The current economy of the Slovak Republic is a result of a long-term development. In the past agriculture presented the most important part of Slovak economy.
The first manufactures on the territory of present-day Slovakia were established in the 18th century, while modern industry such as wood processing industry, paper-making industry, and chiefly flour-milling industry started to develop in the 19th century.
After the creation of Czechoslovakia in 1918, Slovakia presented a less-developed part of the newly established republic. Slovak industry was scattered and the basic production predominated. After the world economic crisis armaments companies, chemical works and footwear works were built.
During the interwar period, Czech capital predominated in Slovak industry taking advantage of cheap raw materials and low wages, which resulted in growing of Slovak capital investment.
After the WW II and the communist takeover in 1948 industry, transport and banks were nationalised and agriculture collectivised. In that period armament industry, metal and heavy industries developed at the expense of traditional strengths in light and craft-based industries, such as textiles, clothing, glass and ceramics. A proportion of employment in industry and agriculture had gradually changed. While in 1948 agriculture in Slovakia employed 60% of workers, at the beginning of 1980 it amounted to app. 18% of economically active population.
In 1991, privatisation became a part of the extensive changes in the economic environment. It was connected with the liberalisation of prices, achievement of the internal convertibility of the currency, liberalisation of foreign trade and opening up of the country to foreign investors. The bulk of the industrial economy has been transferred to the private sector, including the key areas of machinery, chemical works, textiles, leather, shoes, glass, electronics and car manufacturing. In 1999, Slovak state banks were privatized. At present, an estimated 85 per cent of the economy is in private hands.
The agricultural sector, almost all of which is now privately owned, produces wheat and grains, sugar beet, vegetable and livestock. However, its relative economic contribution (five per cent of GDP, eight per cent of the work force) is not substantial.
Since 1998 the national government has focused on macroeconomic stabilization and structural reforms to build a base for long-term prosperity, and on integrating the Slovak Republic to European and international organizations, such as the Organization for Economic Cooperation and Development (OECD), which the country joined in 2000.
The fundamental tax reform was one of the most important initiatives of the Slovak government (2002-2006) toward creating a highly competitive and non-distortive market environment in Slovakia. The tax reform has brought flat rate in direct income taxation since 2004, one linear percentage rate being 19% for both individuals and corporations. Since 2004 also the unified 19% VAT rate has been applied for all goods and services. Real estate transfer tax, donation tax and inheritance tax were also cancelled as a part of the tax reform. The current government of 2006 elections is considering the introduction of two rates for personal direct incomes, aiming the taxation of incomes above standard with higher rate. On the other hand the current government is also considering the reintroducing of a reduced VAT rate for pharmaceuticals and other products.
Slovak gross domestic product (GDP) is steadily growing. In 2005 the GDP was 1 178 802 Mill. SKK, that means the annual (year-on-year) growth by 6,1 %. GDP growth is supported by an increasing domestic demand, revenues from investments, but also increasing foreign demand.
In 2005 inflation averaged 2,8 %, with a 7,9 % increase in regulated prices and core inflation of 1,1%. The National Bank of Slovakia expects inflation to decrease to 2,75% by the end of 2006 and under 2% by the end of 2007.
The former Slovak government also declared intention to adopt the Euro currency on January 1, 2009. To achieve this goal, Slovakia will have to meet Maastricht economic criteria for eurozone entry.
Export revenues of Slovakia are increasing, mainly because of the export to the EU countries (in 2006 86,7% of total Slovak exports). There is a continuous tendency of growth in foreign direct investments and Slovakia offers many investment opportunities for domestic and foreign investors. The strongest position is currently held by automobile industry and its subcontractors (Volkswagen, Peugeot-Citroën, Kia Motors). Slovakia’s largest exports include cars, electronic equipment, chemicals, crude oil and petroleum products, iron and steel. Main imports include crude oil and natural gas, iron ore and concentrates, and liquid crystal products.
The major export sectors are machine industry, chemical and pharmaceutical industry, rubber industry and metallurgy. Slovak import is increasing too. The imports consist largely of machinery, electrical equipment and motor vehicles, including cars.
Slovakia is still trying to eliminate the insufficient employment opportunities. The unemployment is gradually decreasing (unemployment rate of registered unemployed labour force as of December 31, 2005 app. 11,4 %, average for 2005 11,6 %, unemployment rate based on statistical survey of labour force 16,2%). On the other hand, productivity of labour and wages are slowly increasing (average salary in 2005 app. 17 274 SKK per month = 455 EUR per month).
10 Largest companies according to their turnover: (Spectacular Slovakia 2006 – Trend Top 2005)