Making Slovakia work

Kosice may be pretty, but its economy is in a mess

By James Arnold BBC News Online business reporter

The EU will soon formally invite 10 countries to join - a move that for many marks the climax of the transition from communism. BBC News Online is touring Eastern Europe to find out if its economies are up to speed.

For Igor and Petr, a mooch around their housing estate in the east Slovak town of Spisska Nova Ves is about as exciting as things get.

"This is a miserable place," grumbles Igor, gesturing around at the shabby tower blocks in which most of the town's 40,000 inhabitants live. "If we could leave, we would."

Like one-quarter of the people in the surrounding Kosice region, and up to 90% within the Roma community to which they belong, Petr and Igor are out of work, and see no prospect of ever getting a job.

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The Kosice region, based around Slovakia's second city, has the highest unemployment in the country, and Slovakia has the worst jobless record of any of the 10 countries tipped to join the EU soon.

If Brussels is to integrate eastern candidate countries into the wider European economy, tackling blackspots such as Spisska Nova Ves will be crucial.

Working problems

It is not entirely Slovakia's fault that its unemployment rate - stuck at 18-19% for the country as a whole - is so high.

The 1993 break-up of Czechoslovakia left the Czechs with most of the viable light industry, while Slovakia was uncomfortably reliant on armaments production - a business that shrivelled dramatically at the beginning of the 1990s.

But according to Vincent Soltes, head of the economics faculty at the Technical University of Kosice, Slovakia has made a number of serious blunders.

Its rickety political record during the mid-1990s, when the government was dominated by Vladimir Meciar, a tub-thumping nationalist, repelled foreign investors.

By the end of 2001, Slovakia had reaped less than £4bn in foreign direct investment (FDI), and more than two-thirds of that went to Bratislava.

The Czech Republic by contrast, a country not quite twice as big, had earned almost five times as much investment during the same period.

No roads, no movement

The Slovak government has now changed, but a more enduring obstacle is provided by the country's feeble infrastructure.

US Steel has averted an employment meltdown

There is, for example, no highway linking Bratislava and Kosice, something of an embarrassment for a country hoping to become a trading hub linking east and west.

And blighted regions such as Kosice are particularly badly hit by the lack of mobility among Slovakia's unemployed.

"No one could call unemployment benefits generous, but they are not exactly an incentive to work," says Dr Soltes.

"People live within extended family arrangements, and so aren't willing to move away from home to find a job."

Reasons to be cheerful

Things are not completely grim in Kosice, however.

Two years ago, metals giant US Steel moved into the region, buying VSZ, a near-bankrupt steel maker which directly or indirectly supported 100,000 households in the city.

US Steel not only surprised locals by maintaining production levels and keeping on almost all VSZ staff, but has ploughed effort into promoting eastern Slovakia as an investment target.

Juraj Augustin, the indomitably enthusiastic head of US Steel's Economic Development Centre, waxes lyrical about Kosice's selling points.

And there is plenty to boast about: costs are half Bratislava levels, highly qualified labour is plentiful, the local authorities are helpful and efficient and - luckily, given the lack of a highway to the capital - the city is a "gateway to the east".

Let my people go

Even more constructively, Bratislava is hoping to stimulate a little regional enterprise by loosening the country's federal shackles.

Mr Bauer is breaking free of Bratislava's bear-hug

At the end of last year, the country's centre-right government created eight new regional administrations, responding to demands from Brussels that power should be devolved from the capital.

"Until then, if we wanted to change a school director, it had to go through Bratislava," says Rudolf Bauer, governor of the Kosice region.

"Now, we're responsible for about 20% of government functions, including healthcare, education, culture and so on. And we'll get more and more power each year."

Looking east, looking west

Attracting investment is Mr Bauer's next target.

The Kosice government has held roadshows in Brussels and New York, and is planning to open a permanent representative office in the Belgian capital soon.

Officials talk optimistically about some "big Western names" with investment deals close to signature.

"When we join the EU, suddenly Kosice will be a region on the very edge of Europe," Mr Bauer says.

"For many companies, that will be a hugely attractive position."

Mr Bauer's office aims to reduce regional unemployment from the current 25% to below 4% by 2020 - a not unreasonable target, given the growing demand for cheap labour among European firms.

But Petr and Igor - and who knows how many other disaffected young people - could have headed for the bright lights of Bratislava long before then.