The region's tiger economy... potentially

In August 2010, Slovak economy minister Juraj Miškov announced plans to eliminate red tape and relax the labour laws. "We want to reverse all measures that have worsened the business environment," asserted the former Saatchi & Saatchi executive. "We will be able to brand Slovakia as the Singapore of Central and Eastern Europe." In the government's mind was the fact that, according to the World Bank, the Asian tiger was the best place in the world to do business in 2009, while Slovakia had slipped seven places to 42nd since the previous year. Could Slovakia, it was put to the panellists at Eurobuild's 3rd 'Executive Talks' evening debate, be the CEE region's very own Singapore? "To some extent it already is," claimed Andrew Thompson of Cushman & Wakefield. "Last year GDP growth approached 4 pct, the banks are in good condition and inflation is reasonable. Unfortunately the downside is high unemployment." "Slovakia has a commendable recent history of political and economic innovation," asserted Hugh Owen of Allen & Overy. "Many see the country almost as a crucible, used not in in experimental way exactly, but as a place to try out innovative and advanced ideas and then roll them out elsewhere," he said, citing its pioneering implementation of the flat tax as an example. "Obviously the problem the current government has, being a four-party coalition, is that it's got to fight to hold itself together." So how is the government doing on its 'Singapore pledge' to cut 100 pieces of red tape and relax the labour laws? Not well enough, according to Miroslav Hladký of Tatra Banka. "Reforms to the labour market are taking too long. Nothing has yet been implemented. Reforms would increase purchasing power, which is exactly what Slovakia needs," he added, expressing a sentiment dear to lenders' hearts across the globe. Slavomir Jankovič of HB Reavis declared a healthy scepticism. "I don't want to be too pessimistic, but, learning from the past, I think it's very ambitious. I will watch (the government's progress) carefully."

Breathtaking beauty, "execrable" service
Every country tries to attract visitors from around the world and Slovakia is no exception. There seems to be a long way to go, however, until the country is even halfway ready to fulfil its potential on this front, an opinion seemingly held by Slovaks and foreigners alike, judging by comments made during and after the discussion. The country's tourism situation could perhaps best be summed up by a Frenchwoman who had, by way of comment on a tourism website, praised the breathtaking natural beauty of the High Tatras before damning the welcome given her by the locals as "execrable". Slavomir Jankovič cited the example of the recent ice hockey world championships to highlight the shortfalls: "Expectations were enormous but they weren't fulfilled. Quite simply, the service is not good. There's talk about customer service, but we're not doing it," he said, contrasting this with his positive experiences in neighbouring Austria. Stanislav Rusinko, responsible for tourism in the Ministry of Transport, Construction and Regional Development, acknowledged the problem, saying: "You're exactly right. And the reason why so many things didn't work was that there was no coordination." This problem, he stressed, is currently being addressed as a priority. "We have a new piece of legislation pending and under this a destination management system is being created. We're focusing on bringing local authorities and the private sector together, with subscription fees and state contributions, in order to ensure a sustainable financial vehicle, while also improving communication between tourism stakeholders at local, regional and national levels. We're educating people about what's required. Not so much the older generation, but younger people," adding that the frosty service often meted out to tourists is one of communism's more durable legacies. The tourism issue engendered a great deal of discussion, with Hugh Owen declaring that citing education as a solution was a "challenging and very long-term" way of looking at it, arguing that 'easy wins' such as tourist information points in various strategic locations would produce quicker and more visible benefits.

One of the country's perennial debates is about whether Slovakia's economy is too reliant on the automotive industry. This is a complex issue but, as Hugh Owen pointed out, it's a "problem" the country should be happy about, giving it somewhat short shrift. "Were we going to tell KIA that we were uncomfortable having them invest because we're going to become too dependent on them? At the end of the day the strong automotive sector is a good thing and it's what we have." Amen.

Land, land everywhere...
But no available warehouse space
The focus of the discussion then moved to the real estate market. According to Andrew Thompson, the office sector is in robust shape, with a "healthy" 10 pct vacancy rate. "In Bratislava last year there was 150,000 sqm of take-up, mostly new. In Prague it was about 200,000 sqm, but half of that was re-negotiations, so there seems to be more activity here in Bratislava than in Prague, which is kind of unbelievable." The retail market, he said, has suffered somewhat from oversupply and poor local authority decisions, but he believes that consumer spending will in due course redress the imbalance. After a long period of inactivity the investment market is re-awakening, he claimed: "I've been involved in two investment deals in the past couple of weeks, so it's actively changing." It was over the warehouse market that the juices started flowing when Allen Koppens of DHL, who was in the audience, complained bitterly that he couldn't find the required warehouse space for his clients' needs. "We represent small companies, big companies, blue chip companies, but we have to scratch together a few thousand sqm here, a few there. There just isn't enough space for our rapidly expanding requirements," he said, adding that he knows many companies that have the same experience. 'Eurobuild CEE' asked Prologis, which operates across the region, to comment on this, to which the company's CEE managing director, Ben Bannatyne, responded by email: "After a strong 2010 we continue to see healthy demand for logistics and warehouse facilities across Slovakia but particularly around Bratislava. Whilst there is a small amount of vacancy in the market, for larger requirements in excess of 10,000 sqm there is nothing available. We are also being approached by a number of our existing customers who are looking to expand their current facilities. A lot of interest is being driven by retailers, the automotive and electronics industry and their suppliers," he wrote, adding that the developer's new 17,000 sqm project, under construction, is already fully pre-leased. There is clearly a lot more to this topic, but unfortunately space in this article, as in the Slovakian warehouse market, is in short supply.

No real estate panel discussion of the last couple of years is complete without a slight fracas over bank financing, or the perceived lack of it. Andrew Thompson felt that the banks, especially Slovak ones, are guilty of being too tight. Slavomir Jankovič testified that even a developer with a successful track record like HB Reavis hadn't found it easy to secure financing, but that banks were once again more open, albeit at less favourable terms than in the past. Miroslav Hladký said that the situation in the property market since the crisis had been somewhat uncertain, so the banks had a right to be cautious, although they were financing projects "on a case-by-case" basis. Hugh Owen pointed out that lack of caution was what got banks into trouble in the first place, adding that a new real estate boom was not what the economy wanted. Slovakia is a country sometimes seen - not least by itself - as being overshadowed by its larger regional neighbours. Yet it seems to have a pragmatic dynamism and innovative spirit which, while being less overt than Poland's, for example, is perhaps steadier and better-organised, and ultimately much stronger than the stifling but declining forces of traditional vested self-interest which until recently seemed to be re-asserting their grip on the country, not to mention the long years of communist rule. The potential is clearly there for Slovakia to be the region's 'Singapore'. But to achieve this it will have to solve its unemployment problem - and it wouldn't hurt to have two or three less coalition partners in government.

Richard Stephens