6. Regional focus: Banská Bystrica and Košice
This chapter focuses on regional factors determining investment decisions and FDI-SME spillovers in the Slovak Republic, focussing in particular on the two regions of Banská Bystrica and Košice. The chapter firstly presents some key economic geography characteristics of the two regions. It then examines the FDI spillover potential and the absorptive capacity of SMEs in Banská Bystrica and Košice, trying to identify the competitive advantages of FDI-SME ecosystems in the two regions. The chapter also provides some insights on regional policies and institutional frameworks to support FDI-SME spillovers.
Regions can differ greatly within a country, whether because of fixed factors (such as the availability of natural resources) or policies (that affect for instance the quality of the transport network, the education system, or local governments and institutions) that in turn determine population and the density and nature of business activities (OECD, 2009[1]) (OECD, 2012[2]). As such, firms within regions also differ, as do trade and investment opportunities. Multinational enterprises (MNEs) consider regional rather than country-specific factors when choosing where to invest. Policies to improve spillovers from FDI to domestic SMEs are therefore more likely to be effective when these regional factors are taken into account.
This chapter focuses on regional factors determining investment decisions and FDI-SME spillovers, using the two examples of Banská Bystrica and Košice. A more granular, regional perspective highlights the relevance of a place-based approach to the promotion of FDI-SME linkages in the Slovak Republic. The regions of Banská Bystrica and Košice have similarities in their economic structure and geography but differ importantly as to their paths of growth and industrial development. This chapter explores the characteristics of the two regions, including an analysis of SMEs and MNEs operating there. It also looks into how local policy and institutions support and harm an enabling environment for FDI-SME linkages. Box 6.1 provides some clarifications on the territorial level classification underlying the analysis in this report and the occasional regional data limitations addressed.
Based on the OECD classification of territorial levels of Member countries (OECD, August 2021[3]), the Slovak Republic has four large regions (territorial level 2 or TL2) and eight small regions (territorial level 3 or TL3). The two regions under study in this report – Košice and Banská Bystrica – are TL3 regions situated in less developed areas within respectively the Eastern and Central regions of the country (TL2), with significant influence on regional innovation structures and capacities.
As for European countries in general, this classification is largely consistent with the Eurostat Nomenclature of Territorial Units for Statistics (NUTS) 2021. For the European Union’s 2021-27 programming period, the Slovak Republic has four regions at level II of the NUTS and eight regions at level III. Only one of the broader Slovak NUTS II regions is classified as a “more developed region” (European Commission, 2021[4]).
The regional analysis in this report includes both data at territorial levels 2 and 3 of the OECD classification (OECD, August 2021[3]). For some areas of investigation, only (or mainly) TL2 information was available. Consequently, some of the evidence used in this Chapter refers to a higher geographical level and might not fully reflect the situation at the TL3 level. In addition, these units of review should not be confused with the (smaller) main cities in each of these TL3 regions, with the same name but operating at the city level (Figure 6.1).
The limited availability and sophistication of regional level data makes targeted, geospatial analysis difficult, and limits the evidence base for policy making. It may also (by default) perpetuate a concentration of policy and investment efforts in the capital region.
Two regions at the crossroads of Central Europe
The Slovak Republic is a landlocked country in Central Europe, bordered by Poland to the north, Ukraine to the east, Hungary to the south, Austria to the southwest, and the Czech Republic to the northwest. The map below illustrates the relative size and geography of the two regions (Figure 6.1). Košice and Banská Bystrica, albeit different, share more similarities than with the capital region of Bratislava. For purposes of comparison, data (TL3) are presented below in order to illustrate their different characteristics (Table 6.2).
Košice (Kosicky kraj) is the most south-eastern part of the country, geographically furthest from the capital region of Bratislava than other TL3 regions, bordering with Hungary and Ukraine. The region stands at the intersection of West-East European roads from the Czech Republic and Austria to Ukraine and the Russian Federation, and North-South European roads from Poland and the Baltic States towards Hungary and the Balkans (Košice Region Brussels Office, 2022[5]). With an area of almost 7 thousand square kilometres, the region constitutes 14% of the country’s total area (OECD, 2022[6]).
