Foreign direct investment (FDI) in Slovakia

FDI in Figures

According to the latest data published by the OECD, FDI inflows went from USD -8.29 billion in the first half of 2020 to USD -4.03 billion in the same period for 2021. The 2008-2009 fall in international investment and the subsequent Eurozone crisis have had an impact on Slovakia and continue to weigh on foreign investment flows bound for the country. This was compounded by the negative effect of the pandemic. Given that a very large share of Slovakia's FDI directly depends on the Eurozone, the country is dependent on the economic health of its European neighbours, especially Germany and France, and is sensitive to regional tensions (the Russia-Ukraine conflict). According to data by OECD, the main investing countries in Slovakia are the Netherlands, Czech Republic, Austria and Germany. As per sectors of activity, manufacturing and industrial production, financial and insurance services, wholesale and retail are those that attract the most investments. The latest figures from OECD show that FDI inflows were negative by USD 403 million in the first half of 2021, compared to an outflow of USD 213 million registered in the same period one year earlier.
 
Slovakia is an attractive FDI destination due to a relatively low-cost yet skilled labour force, and a favourable geographic location in the heart of Central Europe. However, some regions have failed to attract major investment, which has aggravated regional disparities in many economic and social areas. The overall outlook for public and private investment is favourable, but the ongoing global crisis may pose some risks (especially for the manufacturing sector, which attracts most of FDIs to the country). Recent increases in corporate taxes, changes to the Labour Code, slow dispute resolution as well as recurring corruption issues are the factors that can undermine the attractiveness of the Slovak market. Slovakia ranks 45th out of 190 economies in terms of ease of doing business, according to the latest Doing Business report by the World Bank (losing three positions compared to the previous year). In March 2021, Slovakia introduced an investment screening mechanism whereby any acquisition of more than 10% of shares or voting rights in a critical infrastructure operation can be reviewed for possible disruption of public order or national security. The governmental power to block acquisitions applies to a list of sectors that includes transport, ICT, energy, mining, postal services, pharmaceuticals and chemicals, metallurgy, health care, water, finance and agriculture (UNCTAD, 2021).

What to consider if you invest in Slovakia

Strong Points

The main assets of the country are:

• Strong political stability and good international relations reinforced by the country's accession to the European Union
• A strategic geographical location in the heart of Europe
• A qualified and low-cost workforce
• Strong growth (Coface forecasts a 4.3% growth rate in 2021)
• The adoption of the euro since 1 January 2009, which has made it possible to eliminate the risks associated with the exchange rate and to strengthen an already strong banking system
• Public and external accounts maintained at the correct levels
• A positive and very attractive business environment for foreign investors, including a favourable tax system and the existence of numerous foreign investment grants (which can range from 20 to 50% of investment costs depending on the project)
• Among the most export-oriented and open economies in the EU, with the highest trade integration in the single market for goods

Weak Points

The main weak points of the country are:

• High dependence of the economy on the automotive sector and export performance
• Important technical and administrative barriers: requirement of import licenses especially for raw materials, energy and some agricultural products
• High energy costs: Slovakia must import 90% of its energy needs.
• Deficient infrastructure. Although governmental reforms have been set up, the infrastructure is not yet well developed and the country has no access to the sea.
• The small size of its domestic market with a population that has low purchasing power
• Complicated access to the labour market with a qualified labour shortage and high levels of long-term unemployment (6.7% unemployment in 2020 - National Statistics Office of Slovakia).

Government Measures to Motivate or Restrict FDI

The Slovak government encourages foreign investment since it is one of the driving forces of the economy. It has also established financial incentives such as tax credits and subsidy systems. These aids are granted depending on the type of project, geographical location and the sector of activity.

The country's low tax rate is one of the key elements that attract FDI. A 21% corporate tax rate is applied, except for small companies with a turnover of less than €100,000, for which the tax rate was reduced in 2020 to 15%. Slovakia also benefits from European financial aids and many investors can benefit from participating in the country's large renovation and modernisation projects.

Foreign nationals can acquire real estate without restrictions. Slovakia ranks 8th out of 190 countries on the World Bank's Doing Business 2020 property registration indicator, with an average of 16.5 days to register a property, compared to an average of 23.6 days for high-income OECD countries.

Bilateral investment conventions signed by Slovakia

Slovakia has signed 63 bilateral investment treaties. For more detail, consult the Slovakia page - UNCTAD Investment Policy Hub.