the government 
has built a new secure facility to house confidential pharmaceutical 
test data. 
 
Transparency of Regulatory System 
 
¶29. In general, transparency and predictability have been 
problematic for many investors.  The process of obtaining residency 
permits for expatriate managers has been criticized for years as 
difficult and time-consuming.  New legislation, which came into 
effect in December 2005, addressed some but not all of the 
problematic areas. A new amendment to the law governing the stay of 
foreigners, effective from January 2007, introduced the EU directive 
562/2006 on "Schengen borders."  Investors have long complained that 
purchasing land and obtaining building permits are time-consuming 
and unpredictable processes, but improvements, including the 
recently- launched web portal (www.katasterportal.sk) which enables 
interested parties to verify information about land ownership 
online, have started to ease the process. Formerly, inconsistencies 
within the tax system had been a problem, but a major tax reform in 
2004 improved this situation.  Today, many observers consider 
Slovakia's flat rate tax system to be one of the simplest in Europe. 
 
¶30. The Commercial Code and the 1991 Economic Competition Act govern 
competition policy in Slovakia.  The Anti-Monopoly Office is 
responsible for preventing noncompetitive situations.  The newly 
amended Law on Public Procurement, valid from 2006, harmonized 
Slovak law with all relevant EU directives on public procurement. 
In the past, the Office of Public Procurement, the supervisory body 
for government procurements, has been embroiled in several 
controversial public tenders.  In 2005, about one third of public 
procurement contracts distributed by the central, regional and local 
governments in Slovakia were not supervised or audited by another 
state body, according to a study by corruption watchdog Transparency 
International Slovakia (TIS).  TIS reported that USD 1.2 billion of 
more than USD 3.5 billion in public orders were issued under public 
procurement act provisions that freed them from supervision. 
 
¶31. In 2006, the Slovak government contracted IBM to supply the 
Ministry of Transport, Posts and Telecommunications with USD 2.2 
million integrated system for electronic public tendering.  The aim 
is to make the execution of public procurement completely paperless. 
 The electronic tendering system supports the tendering cycle, from 
notifications to national and European agencies, to publication of 
tender documentation, enquiries, submission of binding offers, and 
evaluation of bids.  The project was successfully implemented in 
2007 and responsibilities for its administration were delegated to 
the Public Procurement Office as well as to Ministry of Finance. 
Nevertheless, concern about the transparency and integrity of public 
tenders is a subject of concern which has led to the dismissal of 
government ministers and to inquiries on the part of the European 
Commission. 
 
¶32. Foreign investors and foreign companies doing business in 
Slovakia have complained about the transparency of regulatory 
processes in several industries, and a number of regulatory bodies 
are considered by the business community to be less than fully 
independent.  Government pressure on regulators in the 
telecommunications and energy industries has resulted in the 
replacement of the directors and leadership of the Regulatory Office 
of Network Industries (URSO) and Telecommunications Office of the 
Slovak Republic. 
 
Efficient Capital Markets and Portfolio Investment 
 
¶33. After Slovakia joined the OECD, the export of capital and 
outward direct investment were liberalized to conform to 
international standards.  As of November 2008, the Slovak banking 
sector was composed of 16 banks (established and with permanent 
residency in Slovakia) and 10 licensed branches of foreign banks. 
Citibank is the only U.S. bank in Slovakia.  The sector is 
overwhelmingly foreign-owned.  Through November 2008, the assets of 
all Slovak banks totaled about USD 75 billion. 
 
¶34. Slovakia's stock market remains weak and unimportant in an 
international context.  Unless reforms in Slovakia's pension system 
boost domestic equity trading (NOTE: Newly-established pension 
administration companies are obliged by the law to invest at least 
30 percent of their assets in Slovakia), the domestic market has 
very limited prospects.  In 2001, the Bratislava Stock Exchange 
(BSSE) opened a floor for trading foreign securities in order to 
boost the market sentiment, but to date there has been little 
activity.  The BSSE's trading system enables it to organize 
securities trading in any currency and to structure stock exchanges 
with few restrictions.  When raising capital, Slovak companies 
usually float shares on the Vienna or Warsaw stock exchanges. 
 
