FREE ESSAY ON SLOVAKIA ECONOMIC ANALYSIS

SLOVAKIA ECONOMIC ANALYSIS

Country: Slovak Republic 
Formation of the Slovak Republic
The Slovak Republic, or Slovakia, is located in Eastern Europe with a population of 5.4
million people and borders the countries of Poland, Austria, the Ukraine, and the Czech
Republic (The World Bank). As originally part of the former nation of Czechoslovakia, the
Slovak Republic has only recently begun to write its own history (Abizadeh, p. 171). 
During 1989 many revolts took place against eastern European governments under communism,
including Czechoslovakia (Slovakia.Org, "20th Century"). Both Slovaks and Czechs staged
massive protests against communism in Czechoslovakia and ended the communist regime in
November 1989 (Slovakia.Org, "20th Century"). Under the new non-communist system of
government, the two republics of Czechoslovakia were established: the Slovak Republic and
the Czech Republic (Embassy of the Slovak Republic). In June 1990, with the federal and
republic-level governments in place, free elections were held for the first time in the
country since 1946 (Slovakia.Org, "20th Century"). 
The main concern of the new government was the transformation of Czechoslovakia from a
state-controlled to a free market economy (Embassy of the Slovak Republic). Disputes
arose between the two republics about reform process which focused on privatization, the
encouragement of foreign investment, policy of macro-economic stabilization, price
liberalization, and liberalization of foreign trade (Slovakia.Org, "20th Century"). The
Czech Republic was more economically developed than the industrial-based economy of
Slovakia (Slovakia.Org, "20th Century"). The transition to a market economy left the
Slovak Republic to endure greater economic hardships than the Czech Republic
(Sovakia.Org, "20th Century"). For example, the federal government chose to dramatically
cut the country's defense industry, resulting in a large decrease in industrial
production and a large rise in unemployment in Slovakia (Slovakia.Org, "Slovak Economy").
This took place because the economy that rose out of the communist era in Slovakia was
based on industrial production, particularly on weapons and military equipment
(Slovakia.Org, "Slovak Economy"). 
There was a great difference of opinions between the Slovaks and Czechs about the nature
and pace of economic reform in Czechoslovakia (Slovakia.Org, "20th Century"). The
disagreements delayed the reform process and also the acceptance of a new constitution
(Slovakia.Org, "20th Century"). It became obvious that the current form of government
could meet the demands of both republics. As a result, Slovakia declared its sovereignty
in July 1992, in other words, its laws took higher priority than those of the federal
government (Slovakia.Org, "20th Century"). During November the federal parliament chose
to officially break up the country, and on January 1 1993, the Slovak and Czech Republic
replaced the Czechoslovakia as two independent countries (Abizadeh, p. 171). 
Recent Growth levels of the Slovak Economy
The economic problems that began in the early 1990s still plagued Slovakia after it
claimed independence in 1993 (Abizadeh, p. 172). After its first year of independence
Slovakia's economy was in poor shape with a negative GDP growth of 3.7%, and inflation
rate of 25.1%, and an increasing unemployment rate of 14.4% (National Bank of Slovakia).
Overall, gross domestic product in Slovak Republic decreased a substantial 23.7% during
the years 1990 to 1993. Through a slow reform process, however, positive macro-economic
results have been accomplished over the recent years (Slovakia.Org, "Slovak Economy").
GDP growth has been positive since 1993 and recorded an annual growth of 4.4% in 1998
(The World Bank). Slovakia's 1998 GDP per capita of 3,832 USD was very competitive with
other central European countries (Embassy of the Slovak Republic). The budget deficit has
been brought under control, and at the beginning of 1999, the inflation rate of 5.6% was
the lowest among all transition economies (Embassy of the Slovak Republic). The decline
in the inflation rate was due to developments in the capital markets and the banking
sector, a decrease in food prices, price deregulation, and lower producer prices
(Abizadeh, p. 172). Unemployment, on the other hand, is still a major problem in the
Slovak republic. Since the end of the communist regime the rate of unemployment has been
10% or higher with no signs of improvement (Slovakia.Org, "Slovak Economy"). Unemployment
is related to the consistent regional disparities and the "inevitable" restructuring of
large companies (Embassy of the Slovak Republic). The most important part for Slovakia to
convert to a market economy is to continue privatization of state-owned businesses and
capital formation within the country (Abizadeh, p. 171). 
Although the privatization of small firms is complete, this sector still faces challenges
such as government policy that favors large enterprises, obtaining financing at
affordable interest rates, and an increase in corruption and organized crime (Tradeport).
