What price victory?
In March, Korean car manufacturer Hyundai/Kia opted to build its new plant in Żilina, Slovakia rather than in Poland, on the basis of "better infrastructure, a good network of suppliers and lower labor costs," according to Deputy Economic Minister Mirosław Zielinski. Now, four months down the road, the release of Hyundai's contract with the Slovakian government has revealed the real deal breaker: state aid.
The document in question has caused a furor in the Slovakian parliament, with the opposition likening it to a blank check made out to the Korean car firm.
The details of the contract require Slovakia to pay ?1,750 (zł.7,650) for every new job the firm creates, maintain a 15 percent level of state aid, build a ?552 million (zł.2.4 billion) highway (not to be counted towards government aid) and ensure that no automotive investments will be made within 100 kilometers of the new plant (which includes a sizeable chunk of southern Poland). In addition, the Slovaks cannot ask for state money to be returned and can only pull out of the agreement if Hyundai fails to fulfill at least 50 percent of their commitments, whereas Hyundai can pull out at any time, provided it gives three months' notice.
The disclosure of the contract has resulted in stinging criticism of the Slovakian government. Despite the heat, however, Oldrej Zember of the Slovak Investment and Trade Development Agency (SARIO) stands by Slovakia's offer, claiming, "We don't think we made too many concessions because we really wanted this investment, as it will raise our export potential and GDP growth." And it seems to be this attitude that is winning contracts. But just how important are these concessions in attracting foreign direct investment (FDI) into Poland?
According to Herbert Frankenstein, CEO at BASF Polska, the local arm of the German chemical giant that boasts a history of investments here, state aid is more important than one might at first think. Though Frankenstein admits that "the most important thing is to have an appropriate infrastructure," he concedes that "infrastructure is lacking in Poland," and that in order to bring the "whole offer into balance for a foreign investor, it is necessary for Poland to give extra incentives to compensate for a lack of infrastructure."
Yet Poland continues to suffer "a lack of national aid in terms of what is possible in other countries," he continues, explaining why Poland has missed out on a string of FDI contracts.
This may be true. But isn't Poland's stinginess preferable to the abandon shown by Slovakia? Sebastian Mikosz, executive vice president of the Polish Information and Foreign Investment Agency (PAIiIZ), certainly thinks so.
"When they revealed the contract, we found that it was an unbearable proposition for Poland," he says with regards to the Slovakia/Hyundai agreement. "We only offered what we could within our legal framework," he continues, which is more than can be said for Slovakia, who clearly risk legal trouble by speaking for the south of Poland in guaranteeing that there will be no auto investments within 100 km of Żilina.
But, though this stance is commendable, it is not winning contracts. So who stands to change? Will countries like Slovakia, prompted by Hyundai's threats to claim damages over delayed land acquisition, realize the inarguable downsides of such overwhelming concessions, or will Poland meet these concessions in order to stay competitive?
Wojciech Drzewiecki, president of Samar Polska, a company focused on analyzing the automotive industry, thinks that Slovakia stands to wisen up.
"The problem Slovakia is facing now will be a good lesson for the future," he says, "and I don't think any European country would do it again. Slovakia now has to explain not only to the EU but to their own people why they gave up so much."
And it is possible that Slovakia has indeed learned its lesson. In the latest tussle for FDI, Slovakia made a bid that stands in stark contrast with what they offered Hyundai in March. Eric Biondi, Whirlpool plant director in Poprad (which was a recent FDI coup for Poland), is reported as having revealed that "Slovakia offered less than one percent of state aid in comparison to the investment value."
However, it can't be denied that Poland's losing streak has had an equally impressive effect on the way it conducts business. The bid Poland made for this very Whirlpool contract consisted of an offer to provide state aid worth 50 percent of Whirlpool's ?132 million investment. Could it be that Poland and Slovakia are meeting each other half way, or is this more a case of reversed roles?
The document in question has caused a furor in the Slovakian parliament, with the opposition likening it to a blank check made out to the Korean car firm.
The details of the contract require Slovakia to pay ?1,750 (zł.7,650) for every new job the firm creates, maintain a 15 percent level of state aid, build a ?552 million (zł.2.4 billion) highway (not to be counted towards government aid) and ensure that no automotive investments will be made within 100 kilometers of the new plant (which includes a sizeable chunk of southern Poland). In addition, the Slovaks cannot ask for state money to be returned and can only pull out of the agreement if Hyundai fails to fulfill at least 50 percent of their commitments, whereas Hyundai can pull out at any time, provided it gives three months' notice.
The disclosure of the contract has resulted in stinging criticism of the Slovakian government. Despite the heat, however, Oldrej Zember of the Slovak Investment and Trade Development Agency (SARIO) stands by Slovakia's offer, claiming, "We don't think we made too many concessions because we really wanted this investment, as it will raise our export potential and GDP growth." And it seems to be this attitude that is winning contracts. But just how important are these concessions in attracting foreign direct investment (FDI) into Poland?
According to Herbert Frankenstein, CEO at BASF Polska, the local arm of the German chemical giant that boasts a history of investments here, state aid is more important than one might at first think. Though Frankenstein admits that "the most important thing is to have an appropriate infrastructure," he concedes that "infrastructure is lacking in Poland," and that in order to bring the "whole offer into balance for a foreign investor, it is necessary for Poland to give extra incentives to compensate for a lack of infrastructure."
Yet Poland continues to suffer "a lack of national aid in terms of what is possible in other countries," he continues, explaining why Poland has missed out on a string of FDI contracts.
This may be true. But isn't Poland's stinginess preferable to the abandon shown by Slovakia? Sebastian Mikosz, executive vice president of the Polish Information and Foreign Investment Agency (PAIiIZ), certainly thinks so.
"When they revealed the contract, we found that it was an unbearable proposition for Poland," he says with regards to the Slovakia/Hyundai agreement. "We only offered what we could within our legal framework," he continues, which is more than can be said for Slovakia, who clearly risk legal trouble by speaking for the south of Poland in guaranteeing that there will be no auto investments within 100 km of Żilina.
But, though this stance is commendable, it is not winning contracts. So who stands to change? Will countries like Slovakia, prompted by Hyundai's threats to claim damages over delayed land acquisition, realize the inarguable downsides of such overwhelming concessions, or will Poland meet these concessions in order to stay competitive?
Wojciech Drzewiecki, president of Samar Polska, a company focused on analyzing the automotive industry, thinks that Slovakia stands to wisen up.
"The problem Slovakia is facing now will be a good lesson for the future," he says, "and I don't think any European country would do it again. Slovakia now has to explain not only to the EU but to their own people why they gave up so much."
And it is possible that Slovakia has indeed learned its lesson. In the latest tussle for FDI, Slovakia made a bid that stands in stark contrast with what they offered Hyundai in March. Eric Biondi, Whirlpool plant director in Poprad (which was a recent FDI coup for Poland), is reported as having revealed that "Slovakia offered less than one percent of state aid in comparison to the investment value."
However, it can't be denied that Poland's losing streak has had an equally impressive effect on the way it conducts business. The bid Poland made for this very Whirlpool contract consisted of an offer to provide state aid worth 50 percent of Whirlpool's ?132 million investment. Could it be that Poland and Slovakia are meeting each other half way, or is this more a case of reversed roles?