¶35. At the mid-2008, the total number of issues on the BSSE was 338, 
of which 132 were bond issues.  Total market capitalization amounted 
to USD 24 billion, down 3.3 percent from the same period in 2007. 
The total volume traded in the first half of 2008 was USD 4.95 
billion (down almost 60 percent year on year), with 1.2 million 
units of securities changing owners in 1,930 transactions.  Over 99 
percent of this trading volume was bond transactions.  The stock 
index, SAX, closed the first half of 2008 down 1.77 percent from the 
end of 2007. 
 
Political Violence 
 
¶36. There have been no reports of politically motivated damage to 
property, and civil disturbances are extremely rare.  There has been 
no violence directed toward foreign-owned companies. 
 
Corruption 
 
¶37. In 1998, at the beginning of its first term, the Dzurinda 
government proclaimed the fight against corruption to be a priority. 
 In 2000, the GOS passed a national anti-corruption program. 
Subsequently, it appointed a corruption steering committee, amended 
the Criminal Code in attempts to strengthen law enforcement, 
approved a law modernizing public procurement, and enacted a strong 
Freedom of Information Act.  A special court and a special 
prosecutor for corruption and organized crime were established in 
¶2003.  Although attempts by the Justice Minister to eliminate the 
Special Court have been rebuffed by other government officials, 
including the Prime Minister, sympathetic parliamentarians have 
filed a petition with the Constitutional Court seeking a ruling on 
the Special Court's constitutionality.   A new law - stricter but 
still not sufficient - on conflict of interest came into force in 
October 2004.  A special committee of parliament supervises the 
implementation of the law, but has not sanctioned any official 
covered by the law for violation of conflict of interest rules since 
its inception.  Slovakia is also party to international treaties, 
among them the OECD Convention on Combating Bribery of Foreign 
Public Officials, UN Anti-Organized Crime Convention, UN 
Anti-Corruption Convention, Criminal Law Convention on Corruption 
and Civil Law Convention on Corruption.  Slovakia is a member of the 
Group of States against Corruption (GRECO). 
 
¶38. The press has taken an active role in reporting corruption, and 
public awareness has increased.  The Slovak chapter of Transparency 
International (TI) is active and monitors public tenders.  Slovakia 
is a signatory to the OECD Convention on Battling Bribery, and to 
give or accept bribes is a criminal act.  Slovakia ranked 52 on TI's 
2008 corruption perceptions index, down from 49 in 2007.  The index 
measures the perceived level of corruption in 163 countries. 
 
¶39. Non-governmental Organizations and the news media reported a 
growing number of corruption allegations during the course of 2008, 
including several allegedly involving senior members of the Slovak 
government.  .   In 2008, three government ministers were relieved 
of their posts because of concerns about non-transparent or inflated 
tenders or because of ethical violations.  The European Commission 
has sought explanations in the case of two controversial tenders and 
in the firing of the head of the telecommunications office. 
 
Bilateral Investment Agreements 
 
¶40. Slovakia has bilateral investment treaties with the following 
countries: Austria, Belgium, Bulgaria, Belarus, Canada, China, 
Croatia, Cuba, Denmark, Egypt, Finland, France, Germany, Greece, 
Hungary, Indonesia, Ireland, Israel, Italy, Lithuania, Luxembourg, 
Malta, Montenegro, the Netherlands, North Korea, Norway, Poland, 
Portugal, Romania, Russia, Serbia, Singapore, Slovenia, South Korea, 
Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, 
Ukraine, the United Kingdom, the U.S., and Uzbekistan.  Like other 
new EU members, Slovakia had to negotiate an amendment to its 
bilateral investment treaty with the U.S., because it was considered 
inconsistent with EU legislation.  The amended treaty entered into 
force on May 14, 2004. In November 2007, Slovakia signed a bilateral 
Science and Technology Agreement with the US. 
 
