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Last Updated: Tuesday, 6 February 2007, 00:12 GMT
Kia investment boosts Slovakian growth
By Jorn Madslien
Business reporter, BBC News, Zilina, Slovakia

"Kia's investment into the region has been very important," says Mayor Ivan Harman.

Ivan Harman is getting ready for perhaps the trickiest challenge a politician can face.

As mayor of Zilina, the largest town in mountainous North West Slovakia, Mr Harman has inherited an economy in rude health.

Consequently, he is in charge of the orderly management of prosperity; never an easy task, and hardly cheap.

Yet, within a month of moving into the historical town hall, just off the cobbled main square, Mr Harman insists he is ready to deliver.

"The railway network will be restored and the main railway station will be rebuilt," he declares loftily, adding that in future the town's small airport will be upgraded to facilitate more flights to Prague, and perhaps even to Frankfurt.

European models

Mr Harman's hope of a direct flight to the German financial centre illustrates the way Zilina has been transformed from a remote mountain town into a strategically crucial piece in an ever expanding global industrial jigsaw.

Car production in Slovakia
Slovakia is becoming one of the major automotive production hubs in Central and Eastern Europe
Ernst & Young's Global Automotive Centre

It is in Frankfurt where Korean car maker Kia Motors has established its European design centre to create its first truly European car.

The soon-to-go-on-sale Ceed hatchback is being produced in Kia's shiny, new factory a few minutes drive from Zilina, where the narrow valley expands to make space for a vast industrial complex stretching across 166 hectares.

The site - complete with road and railway links to the rest of Europe, a three kilometre test track, a training centre and two parts plants operated by Kia's suppliers - is home to the factory, which represents a 1bn euros ($1.3bn; 663m) investment by the Korean parent company.

The plan is that each worker should churn out about two cars per week, so that by the end of this year some 150,000 cars should be made here, rising to 225,000 next year, explains Kia Motor Slovakia's visibly proud president and chief executive, In-Kyu Bae.

By 2009, there should be 3,000 workers manning the lines and production should reach full capacity of 300,000 cars.

Also by then, Kia will be producing 600,000 engines, half of which will be sold to sister company Hyundai, which by then should have opened a factory across the Czech border.

"Our facilities are very modern and very efficient," Mr In-Kyu says. "We are more efficient than any of our competitors."

Production hub

Zilina's mayor, Mr Harman, obviously cheers such large-scale investment into the district.

Kia has created several hundred jobs locally, as well as a firm foundation from where it can target the European markets.

"Kia's investment into the region has been very important," he says. "It has created a lot of jobs."

Many have found work in the construction industry, building both the factory and a new motorway that has cut the journey time to the capital Bratislava to two or three hours, from five to six hours in the past.

Others have been employed directly by Kia and its suppliers, hence during the two years since the Korean group started building here, unemployment has fallen from 14% to 3% - well below the national average of almost 10%.

And with Kia planning to boost its workforce from 1,800 to 3,000 in a year, the jobless rate is set to fall further, leading Mr Harman to urge investors to start thinking of ways to provide affordable housing in the region in order to attract workers from other, less prosperous, parts of the country.

The next challenge, he realises, will be to meet both the growing demand for labour from both Kia and its suppliers, and from other global corporations queuing up to invest in the region.

"Hiring and retaining skilled labour is becoming increasingly challenging," observes Ernst & Young's Global Automotive Centre (E&Y) in a report.

Attractive incentives

Similar developments have been seen elsewhere in Slovakia, with the establishment of Peugeot's new factory in Trnava, just north of Bratislava, and the expansion of Volkswagen's operations in the capital itself.

Kia's production targets in Slovakia
Kia Ceed assembly line in Zilina, Slovakia
2007: 150,000
2008: 225,000
2009: 300,000

"Together, these companies are projected to produce 800,000 units by 2008 and to export 90% of them," according to E&Y.

Hence, while many in Western Europe fret about how car factories are closing, "Slovakia is becoming one of the major automotive production hubs in Central and Eastern Europe".

This is almost entirely a direct and measurable result of the Slovakian government's efforts to attract investment from automotive groups by offering comprehensive incentive packages and tailored infrastructure programmes.

"This approach, linked with persuasive reforms such as a flat and user-friendly corporate tax system, [has] helped to secure these prestigious projects," observes E&Y.

"We have a very good relationship with the government," adds Mr In-Kyu.

Economic growth

That strategy has paid off handsomely, having sparked an economic boom that has produced strong and lasting growth.

Kia Ceed
Western European factories are closed as production shifts east

According to the ministry of finance, the gross national product should grow at a rate of 6% or more in 2007.

"We anticipate that industrial output will continue rapidly throughout 2007-08, based on the launch of new manufacturing facilities in the automotive and electronic sectors," observes analysts at Global Insight.

And then, in 2009, the country is expected to become a member of the eurozone.

The presence of Slovakia and the companies that helped build its economy is about to be felt more strongly elsewhere in Europe.

This is the first of two pieces about Kia's European operations. The second feature, which looks at the Korean car maker's efforts to conquer the European markets, was published on 9 February.

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