Situated centrally in the country, Banská Bystrica (Banskobystricky kraj) is the largest region by land size, bordering with Hungary. With an area of almost ten thousand square kilometres, the region constitutes almost 20% of the total area of the Slovak Republic (OECD, 2022[6]).
The two regions of Košice and Banská Bystrica have in the north the Slovak Ore mountains, an extensive mountain range within the Carpathian mountains, that supported the industrial development of the country into one of the most important mining centres in the world. Much of the two regions’ land is made of massive and hard-to-access hills covered by large forests, and high reliefs. The southern part of the Banská Bystrica region is characterised by lowland hillsides, stretching east-west and creating a corridor for transiting between Bratislava and the city of Košice, e.g. for the location of pipeline transport (Gregorová, 2018[7]). The city of Banská Bystrica, smaller by its inhabitant population, stands at approximately halfway between the two largest cities in the country, Bratislava and the city of Košice.
Sources: Rainer Lesniewski, iStock / Getty Images Plus, via Getty Images.
The Banská Bystrica region has a population of almost 650 000. The regional population declined by 1.2% between 2015 and 2019, while at same time the national population increased by 0.6%. Banská Bystrica also has the lowest population density in the country – 68.8 inhabitant per km2 (OECD, 2022[6]). The largest regional city in terms of inhabitants is Banská Bystrica (city). The region consists of 13 districts, 516 municipalities, of which 24 have the status of “city”1 (Statistical Office of the Slovak Republic, 2019[9]). About half of the population lives in a urban setting (Statistical Office of the Slovak Republic, 2019[9]).
The Košice region has a population of over 800 000 inhabitants (which represents about a 0.6% increase since 2015), with a density almost twice as large as the Banská Bystrica region (119.3 inhabitants/km2) and over 54% of its population living in urban settings (OECD, 2022[6]) (Statistical Office of the Slovak Republic, 2019[10]). The region has 11 districts, 17 towns and 440 municipalities (Statistical Office of the Slovak Republic, 2019[10]). Its capital Košice is the second biggest city in the Slovak Republic and the industrial anchor of the east of the country (Košice Region Brussels Office, 2022[5]).
Two regions in a process of deindustrialisation, with shifting specialisation
Going through a deindustrialisation process, the regions of Banská Bystrica and Košice have experienced a shift from a traditional industry structure – mainly in mining, metallurgy and chemical industries – to services, that account in 2019 for 60.9% and 66.1% of regional gross value added respectively (OECD, 2022[11]) (Figure 6.2). These numbers denote a strong shift to services in Košice compared to all other regions (except Bratislava). 77.3% of gross value added in the capital region is indeed done in services, as compared to a country average of 65.1%.
The economic development of Banská Bystrica was driven by extensive mining activities and heavy industries (e.g. ironworks, paper, cement, aluminium and chemicals manufacturing), especially in the northern part. The southern part of the region has experienced less dynamic growth, holding a more peripheral role in the regional economic system. In particular, the proximity to the Hungarian border, in a context of post-World War geopolitical tensions, has deterred the settlement of industrial centres and the processing or deposits of metallic material in the area (Gregorová, 2018[7]), constraining local activities to agriculture. In 2019, 6.4% of the regional gross value added still comes from the agriculture, forestry and fishing sector, as compared to 2.8% on average in the country, making Banská Bystrica the first Slovak region in terms of value added and employment in agriculture (OECD, 2022[11])(Figure 6.2).
However, the metallurgy sector remains vibrant in the region and there are still niche enterprises in historical sectors such as glass and ceramics. After 1989 and the transition of the Slovak Republic to a market economy, many former enterprises have been able to transform to face new global conditions. The industrial structure of Banská Bystrica has a strong export-orientation and relies on the manufacture of car components, machines, steel pipes, and pulp, aluminium and paper. The manufacturing and construction sectors accounted respectively for 20.7% and 10% of regional gross value added in 2019, above national averages (20.3% and 7.6%) (Figure 6.2).