OPIC and Other Investment Insurance Programs 
 
¶41. The Overseas Private Investment Corporation (OPIC) offers U.S. 
investors in Slovakia insurance against political risk, 
expropriation of assets, damages due to political violence, and 
currency inconvertibility.  OPIC can provide specialized insurance 
coverage for certain contracting, exporting, licensing, and leasing 
transactions undertaken by U.S. investors in Slovakia.  Slovakia is 
a Member of the Multilateral Investment Guarantee Agency (MIGA). 
 
¶42. The U.S. Embassy purchases local currency at a rate generated by 
the Department of State and the current rate (January 2008) is EUR 
0.77 / USD 1.00.  The Embassy expects to convert roughly USD 8 
million during fiscal year 2009.  In view of the high volatility of 
currency markets during the course of 2008, analysts' predictions 
for 2009 show a weak consensus for some depreciation of the euro. 
 
Labor 
 
¶43. The government of Robert Fico delivered on its pre-election 
promises and amended the Labor Code in 2007, providing more 
protection for employees on the issues of working hours and safety, 
and strengthening the role of unions. The final compromise 
legislation did not contain many of the more controversial proposals 
from the original draft, including limitation of overtime hours, 
limits on independent contractors, and doubling of sick leave 
allowances. 
 
¶44. Slovakia's workforce of more than two million has a strong 
tradition in engineering and mechanical production.  Literacy in 
Slovakia is almost universal (more than 99 percent), and most 
workers are highly educated and technically skilled.  Foreign 
companies frequently praise the motivation and abilities of younger 
workers, who also often have good foreign language and computer 
skills.  However, older workers often have poor foreign language and 
managerial skills.  Slovaks have a reputation for being technically 
skilled, particularly in heavy industry.  Education levels match or 
exceed neighboring countries; with nearly 86 percent of Slovaks aged 
25-64 having at least a high school education.  According to the 
World Bank's Student Learning Assessment Database, Slovaks outscored 
all other central and eastern European students in math and placed 
third (behind Hungary and the Czech Republic) in sciences. 
 
¶45. At just EUR 9,216 per employee (approx. USD 11,520), Slovakia 
had the second lowest remuneration costs in the EU in 2006, 
according to a survey by Deloitte and Touche published in early 
¶2007.  Employer costs for employees in the Slovak economy 
represented only 18.3 percent of that in Germany.  The survey takes 
into account tax and social security costs as well as average 
earnings.  Of the 10 new EU members, only Latvia was cheaper for 
employers than Slovakia with remuneration levels of USD 6,405. 
Total hourly labor costs in Slovakia rose at an annual rate of 7.1 
percent in the third quarter of 2007. According to figures released 
by Eurostat, the statistical office of the EU, indirect costs, which 
include employers' contributions to social and health-insurance 
funds and employees' personal income tax grew 7 percent, while 
direct wage costs on net wages rose 7.2 percent. 
 
¶46. The unemployment rate hovered around 20 percent as recently as 
five years ago, but has declined to a range between 7-8 percent due 
to strong economic growth, entry to the EU, and stricter policies on 
qualifying for unemployment benefits.  However, there are extensive 
regional variations in unemployment rates across country, with a 
rate of less than three percent in Bratislava but up to 25 percent 
in some parts of eastern Slovakia. 
 
¶47. After the latest amendments to Labor Code in April 2007, the 
workweek is standardized at 40 hours, and the overtime allowance was 
decreased to 100 hours per year, pending an agreement between 
employers and employees. Despite these recent legislative changes, 
Slovakia remains one of the most liberal economies in Europe.  In 
October 2007, the minimum wage was set at SKK 8,100 (approx. USD 
338) per month.  Wages have been rising since 2004 following the 
country's accession to the EU and because of increasing demand for 
labor brought on by growing levels of FDI.  A new law on minimum 
wage, taking effect at the beginning of 2009, will introduce a more 
regular review of minimum wage, indexed to overall wage growth. 
Slovak social insurance is compulsory and includes a health 
allowance, unemployment insurance, and pension insurance.  The 
ceiling on social insurance payments affecting both employers and 
employees was increased under legislation passed in 2007. 
 