The privatization of large enterprises has also begun. Two major banks have been recently
declared available for privatization (Tradeport). A government policy has also been
approved that will allow the privatization of up to 25% of Slovak telecommunication
(Tradeport). 
The government's efforts toward privatization have been limited by the amount of capital
available in the Slovak economy (Tradeport). Unlike the past, the government is now
encouraging foreign investors to participate in the privatization process to provide the
needed capital (Abizadeh, p. 178). However, foreign investors seem to have a "wait and
see" view involving changes in government policy that could open or close doors to
industry growth and the return on investments (Tradeport).
Structure of the Slovak Economy
The three primary sectors of the Slovak economy are services, industry, agriculture, and
construction (Embassy of the Slovak Republic). These sectors make up the following
percentages of GDP in 1998 of 20.1 billion USD: 
Services 58%
Industry 27%
Agriculture 5%
Construction 5%
Other 5%
(The World Bank)
The increase in services over the years is due to Slovakia converting to a market economy
(Embassy of the Slovak Republic). Agriculture has remained stable throughout the
transition process (Embassy of the Slovak Republic). At the end of 1998, output from the
private sector was responsible for 83.1% of GDP compared to 39% in 1993 (Embassy of the
Slovak Republic).
Key Sectors of the Economy
The main service areas include transportation, telecommunications, and banking and
insurance services (Abizadeh, p. 172). Because of the increase in domestic demand in
1996, new service areas were developed such as real estate firms, computer engineering,
and sports and cultural activities (Abizadeh, p. 172).
The Slovak industry that evolved out of the Communist era had become inefficient and
produced goods that could not compete in the world market (Slovakia.Org, "Slovak
Economy"). A major part of this industry was heavy industry, which was aimed towards arms
production (Abizadeh, p. 172). The demand for arms production decreased after the breakup
of the Soviet Union and the development of many eastern European countries (Abizadeh, p.
172). Industry is still an important part, however, in the growth of GDP and employment
(Embassy of the Slovak Republic). Firms with more than a thousand workers, mostly
state-owned companies, account for the largest share of the production of goods (Embassy
of the Slovak Republic). The small and medium sized firms, which represent the private
sector, are not responsible for a relatively large proportion of goods production
(Embassy of the Slovak Republic). Overall, state-owned companies are still dominant in
industry (Embassy of the Slovak Republic). Slovakia can increase its productivity the
most by applying improved technology and processes to industry (Embassy of the Slovak
Republic). However, foreign investment is required to continue modernizing industry and
retraining workers (Slovakia.Org, "Slovak Economy"). Manufacturing is one of the key
sectors in the Slovak Republic (Slovak.Org, "Slovak Economy"). Exports of manufactured
products are responsible for almost one-fourth of total production (Embassy of the Slovak
Republic). Manufactured goods range from assembly lines and consumer goods to large
investment operations such as plant construction (Embassy of the Slovak Republic). Top
manufacturers produce steel, petroleum products, machinery, chemical products, ceramics,
processed food, and textiles (Embassy of the Slovak Republic).
The fuel sector involves activities including coal mining, purchasing, transportation,
and distribution of natural gas, crude oil, and gas recovery (Embassy of the Slovak
Republic). The power sector includes generating electricity, distribution and sales of
heat, and construction and assembly works (Embassy of the Slovak Republic). 
The Slovak Republic's principal mineral resources are lead, copper, manganese, zinc,
iron, and lignite (Slovakia.Org, "Slovak Economy"). Mining was unable to compete in the
market economy after Communism fell in Czechoslovakia in 1989 (Slovakia.Org, "Slovak
Economy").
Representing one-seventh of the total production in Slovakia, the metallurgical industry
produces nearly five million tons of crude steel annually which is processed primarily
into plates, strips, ingots, and seamless and non-seamless tubes (Embassy of the Slovak
Republic). Because supply exceeds domestic consumption, one-third of metallurgical goods
are exported (Embassy of the Slovak Republic). 
The chemical industry represents nearly 18% of the total industrial output in the Slovak
Republic (Embassy of the Slovak Republic). Most plants are located in the capital of
Bratislava (Embassy of the Slovak Republic). Many projects have been proposed, in
conjunction with foreign companies, that involve organic and inorganic chemistry, plastic
production and processing, the production of chemical fibers, and painting materials
(Embassy of the Slovak Republic). 
The clothing industry is focused on brand clothing with the use of new materials (Embassy
of the Slovak Republic). The production of footwear is concentrated on luxury footwear
for men and women as well as sports footwear (Embassy of the Slovak Republic). 
