Vladimir Zlacky: FDI facts and medium term outlook for SlovakiaConference 23rd November

FDI facts and medium term outlook for SlovakiaVladimir ZlackýChief EconomistBratislava, 29 November 2011

Some Facts About Foreign Direct Investment2

Total stock of FDI / GDP comparable to other CEE countries 120 FDI STOCK (% of GDP, 2009) 100 80 60 40 20 0 PL RO SK CZ HU BG Total stock of FDI in Slovakia at 58% of GDP i.e. foreign investments worth almost EUR 35 bn came into Slovakia over the last twenty years Source: Eurostat3

Slovakia has a strong record in attracting FDI 18,0% 16,9% FDI (% GDP) 16,0% 14,0% 12,0% 10,0% 8,4% 8,0% 6,9% 6,0% 5,1% 4,8% 5,0% ??? 4,0% 2,5% 1,7% 2,0% 0,6% 0,9% -0,1% 0,0% -2,0% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 1H 2011A Due to a favorable relationship between labor cost and productivity, Slovakia has a strong record of attracting FDI Recent slow-down in FDI inflow to be addressed via reform efforts Source: UniCredit Bank, EUROSTAT, NBS4

Manufacturing and financial sector attracted most FDI FDI stock by sectors (bn. EUR, 2008) 3,5 14 3 2,5 12 2 1,5 10 1 8 0,5 0 Transport Basic Refinery Machinery Chemicals Food Plast & Wood & Electrical Textile Other man. 6 eq. metals Rubber Priniting eq. 4 2 0 Financial Interm. Manufacturing Hotels & Rest. Business Services Communication Construction Agriculture Utilities Other Services Real Estate Transport&Storage Mining Trade5

Apart from NL, Germany and Austria invested most Other FDI by country (bn. EUR, 2009, stock) 17,7% NL 9 FR 27,7% 3,2% 8 CY 3,4% 7 IT 5,7% 6 CZ 5,9% DE 5 HU 15,5% 6,5% AT 4 14,4% 3 2 1 0 NL DE AT HU CZ IT CY FR BE LU KR US GB BR CH Other6

Will Slovakia remain competitive in the medium-term ? Three main reasons why the answer is YES: Sound macroeconomic environment Strong micro-foundations of the economy Reasonable likelihood of continued reform efforts7

Sound Macroeconomic Environment8

Slovakia a top growth performer of the past decade Index 2000=100 CAGR 2000-2010 Slovakia 159,7 4,8% Lithuania 153,3 4,4% Romania 149,2 4,1% Bulgaria 148,8 4,1% Poland 146,4 3,9% Estonia 145,9 3,8% Latvia 143,2 3,7% Czech Republic 136,9 3,2% Luxembourg 135,1 3,1% Cyprus 132,1 2,8% Due to structural reforms and forces of convergence, Slovak economy was the fastest growing one in the EU(27) in the past decade with the average annual growth rate of 4.8% Source: UniCredit Bank, EUROSTAT9

Macroeconomic outlook is positive UniCredit Bank ako č Chapter Section Title UniCrChapter Title – len skupiny UniCredit 2010 2011 2012 2013 2014 2015 2016 GDP bn EUR 65,9 69,0 71,2 74,8 79,8 85,3 91,0 GDP real growth, % 4,2% 2,9% 1,9% 3,4% 4,7% 4,6% 4,5% CPI avg, % 1,0% 3,9% 2,5% 3,0% 3,3% 3,5% 3,5% Unemployment avg, % 14,4% 13,3% 13,4% 13,2% 12,6% 12,2% 12,1% Government debt, % GDP 41,0% 44,2% 47,6% 48,2% 48,1% 48,1% 47,0% Current Account, % GDP -3,5% -1,4% -0,9% -0,8% -0,8% -0,7% -0,7% This year the economy will grow by about 2.9% After a slowdown in 2H11 and 2012, the economy should accelerate to about 3-4% annual growth Slovakia poised to grow much faster than most Eurozone countries Source: UniCredit Bank, EUROSTAT, NBS, SO SR10

