R&D in Slovakia – an Undiscovered Potential?

In 2004, industrial growth was accelerating, business-oriented reforms were being implemented in quick succession, and Slovakia became a magnet for foreign investors who were seeking the best value-cost ratio. This resulted in large MNCs embracing Slovakia as a base for their manufacturing operations, especially in the automotive (KIA, PSA) and electronics (Sony, Samsung) industries. Dozens of suppliers sprang up, building the expertise acquired through rapid industrialisation and enormous improvements in technical education throughout the socialist planning period of 1950–1989. All of this while the once-stellar R&D sphere was dwindling, slowly suffocated by notorious funding shortages and a lack of institutional mechanisms to keep the hundreds of R&D institutes alive. The brains cultivated under an exacting and vigorous university system sought refuge abroad or slowly shrivelled in gloomy, derelict laboratories with decades old equipment.

2008: The end of an era…
The industrial boom, reminiscent of China’s (10.4% GDP growth in 2007) came to a grinding halt as the financial storm started to blow in earnest. Cushioned by well-planned reforms and a healthy public finance, unfettered by the enormous debts plaguing its neighbours, Slovakia maintains a 2 to 4% growth forecast, while the rest of the EU has plunged into recession. The government is adopting measures to stimulate business and infrastructure building, and is optimising investment legislation – for example, reducing investment volume eligibility thresholds in the Slovak Investment Aid Act by 50%.

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The need for rescue attempts, however, is not as pressing as many global headlines suggest, condemning Central Europe to economic doom. Slovakia adopted the euro on 1 January 2009. There could not have been a better time. Even as local currencies are falling sharply, the euro remains stable and provides Slovak businesses a welcome respite. The lowest labour costs in the euro zone impel many multinationals to relocate their production to Slovakia (or just keep it there), especially if they have already established a subsidiary in the country. Slovakia’s appeal is preserved by a powerful combination of stability, a business-friendly environment, low costs and a position in the heart of Europe, bordering the enticing Eastern European markets and connected to the broad gauge railway of ex-Soviet countries while safely shielded within the borderless EU Schengen zone. Nonetheless, Slovakia is an open economy, heavily export-oriented, and few dare to predict its industries’ short-term economic fate.

…and the beginning of another…
The peak of manufacture-oriented growth presented a challenge for Slovak policy-makers. How should they deal with the long-term lack of support for R&D so that innovation might replace manufacturing output as the main driving force for growth? This needed to be done fast. The firm budgetary regime allowed only one option: to stimulate the pouring of private capital into R&D in Slovakia by tightening the ties between business and academia and promoting R&D investment through state aid. SARIO’s survey among investors who are established in Slovakia revealed that accessibility was the key: better accessibility to state aid for R&D, and improved collaboration options with universities. A flurry of initiatives, legislative amendments and public funding schemes followed, in which it emerged that these problems were resolved and businesses could benefit from an optimised environment for R&D investment. The economic crisis is forcing companies to cut costs while retaining their competitiveness and remaining at the cutting edge of technology development. Slovakia has the lowest R&D costs in the EU-25 and forms an integral part of the vibrant European Research Area (ERA), in turn benefiting from the intense scientific collaboration in Central Europe and the high industrial density of its flagship sectors as well as the flexibility and fast-paced development of its technology-oriented universities. The core remaining issue is a lack of direct university funding that the government hopes to make up for through an act recently passed enabling public universities to set up joint business ventures with private companies and to capitalise on their own human assets and accumulated scientific excellence.

6 ways to obtain funds for R&D in Slovakia
The simple and sturdy system of public R&D support can be defined in 6 parts, each suited for a different project and company.