The most important crops in the Slovak Republic are wheat, maize, potatoes, barley, and
sugar beet production (Embassy of the Slovak Republic). Livestock including cattle, pigs,
sheep, and poultry is also important in agriculture (Slovakia.Org, "Slovak Economy").
Viticulture, the cultivation of grapes, is practiced on some mountain slopes in Slovakia
(Slovakia.Org, "Slovak Economy"). A small amount of tobacco is also grown in the Vah
River valley (Slovakia.Org "Slovak Economy"). Much of the landscape in Slovakia is made
up of rugged mountains in the northern and central regions, however, one-third of the
land in Slovakia is cultivated (Slovakia.Org, "Slovak Economy"). Despite steady growth in
economic results since 1993, substantial growth in agriculture cannot take place because
of the soil, topographical characteristics, and the need for technology and updated
machinery (Abizadeh, p. 172). 
Large construction companies play a key role in industry (Embassy of the Slovak
Republic). The production of building materials has increased in recent years as Slovakia
converts to a market economy (Embassy of the Slovak Republic). Future developments in the
industry will highly depend on the amount of investment that is needed for further
construction and reconstruction activities (Embassy of the Slovak Republic").
Foreign Trade
International trade is an important and essential part of Slovak economic growth
(Abizadeh, p. 173). The total volume of foreign trade in Slovakia increased by 16% in
1998. Economic growth in the future will depend on the country's export performance
(Embassy of the Slovak Republic). Slovakia's primary exports include consumer goods,
machine and machine equipment, industrial products, chemicals, raw materials, natural
fuel, and foodstuffs (Embassy of the Slovak Republic). Exports increased by almost 16% in
1998 (Embassy of the Slovak Republic). Leading imports in Slovakia increased by 16.4% in
1998, which included machine and machine equipment, natural fuels, consumer goods,
chemicals, industrial products, foodstuffs, and raw material (Embassy of the Slovak
Republic). Foreign trade with European Union countries increased 35.4% in 1998 as
compared to 1997 (Embassy of the Slovak Republic). The European Union is the Slovak
Republic's main trading partner, which accounted for 52.9% of foreign trade in 1998
(Embassy of the Slovak Republic). An Association Agreement was made between the European
Union and the Slovak Republic in 1993 which has had substantial implications for foreign
investment and trade in Slovakia (Embassy of the Slovak Republic). The Slovak Republic
applied to the European Union in 1995 (Embassy of the Slovak Republic). Accession to the
European Union is now the main economic and political objective of the Slovak Republic
(Slovak Web).
Slovakia and the World Trade Organization
The former Czechoslovakia became part of the General Agreement on Tariffs and Trade in
1947 (World Trade Organization). After its independence, the Slovak Republic became a
member of the World Trade Organization on January 1, 1995 when the GATT was replaced by
the WTO as a permanent international organization (World Trade Organization). One of the
main principles of Slovakia's foreign trade policy is to continue the liberalization of
exports and imports (Embassy of the Slovak Republic). This principle is best applied by
using market mechanisms to promote exports while protecting domestic producers and
consumers (Embassy of the Slovak Republic). The WTO provides the framework for Slovakia
to apply the use of market mechanisms to promote free and fair trade among domestic and
foreign companies, all in conformity within international law (Embassy of the Slovak
Republic). Unlike the GATT, the WTO deals with tangible as well as intangible goods. This
is important to the Slovak Republic because of the increase in services during recent
years. 
References
Abizadeh, Sohrab. The Return of Mitteleuropa. Commack, New York: Nova Science Publishers,
Inc., 1998.
Embassy of the Slovak Republic, "Business and Economy", Washington, D.C., December 1999.
(Located in the World Wide Web at http://slovakemb.com).
National Bank of Slovakia, "Selected Macro-economic Indicators", Bratislava, Slovak
Republic. (Located in the World Wide Web at http://www.nbs.sk).
Slovakia.Org, "Slovak Economy". (Located in the World Wide Web at
http://www.slovakia.org).
Slovakia.Org, "20th Century". (Located in the World Wide Web at
http://www.slovakia.org).
SlovakWeb, "The Slovak Republic and Its Economic Development", 1999, (Located in the
World Wide Web at http://www.slovakweb.com).
The World Bank Group, "Slovak Republic at a Glance". (Located in the World Wide Web at
http://www.worldbank.org).
Tradeport, "Slovakia Economic Trends and Outlook", September 1999. (Located in the World
Wide Web at http://www.tradeport.com).
World Trade Organization, "About the WTO", Geneva, Switzerland, March 2000. (Located in
the World Wide Web at http://www.wo.org).