¶48. Union membership has been on the decline in recent years. 
According to the Confederation of Labor Unions, 21 percent of the 
total Slovak workforce belongs to trade unions.  In 2007 the Fico 
government re-instituted the so-called "tripartite arrangement," a 
discussion platform consisting of state representatives,  labor 
unions and the employers' association.  The unions generally have 
been tolerant of the costs imposed on labor by economic 
transformation, but union leadership has remained politically 
engaged and is active among its membership.  Before parliamentary 
elections in 2006, the Confederation of Labor Unions signed an 
agreement on cooperation with Smer, now the government's leading 
coalition leader, which led to the changes to the Labor Code in 
¶2007.  Slovakia is a member of the International Labor Organization 
and adheres to its Convention Protecting Worker Rights. 
 
Foreign-Trade Zones/Free Trade Zones 
 
¶49. Foreign trade zones or free ports were eliminated in Slovakia in 
¶2006. 
 
Foreign Direct Investment Statistics 
 
¶50. The cumulative level of FDI has risen sharply from USD 2.1 
billion at the start of 1999 to around USD 18.45 billion at the end 
2006, with inflows of USD 2.16 billion in 2000, USD 1.27 billion in 
2001, USD 4.1 billion in 2002, USD 1.1 billion in 2003, USD 1.1 
billion in 2004, 713 million in 2005, USD 2.070billion in 2006 and 
USD 1.1 billion in 2007.  Initially the majority of FDI was 
generated through privatization sales, but since 2003 most FDI has 
been in the form of new development. 
 
¶51. Through of the end of 2007, the leading portion of foreign 
investment went to the financial industry (with 36 percent of the 
total), followed by real estate (26 percent), industrial production 
(26 percent), and wholesale/retail trade (11 percent). According to 
the Slovak official statistics, Austria was the lead foreign 
investor in 2007, followed by Cyprus, Czech Republic, Netherlands, 
South Korea, Germany, France, Denmark, Belgium Hungary, U.S., and 
Italy.  However, it should be noted that the GOS credits numerous 
U.S. investments to other countries if the investments came through 
the investors' foreign subsidiaries.  For example, the U.S. Steel 
investment came in part from its subsidiary in the Netherlands, and 
therefore the GOS considers it to be a Dutch investment.  A 2008 
survey conducted by the U.S. Embassy shows U.S. investment in 
Slovakia at about USD 4 billion in current and future commitments, 
making the U.S. approximately the third leading foreign investor in 
Slovakia.  According to the GOS, the Bratislava region absorbed the 
most FDI in 2007, followed by the Trencin and Zilina regions. 
 
¶52. The largest U.S. investor in Slovakia is U.S. Steel, which 
acquired the core assets of the state-owned steel mill in Kosice. 
Together with its future commitments, U.S. Steel will have invested 
more than USD 1.2 billion in Slovakia, and it employs roughly 14,000 
people.  Whirlpool has invested over USD 100 million in Slovakia, 
employs more than 1,200 people and produces 2 million washing 
machines annually, making its local unit the largest appliance 
producer in Europe.  Several other American companies already have 
substantial investments in Slovakia, such as Emerson Electric, Tower 
Automotive, Delphi, Johnson Controls, Lear, ON Semiconductor, 
Citibank, IBM, Molex, TRW, Visteon, AT&T, and Dell.  The U.S. 
Commercial Service reports that there are over 120 U.S. companies 
present in Slovakia.  Other large foreign investors in Slovakia 
include Volkswagen, Hyundai Kia, Peugeot Citroen, Samsung, Getrag 
Ford, Deutsche Telecom, Ruhrgas, Intesa BCI, UniCredito, Raiffeisen 
Group, Enel and Siemens. 
 
Web Resources 
 
¶53. National Bank of Slovakia www.nbs.sk 
Center for Economic and Social Analyses www.mesa10.sk 
Ministry of Economy of Slovak Republic www.economy.gov.sk 
Ing. Slovakia www.ingfn.sk 
The Slovak Republic Government Office www.government.gov.sk 
Ministry of Finance of Slovak Republic www.finance.gov.sk 
OECD www.oecd.org 
International Monetary Fund www.imf.org 
 
EDDINS