Another important sector of employment is the distributive trade, repairs, transport, accommodation and food services which employ 23.8% of total persons employed in the region (2019), i.e. the second largest sector of employment after the public administration (Figure 6.2). The Banská Bystrica region has succeeded to build upon its natural and cultural heritage. With mountains in the north and valleys in the south, the region has high levels of natural conservation (e.g. four national parks and protected landscape areas) and the most varied and diversified surface among all Slovak regions (Gregorová, 2018[7]). The region has turned into a popular winter and summer destination, developing new forms of tourism (Box 6.2).
Mining of raw materials leaves irreversible changes both underground and on the surface. There are relief changes in the form of caves, heaps, and tailing ponds. There is also environmental contamination with heavy metals (Cech et al., 2020[12]). Some mining brownfields – i.e. abandoned or devastated mining sites – have been transformed for tourism purposes in the Slovak Republic as in other Eastern European countries with similar mining tradition (Gregorová et al., 2020[13]).
Mining tourism represents a relatively new form of tourism combining adventure and adrenaline experiences with a new visual perception of the mining landscape, especially underground (Gregorová et al., 2020[13]). Tourists can visit mining cities or regions, mining museum, or sites that are not necessarily out of operation, and get exposure to historical (but also contemporary) technology, material and objects, such as facilities, buildings, tools etc., as well as mining tradition.
In addition, rural settlements that originated in mining or metallurgy industry have allowed to develop cottages, while topography proved to be suitable for outdoor leisure (e.g. hiking, cycling, skiing, and climbing) or water sports (Gregorová, 2018[7]).
Source: (Cech et al., 2020[12]), (Gregorová, 2018[7]) and (Gregorová et al., 2020[13]).
The Košice Region is one of the most important economic areas in the country (Košice Region Brussels Office, 2022[5]) and shares a number of similarities with the Banská Bystrica region in terms of specialisation. Core sectors include heavy industries from the early stages of industrialisation (metallurgical, mechanical engineering and chemical industries), manufacturing of electricals and textile, but also a fast-developing sector of information and communication technologies (ICT) services.
Metallurgy remains a dominant sector in Košice, accounting for 60% of industrial production and 50% of its exports (Košice Region Brussels Office, 2022[5]). US Steel Košice – the largest integrated steel producer in Central Europe – is a key employer in the region, with almost 9 000 people in its payroll (US Steel Košice, 2022[14])2. It also actively collaborates with selected high schools, universities and vocational institutions in the region, whose graduates are the main source for hiring (Chapter 3) (US Steel Košice, 2022[14]). The manufacturing and construction sectors still represent in 2019 24.6% and 23.6% of regional gross value added (as compared to 24.5% and 20.3% for national averages) (Figure 6.2).
The south of the region is characterised by its agricultural production, with important wine-growing areas (although agriculture contributes to a much lesser extent to regional value added than in Banská Bystrica – i.e. 2.9% against the 6.4% mentioned above – Figure 6.2) (Košice Region Brussels Office, 2022[5]).
The two regions have invested in tourism as a driver of local development. The distributive trade, repairs, transport, accommodation and food services employ 27.8% of total persons working in the Košice region (2019), which constitutes this time the largest employment sector before the public administration (24.7%).
However, the Košice region has also achieved economic diversification towards a number of knowledge-intensive, creative, and ICT-oriented sectors (Box 6.5). ICT services contribute to 7.1% of regional value added in 2019, as compared to 4.9% on average in the Slovak Republic and 4.0% in the Banská Bystrica region (Figure 6.2). This share is significantly above that of all other Slovak regions, including Bratislava (5.6%). The supply of IT services has increased significantly faster in the region over the past two decades than in the rest of the country (Figure 6.3). In addition, 9.7% of regional value added come from professional, scientific and technical activities, and administrative and support services, which compares slightly higher than the national average (9.5%).