• Investment aid for technology centres is provided by the Slovak Ministry of Economy to support investment in R&D capacities to accelerate industrial innovation; requiring an investment of at least €1.2 million and covering up to 50% of eligible costs.
• The Slovak R&D Agency provides national project grants to various small- and medium-sized projects; half of the available budget goes to applied research and development in SMEs.
• EU Structural funds have been envisaged to encourage the economic convergence of less developed EU member states; within the Research and Development programme, the Slovak government seeks to empower both universities and businesses that can apply to have their technology procurement and personnel costs covered.
• The new European Commission legislation (Regulation No. 800/2008) has enabled a more flexible approach to awarding state aid to large, strategic R&D investment over €20 million. Based on individual negotiations with the Slovak Ministry of Education, this so-called ad hoc aid can be provided based on joint approval by the Slovak government and the European Commission.
• A new act on R&D stimuli has been adopted in Slovakia and comes into force in August 2009. This highly flexible act enables direct subsidies and tax credits for R&D projects and R&D investment in enterprises; the possibilities are further expanded if a university joins the project.
• Being a part of the European Research Area (ERA), Slovakia benefits from its engagement in the 7th Framework Programme (FP7), the EU’s core R&D support tool with a €50.5 billion budget. A multitude of project schemes and calls for proposals enable those companies established in Slovakia to rival those in other EU countries in public funding for state-of-the-art research.

Where to invest
The Slovak Investment and Trade Development Agency (SARIO) provides, free-of-charge, integrated governmental consultancy for R&D investment in order to maximise the investor’s sa­tisfaction when placing an investment in Slovakia. However, some opportunities deliver maximum benefit no matter what.

• Slovakia is the highest-per-capita car manufacturer in the world – one million cars per year in a country of 5 million inhabitants. Following the automotive boom, universities opened a multitude of new automotive-related study programmes to deliver local technological innovation and increase the added value generated locally. The largest car companies established in Slovakia are Volkswagen, KIA, and Peugeot-Citroën (PSA), each locally embedded through a chain of highly competitive and innovating suppliers. This clustering of development and design allows the mastering of new challenges and improved output in terms of efficiency, ergonomics, cleanliness, safety, automation and cost reduction.
• Cutting-edge technological know-how has been brought to Slovakia via the Sony and Samsung investments in optoelectronics. New investments are pouring in even in these times of financial crisis (South Korea was SARIO’s top source of FDI in 2008) and Slovak technology universities have started diversifying their portfolios towards embracing this nascent trend. Western Slovakia has become a cluster of tightly integrated multinationals seeking to conquer the EU electronics market and gradually involving local innovation capacities in their technology development process.
• Information and Communication Technology (ICT) is where Slovakia is most competitive on a global level, be it in software development (ESET, Millennium000 or Interway, local top performers ranking among the fastest growing companies in the world) or solutions’ development (Dell, Microsoft, Accenture, Siemens, IBM and Lenovo). Comprehensive fibre optics infrastructure and omnipresent wireless broadband coverage add even more to the allure of low-cost and high-quality development opportunities.
• Slovakia’s energy supply is largely dependent on Russian natural gas. The recent gas crisis has only stressed the urgency of the government’s long-term efforts to diversify through energy investment and R&D support. A 50-year tradition of nuclear power engineering (the first nuclear reactor in Slovakia was built in 1958) and research in particle physics demonstrated through Slovakia’s per­manent membership in the CERN and ITER consortia as well as public support in favour of nuclear power have created suitable conditions for launching strategic R&D in power generation, which is furthered by the government’s keen interest in developing new, out-of-the-box solutions.

Where to go now
Slovakia’s three largest technical universities are located in the capital Bratislava, in Žilina, the industrial and transport hub of North Slovakia, and in Košice, the centre of East Slovakia. All of the major European and world destinations are served from Bratislava and the nearby Vienna-Schwechat airports and a growing number of flights, especially to the UK, are being operated from Košice.

Comprehensive information and assistance can be obtained from SARIO, a co-ordinating agency for FDI promotion and support including R&D outsourcing facilitation. The Ministries of Economy and Education provide state aid and co-ordinate the implementation of project grants and structural funds. The Slovak Industrial R&D Association groups, domestic R&D companies and the Slovak Academy of Sciences comprise a number of state-of-the-art R&D institutes.

More info: www.sario.sk

Photo: SARIO

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