Can Slovakia, Eurozone's Former Black Sheep, Maintain Its Miracle Growth?

In less than a decade, Slovakia has gone from bottom of the class to best in show, with a 2.5% growth in 2012. Will it be able to keep up the miracle, or will it turn out to be just a mirage?

Tren?ín, Slovakia (EU Social)
Tren?ín, Slovakia (EU Social)
Florence Beugé

The past ten years have been a success story for Slovakia. The country was the last to arrive in the Eurozone (in 2009), and here it is, taunting Europe. Industrial production is still growing: +2% in May, +10.8% yearly, according to figures published on July 10. In 2012, the growth rate was approximately 2.5%, far from the other, considerably feebler European economies.

Who remembers that in October last year, Bratislava rejected the European Financial Stability Facility before forcing itself to approve it, at the cost of a political crisis? In June, Slovakian parliament ratified the European Stability Mechanism, to which it will contribute 659 million euros over five years. “We’ve often been considered the black sheep of Europe! And now we are the good guys!” says Juraj Karpis, an analyst at the Institute for Economic and Social studies in Bratislava.

As if to catch up on lost time, this country of 5.4 million inhabitants is doing everything at an accelerated pace. “I’ve been here since 2002 and I feel like I’ve been through ten professional lives, everything changes so fast!” says Vincent Barbier, CEO of energy services company Dalkia.

Fast paced reform

In less than a decade, Slovakia has integrated the OECD, NATO, the European Union and the Eurozone. Living standards have already reached 70% of the European average.

Its automobile construction know-how, a legacy of the Soviet era, is highly praised. Even though it is trying to diversify, the Slovakian economy still rests mainly on its car and flat screen television exports to the EU -- something which is both its strength and its weakness.

Overall, the Euro is seen “as a guarantee of stability, in particular for investors,” says Jan Cienski, the Financial Times’ regional correspondent.

Bratislava still has to reduce its public deficit. Robert Fico, the new Social-Democrat prime minister, came to power in March after early legislative elections: he promised to rein in the deficit back to less than 3% of the Gross Domestic Product (GDP) in 2013, down from 4.8% today.

Fico also wants to fill the State’s coffers by taxing the rich. The flat 19% tax rate will soon be a thing of the past. Starting in 2013, the wealthiest private individuals will be taxed at 25%, and companies at 22% to 25%, depending on how flourishing they are.

“This measure is going to kill our competitiveness,” believes Juraj Karpis, even though he acknowledges that Slovakia is still “very attractive, with an average industry salary that is only a quarter of Germany’s.”

Grigorij Meseznikov, an analyst at the Bratislava Institute of Public Affairs, is also worried about the new prime minister’s economic policies. “Many foreign investors came to Slovakia these past few years because of our attractive low tax rate policies. We risk losing them,” he says.

Regional discrepancies

“This whole low salary story is bogus! It’s the quality of Slovakian products and their added value that should be taken into account,” counters Vladimir Vano, a financial analyst at the Volksbank. In Romania, he says, “salaries are as low as they are in Slovakia, and yet the economic performance is not as good!”

Reducing public deficit even though household consumption is atonic is a headache for the new government. “If the debt crisis doesn’t get any better, we won’t be able to kick-start our economy. We aren’t economically linked to Greece, but what’s happening there has a psychological effect on us. There is no more confidence. Uncertainty about the external environment is too strong and unemployment is very high,” explains Renata Konecna, the director of the monetary policy department at the central bank.

The unemployment rate is one of Slovakia’s biggest problems -- in addition to regional discrepancies and the Roma. Bratislava is in great health, but other regions are deep in Middle-Ages poverty. The nationwide unemployment rate is only 14%, but the rate reaches 30% to 35% in the disadvantaged Eastern provinces.

“In 2001, our unemployment rate was 20%. We then lowered it to 10%, and it increased again with the crisis,” says Vladimir Vano as he mentions “structural unemployment,” in other words: the Roma (they represent 8% to 10% of the population, including 150,000 who live in very precarious conditions).

Without this ticking time bomb -- successive governments refuse to take care of what they see as an insoluble problem -- the job-seeker rate wouldn’t exceed the Czech Republic’s (10%) or Hungary’s (12%), says the Volksbank analyst.

Read more from Le Monde in French.

Photo - EU Social

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How China Flipped From Tech Copycat To Tech Leader

Long perceived as a country chasing Western tech, China's business and technological innovations are now influencing the rest of the world. Still lagging on some fronts, the future is now up for grabs.