The regional socio-economic performance in Košice and Banská Bystrica is still lower
Despite significant improvements in recent years, GDP levels remain low in the two regions examined as compared to the capital region. GDP per capita increased by over 45% in both Košice and Banská Bystrica over 2009-2019 – about twice the increase observed in the capital region (26%). However, overall levels (in USD per capita) remain low compared to the national average. The two regions are at the bottom of the national ranking in terms of GDP per capita level, followed only by Prešov.
The comparatively low economic performance of Košice and Banská Bystrica compounds with the high regional income inequalities that are observed in the Slovak Republic (Chapter 2, Figure 2.7). The Gini index that measures income inequality across regions is larger in the Slovak Republic than in the OECD, and larger than in many other Eastern European countries (OECD, 2021[15]).
Current global uncertainties risk to slow down post-COVID-19 recovery in Slovak regions, especially in Eastern Sovakia. The COVID-19 pandemic had a severe impact across the country, with GDP shrinking by over 6% in 2020 (Chapter 2, Box 2.1). Recovery is anticipated in 2022 and 2023. The recovery path however remains subject to relevant uncertainties as the Russia-Ukraine crisis, which started in the first quarter of 2022, weights on the country’s economic outlook (Chapter 2, Box 2.2). Eastern regions risk to be particularly exposed to the socio-economic impact of the crisis, due to their geographical location in close proximity to the Ukrainian border. The Košice region is at the forefront of welcoming and registering refugees fleeing the conflict. Two of the three currently functioning Slovak-Ukrainian border crossing points are located in Košice, while Michalovce – the second-largest city in the Košice Region – hosts one of the large-capacity refugee welcome centres set up in the country (Pwc Slovakia, 2022[16]) (Human Rights League and Mareena, 2022[17]) (OECD, 2022[18]).
Cross-region divides in income and growth performance are linked to cross-regional gaps in competitiveness. The Slovak Republic is ranked 42 among 141 economies in the 2019 Global Competitiveness Index, with a score of 66.8 out of 100. Although being in the upper third of the covered countries, the country’s position is below that of peer economies like the Czech Republic (which ranks 32), Portugal (34) or Poland (37) (World Economic Forum, 2019[19]) (NBPSR and ISA, 2019[20]). The relative weakness of Slovak Republic’s competitiveness performance finds roots in the significant imbalances across regions (Figure 6.4). The competitiveness of the Central and Eastern Slovakia is approximately half of that achieved by the capital region (OECD, 2021[15]).
Notes: The Regional Competitiveness Index (RCI) 2019 includes 74 indicators at the NUTS-2 level across the EU, most spanning the period 2015-2017, with some as recent as 2018 while a few others go back to 2014. The indicators are grouped into 11 pillars which, in turn, are organised into three sub-indexes: basic, efficiency and innovation factors of competitiveness. RCI 2019 was computed including the United Kingdom as a member of the EU because the reference period of all the indicators included in the Index is prior to the country’s official departure date from the Union (31 March 2019). Consequently, all the EU averages include 28 Member States.
Source: (EC, 2019[21]), European Regional Competitiveness Index 2019 and (Annoni, 2019[22]), EU Regional Competitiveness Index 2019. Based on (OECD, 2021[15]), SMEs and Entrepreneurship Policy in the Slovak Republic.
Central and Eastern Slovakia perform rather poorly in basic and innovation factors of competitiveness. Figure 6.5 compares the competitiveness performance of Eastern and Central Slovakia with the capital region based on the EU 2019 Regional Competitiveness Index (Annoni, 2019[22]). The two regions have a very similar profile. With the exception of two areas – i.e., macroeconomic stability and basic education – Central and Eastern Slovakia rank lower than the capital on all competitiveness indicators. Their performance is particularly weak in the areas of infrastructure, business sophistication and innovation. Such weaknesses are rooted into several factors, including in particular their recent industrial decline and shift in regional production; weaknesses in human capital and labour market operations; infrastructure deficiencies; and the poor state of the environment (OECD, 2021[15]).
