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CEE and CIS / Slovakia

The state of play: FDI in Slovakia

FDI flows into Slovakia had been impressive until the Covid-19 pandemic hit. Now, with its well-regarded manufacturing base affected by lockdowns, the country's future looks more uncertain.

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Zuzana Caputova became Slovakia’s first female president in 2019. Early signs are that she will veer away from the more populist rhetoric of many of her central and eastern European counterparts, which would be encouraging for FDI. (Photo by Joe Klamar/AFP via Getty Images)

Slovakia is part of the ‘Visegrád group’ – which includes the Czech Republic, Poland and Hungary – and was the only member of the group to see its foreign direct investment (FDI) rise in 2019, according to the UN Conference for Trade and Development 2020 World Investment Report.

The report shows a significant increase in FDI inflows for the country, from $1.1bn in 2018 to $2.5bn in 2019. This momentum has been curtailed, however, with Covid-19 threatening one of the country’s key sectors. Slovakia’s manufacturing industry (which centres upon the automotive, chemical and electrical sectors) has suffered in 2020. At the onset of the pandemic in March, manufacturing production had decreased by -21.4%, and by April it had hit an all-time low of -47.5%, according to figures from Trading Economics.

Alongside this, FDI stocks in Slovakia in 2020 plummeted to -$641m in June, before recovering to $57.8m in July. Slovakia’s recovery will depend heavily on how quickly its European neighbours manage to stabilise their economies, as the Netherlands, Austria, Germany and the Czech Republic are all key source markets for the country’s FDI.

Slovakia’s improving FDI environment

More positive for the country is the manner in which its scores are improving across a number of rankings. IMD’s Smart City Index 2020 ranks capital city Bratislava in 77th position, up eight places from 2019. The city also experienced an uptake in leasing activity earlier in 2020, along with the rest of the country. In the second quarter of 2020, real estate investment in Slovakia’s industrial sector reached almost 120,000m², with most of the demand coming from distribution and e-commerce subsectors.

Furthermore, Slovakia also moved two places up the IMD 2020 World Talent Ranking to 57th.

Not all rankings of the country have been positive, however. The World Bank’s 2020 Doing Business report saw it move down three places from the previous year to 45th position.

Slovakia has a few reputational barriers to overcome in a bid to remain attractive to investors. The European Council has urged the country to crack down harder on money laundering. Corruption issues are also prominent within the country, and in the 2019 election, the Ordinary People party gained 25% of the vote after campaigning with the message ‘Together against the mafia’.

Zuzana Caputova was elected as the first female president of Slovakia in the elections, representing a shift from the right-leaning populist tendencies seen elsewhere in central and eastern Europe. This, combined with the rise of the Ordinary People party, could indicate a will to overcome corruption, which would do the country no harm when it comes to attracting investment.

Ruth Strachan

Ruth Strachan

Senior reporter

Ruth Strachan is a senior reporter at Investment Monitor after joining New Statesman Media Group from the Financial Times.