Slovakia’s push to become an automotive manufacturing center has been a spectacular success. But delivering on promises made to help it win new investment is tougher.
The Slovak government consciously chose to target automotive investment as a long-term replacement for its dying heavy armaments industry. In recent years, that has paid off extremely well.
The Volkswagen vehicle and transmission assembly complex near Bratislava keeps growing. Two large, new assembly plants are due to open next year: PSA/Peugeot-Citroen’s in Trnava and Kia’s in Zilina. In addition, Korea’s Hankook Tires plans to build a tire factory in central Slovakia.
Slovakia’s VUB Bank estimates that VW, PSA and Kia will have combined production of 800,000 cars annually within three years. That would make Slovakia the world’s largest per-capita automaking country, its 5.4 million population building 149 cars per 1,000 inhabitants. But estimates keep rising (See box).
Both Poland and the Czech Republic protested after losing the Kia plant project, saying that what Slovak officials offered exceeded EU limits on government incentives. Slovakia argues it was not yet in the EU when the offer was made.
But the country is behind schedule with roads and land acquisition commitments it made to win the projects.
Acquiring the land at the Zilina site has been a political debacle for federal and local governments, a boon for opposition parties in parliament – and a tiny windfall for landowners who didn’t sell immediately.
Last month, the government was forced to pay more than double the original offer for the remaining plots at the factory site, agreeing to give the remaining landowners 350 Slovak crowns (about E9) a square meter, up from 148 crowns.
The government will lease the plant site to Kia for 99 years, Kia spokesman Dusan Dvorak said.
“Now the problem is the land for the infrastructure,” Dvorak said.
On May 23, Slovakia started work on a bypass road and railroad spur line between the plant and Zilina. It still must buy 30 percent of this land.
Still to come are the highways linking plants with their suppliers. For Kia, this is critical. The road linking its isolated mountainous site 180km northeast of Bratislava narrows to a winding two-lane road 45km away from Zilina.
Slovak economic minister Pavol Rusko promised Kia the remaining link of road would be completed when the factory opens in November 2006. He also promised Hankook Tires a new road between Bratislava and Ledece by 2007.
But the minister of transportation says the Kia road will be late and Hankook’s road will be a lower grade than originally promised.
The delays have hurt Zilina’s economy, says Mayor Jan Slota. Several major Kia suppliers decided to avoid Zilina entirely and locate instead near Trnava to ensure their suppliers can reach them, he said.
Kia says the plant will still open in late 2006 despite the delays.
“The press shop has been built on Kia land from the beginning,” Dvorak said. “We should be on schedule by autumn.”
Competing for workers
In Trnava, PSA will start production in January 2006. Its first cars will be based on the small-segment Platform 1, used for the Citroen C2 and C3, the Peugeot 1007 and the 206 replacement.
Only 40km northeast of Bratislava, PSA uses many of VW’s Bratislava-based suppliers and competes for the same work force.
With two automakers moving in, total auto sector employment will jump within four years to 100,000 people from 55,000, says SARIO, the Slovak foreign investment agency.
Says VUB Bank economist Zdenko Stefanides: “There is no shortage, but the skills need to be created. Industry wants to create partnerships.”
PSA is leading this process with its Trades Campus program. The E39 million technical training program uses French teaching modules and instructors and will train 50 Slovak teachers. Designed initially for PSA’s 3,500 employees, it will be extended to PSA suppliers.
Such programs reflect structural changes made ahead of EU membership, Stefanides says.
“We have had flat tax rates for a year and changes in the labor code make it more suitable for employers,” he said. “And there will be more infrastructure, like the highway for the Hankook factory.”