Notes: The 2019 edition of the EU Regional Competitiveness Index includes more than 70 indicators at the NUTS-2 level across the EU, most spanning the period 2015-2017, with some as recent as 2018 while a few others go back to 2014. The indicators are grouped into 11 pillars which, in turn, are organised into three sub-indexes: basic, efficiency and innovation factors of competitiveness (Annoni, 2019[22]).
Sources: (Annoni, 2019[22]), EU Regional Competitiveness Index 2019.
Ageing population, brain drain toward the west and a general skills challenge weigh on regional imbalances
The Slovak Republic has in relative terms a larger active population base than other countries in the EU or the OECD. The dependency ratio, i.e. the share of less than 15-year-olds and more than 65-year-olds over the working-age population (15-64), was 47.9% in 2020, which compares low to the totals observed in the EU28 (55.8%) and OECD (54.1%) areas (OECD, 2022[6]).
However, the Slovak population is ageing rapidly. The country is subject to one of the fastest increases in the EU in the old-age dependency ratio, which is projected to surpass the EU average by 2050 (OECD, 2022[23]). This ageing trend weighs on the country’s economic outlook, exacerbating fiscal challenges from the COVID-19 crisis and putting long-term fiscal sustainability at risk (OECD, 2022[23]).
At regional level, Banská Bystrica has a slightly older population than most other regions in the country, including Košice, which makes it is comparatively more exposed to the adverse impacts of ageing. The share of elderly in total population (17.5%) is higher than at national level (16.6%) (OECD, 2022[6]). Košice, by contrast, has the second lowest elderly population ratio (15.3% of 65+ and 3.1% of 80+) among NUTS III regions, as well as a younger population.
Eastern and central regions are affected by significant out-migration towards the west, especially the capital city. The out-migration population tends to be characterised by young people who are highly qualified (GRNCOH, 2014[24]). The Bratislava region is by far the most attractive destination for inter-regional migrants in the Slovak Republic, especially the younger. The share of population coming from another region in Bratislava (1.42%) is about 5-fold than in Košice (0.25%) and Banská Bystrica (0.29%) (Figure 6.7, Panel A). Together with Trnava, Bratislava is also the only region having positive net regional mobility rate: in all the other Slovak regions, the share of population leaving to reside in another region exceeds that of incoming inter-regional migrants (Figure 6.7, Panel B). Košice scores relatively well as per the number of new residents aged 15 to 19 coming from other Slovak regions, ranking fourth across the eight Slovak NUTS III regions in 2019 (straight after the capital and its surrounding regions Trnava and Nitra), thanks to the attractiveness of its capital city and its emerging services economy (Figure 6.7, Panel C). The situation is different in Banská Bystrica, which had the lowest number of new residents aged 15 to 19 coming from other regions in 2019.
Source: OECD (2022), OECD Regional Database (accessed 16 February 2022)
Tertiary education attainment in the Slovak Republic is very low, achieved by only 26% of 25-64 year-olds compared to an OECD average of around 39% (Chapter 2) (OECD, 2022[25]) (OECD, 2021[26]). The national percentage is boosted by the performance of Bratislava, where the share of 25-64 year olds with tertiary education (46%) is almost double than at national level. In both Central, Eastern and Western Slovakia, the proportion of 25-64 year olds with tertiary education (22-23%) is closer to that observed in the Slovak Republic as a whole (Figure 6.8, Panel A). It is a low share by international standards, below the average 33% share observed in EU-28 regions.