At the World Semiconductor Conference in Nanjing, China, on June 9

Emmanuel Grasland

BEIJING — China's tech tycoons have fallen out of favor: Jack Ma (Alibaba), Colin Huang (Pinduoduo), Richard Liu (Tencent) and Zhang Yiming (ByteDance) have all been pressured by Beijing to leave their jobs or step back from a public role. Their time may be coming to an end, but the legacy remains exceptional. Under their reign, China has become a veritable window to the global future of technology.

TikTok is the perfect example. Launched in 2016, the video messaging app has been downloaded over two billion times worldwide. It has passed the 100-million active user mark in the United States. Thanks to TikTok's success, ByteDance, its parent company, has reached an exceptional level of influence on the internet.

For a long time, the West viewed China's digital ecosystem as a cheap imitation of Silicon Valley. The European and American media described the giants of the Asian superpower as the "Chinese Google" or "Chinese Amazon." But the tables have turned.

No Western equivalent to WeChat

The Asian superpower has forged cutting-edge business models that do not exist elsewhere. It is impossible to find a Western equivalent to the WeChat super-app (1.2 billion users), which is used for shopping as much as for making a medical appointment or obtaining credit.

The flow of innovation is now changing direction.

The roles have actually reversed: In a recent article, Les Echos describes the California-based social network IRL, as a "WeChat of the Western world."

Grégory Boutté, digital and customer relations director at the multinational luxury group Kering, explains, "The Chinese digital ecosystem is incredibly different, and its speed of evolution is impressive. Above all, the flow of innovation is now changing direction."

This is illustrated by the recent creation of "live shopping" events in France, which are hosted by celebrities and taken from a concept already popular in China.

10,000 new startups per day

There is an explosion of this phenomenon in the digital sphere. Rachel Daydou, Partner & China General Manager of the consulting firm Fabernovel in Shanghai, says, "With Libra, Facebook is trying to create a financial entity based on social media, just as WeChat did with WeChat Pay. Facebook Shop looks suspiciously like WeChat's mini-programs. Amazon Live is inspired by Taobao Live and YouTube Shopping by Douyin, the Chinese equivalent of TikTok."

In China, it is possible to go to fully robotized restaurants or to give a panhandler some change via mobile payment. Your wallet is destined to be obsolete because your phone can read restaurant menus and pay for your meal via a QR Code.

The country uses shared mobile chargers the way Europeans use bicycles, and is already testing electric car battery swap stations to avoid 30 minutes of recharging time.

Michael David, chief omnichannel director at LVMH, says, "The Chinese ecosystem is permanently bubbling with innovation. About 10,000 start-ups are created every day in the country."

China is also the most advanced country in the electric car market. With 370 models at the end of 2020, it had an offering that was almost twice as large as Europe's, according to the International Energy Agency.

Photo of a phone's screen displaying the logo of \u200bChina's super-app WeChat

China's super-app WeChat

Omar Marques/SOPA Images/ZUMA

The whole market runs on tech

Luca de Meo, CEO of French automaker Renault, said in June that China is "ahead of Europe in many areas, whether it's electric cars, connectivity or autonomous driving. You have to be there to know what's going on."

As a market, China is also a source of technological inspiration for Western companies, a world leader in e-commerce, solar, mobile payments, digital currency and facial recognition. It has the largest 5G network, with more than one million antennas up and running, compared to 400,000 in Europe.

Self-driving cars offer an interesting point of divergence between China and the West.

Just take the number of connected devices (1.1 billion), the time spent on mobile (six hours per day) and, above all, the magnitude of data collected to deploy and improve artificial intelligence algorithms faster than in Europe or the United States.

The groundbreaking field of self-driving cars offers an interesting point of divergence between China and the West. Artificial intelligence guru Kai-Fu Lee explains that China believes that we should teach the highway to speak to the car, imagining new services and rethinking cities to avoid cars crossing pedestrians, while the West does not intend to go that far.

Still lagging in some key sectors

There are areas where China is still struggling, such as semiconductors. Despite a production increase of nearly 50% per year, the country produces less than 40% of the chips it consumes, according to official data. This dependence threatens its ambitions in artificial intelligence, telecoms and autonomous vehicles. Chinese manufacturers work with an engraving fineness of 28 nm or more, far from those of Intel, Samsung or TSMC. They are unable to produce processors for high-performance PCs.

China's aerospace industry is also lagging behind the West. There are also no Chinese players among the top 20 life science companies on the stock market and there are doubts surrounding the efficacy of Sinovac and Sinopharm's COVID-19 vaccines. As of 2019, the country files more patents per year than the U.S., but far fewer are converted into marketable products.

Beijing knows its weaknesses and is working to eliminate them. Adopted in March, the nation's 14th five-year plan calls for a 7% annual increase in R&D spending between now and 2025, compared with 12% under the previous plan. Big data aside, that is basic math anyone can understand.
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