Slovakia compares favourably in gov debt/ GDP (%) UniCredit Bank ako č Chapter Section Title UniCrChapter Title – len skupiny UniCredit 160 143 Government debt (2010, % GDP) 140 119 120 97 96 100 93 85 83 82 80 80 80 80 72 68 63 61 55 60 60 48 45 44 41 40 39 38 38 40 31 18 16 20 7 0 CY IT HU RO SI FI EU27 LT CZ MT AT PT NL UK IE LU FR GR BG PL EA17 EE SE SK DK LV ES DE BE In the current difficult market environment, the markets look particularly favorably on a low government indebtedness Slovakia’s government debt to GDP is well below 60% Source: UniCredit Bank, EUROSTAT11

Slovakia enjoys a good standing on the financial markets UniCredit Bank ako č Chapter Section Title UniCrChapter Title – len skupiny UniCredit 2500 2000 1500 1000 500 0 GR PT IE IT ES SK Compared to PIIGS countries Slovakia commands much lower spread vis-à-vis German bunds This testifies to a relatively favorable risk profile of the country Source: UniCredit Bank, Bloomberg12

Fiscal consolidation program 2008 2009 2010 2011 2012 2013 2014 Government deficit (% GDP) -2,1 -8 -7,9 -5,1 -4,7 -2,9 -3 Government Debt (% GDP) 27,8 35,4 41,0 44,2 47,6 48,2 48,1 After two years of overspending (2009-10), the current and any future government likely to undertake fiscal consolidation The main objective is to bring public finance deficit below 3% GDP in 2013 A new constitutional law should introduce a debt ceiling of 60/50% GDP and an independent fiscal council The new law should reduce a room for future fiscal excesses Source: UniCredit Bank, MF SR13

Strong micro-foundations of the economy14

Favorable relationship between labor cost and productivity 70 61 60 50 50% 40 tis. EUR 35 31 30 64% 20 13 10 0 DE SK DE SK Labour costs Labour productivity Slovakia is a fundamentally attractive place to invest – Slovak workers are relatively productive (50% GER) but cost little (36% of GER) Note: Labour costs – compensations per employee, Labour productivity – GDP per employment Source: UniCredit Bank, EUROSTAT15

Slovakia has a competitive labor code Employment protection index - OECD 2008 4,0 3,5 Stricter regulations 3,0 2,5 OECD average - 2008 2,0 1,5 1,0 0,5 0,0 G R LU X S -n K K ON SK N R PRA R H L AU L C A G N SWw C N BEA N U FRC JP L D L BR CHN E -2 LD TU X T ES T SK D E POE M P AU L 1 IR IS Z 01 S N E IT O Z U R FI A E o N U After a reform of the labor code in 2011, Slovakia has top 10 most competitive labor codes in OECD Source: UniCredit Bank, MF SR16

All-in labor costs still relatively competitive 3 500 2918 3 000 2 500 2 000 1 500 1277 1022 1061 891 1 000 648 500 423 0 BG RO PL HU SK CZ DE In the run-up to the euro, labor costs increased in Slovakia but still largely competitive with Hungary and the Czech Republic, much less than in Germany Note: Labour costs – compensations per employee Source: UniCredit Bank, Eurostat17

Continued reform efforts18

Slovakia has a track-record of being a reformist country Fiscal consolidation – necessary to bring the public finance on a sustainable footing Labor code – to increase labor market flexibility Pension reform – parametric changes to make it automatically immune to worsening demographic outlook Project Singapore – complex program to improve the business environment Knowledge-based economy – any government should make progress here19

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Vladimir Zlacky: FDI facts and medium term outlook for SlovakiaConference 23rd November

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Vladimir Zlacky: FDI facts and medium term outlook for SlovakiaConference 23rd November — Presentation Transcript