The proportion of 18-24 year-olds not in education, employment or training (NEET) has been shrinking at national level, but the contribution of Slovak regions to this positive outcome is uneven. In the Slovak Republic, the share of 18-24 year-olds NEET dropped significantly from over 17% to about 12% between 2015 and 2019, falling below the EU-19 value (13%) (Figure 6.8, Panel B). At regional level, the stronger decrease (about ten percentage points) was observed in Central Slovakia. In Eastern Slovakia, by contrast, the share of NEET 18-24 year-olds – which in 2015 was around 20%, at par with Central Slovakia – has remained substantially stable over the years and stood at 19% in 2019, i.e. significantly higher than in any other Slovak TL2 region.
Note: Regions are defined at TL2 level (see Box 6.1 for more information on current data limitations and the territorial classifications used in this report). Panel B: *Data for Bratislava is 2015-2017.
Source: OECD (2022), OECD Regional Database (accessed 16 February 2022)
Evidence on digital awareness in Banská Bystrica is limited, but recent survey outputs are encouraging. A 2019 World Bank survey on the digital literacy of public transport users and not users in the Banská Bystrica region (World Bank, 2020[27]) revealed a widespread diffusion of smartphones among 16-26 year-old interviewees, which suggests a high level of digital awareness amongst this age group. Also, almost 70% of the transport users surveyed across all age groups used the Internet to obtain public transport information and nearly 50% used electronic transport payment systems. The relative diffusion of such digital services and solution suggests a good provision of basic digital skills among the Banská Bystrica population.
In all Slovak TL2 regions, ICT and digital skills seems to be in reasonably good supply by international standards. The average share of individuals using the Internet on a weekly basis in Slovak NUTS II regions (88%) is the same as in the Czech Republic and higher than in Poland (84%) and Portugal (80%). If Bratislava has the highest percentage of regular internet users among the peer European regions observed in Figure 6.9, Panel A (94%), the other Slovak TL2 regions also perform reasonably well by international standards (85-87%). The private use of e-commerce solutions also seems more common than in most peer regions abroad. The share of individuals who purchased goods and services online for private use over the previous year in Eastern Slovakia (73%) or Central Slovakia (75%) is higher than in any Polish or Portuguese comparator regions.
Notes: Regions are defined at NUTS II level (see Box 6.1 for more information on current data limitations and the territorial classifications used in this report).
Source: Eurostat (2022), Regional statistics, Regional digital economy and society (accessed 31 March 2022)
There are deficiencies in transport and digital infrastructure, especially in Central and Eastern regions
In the Slovak Republic, the quality of transport infrastructure varies across regions. Despite the central position of the Slovak Republic and good access to large European markets, the country’s transport networks are unbalanced, with uneven coverage across regions and rather poor inter-regional connectivity. The low quality of the infrastructure in the south and east of the country has affected FDI prospects in these regions (OECD, 2021[15]) with the costs of access from the east of the country to the rest of the EU estimated to be among the highest in the EU (Szczurek, 2017[28]). This has also an impact on inter-region access, trade and labour mobility.
The Košice region is accessible through a well-developed transport network that converges towards the regional city of Košice. The international airport connects the city and the region to the capitals or business centres of European neighbours, such as Prague, Vienna, Warsaw, London, Munich and Dusseldorf (Košice Region Brussels Office, 2022[5]).
The transport network in Banská Bystrica has gaps that limit connectivity, especially in lagging districts. The Banská Bystrica region has a reasonably good road network, despite poor road surfaces in some remote areas (World Bank, 2020[27]). The main Slovak Republic’s west-east motorway (D1) does not cross the region. However, the city of Banská Bystrica has a good highway connection to Bratislava. The regional international airport Sliac is used for chartered and private flights. The railway network quality is variable with speed restrictions and unreliability in some places. The region is not integrated in any trans-European rail corridor. Train service in mountainous areas is comparatively slow due to the tortuous curves in place to traverse mountain ranges (SARIO, 2014[29]). By contrast, the bus network has a much higher geographical penetration, with currently 319 bus lines in the region, which are connected to interregional and international bus services (World Bank, 2020[27]).
Digital infrastructure development is also uneven across regions, with Banská Bystrica lagging behind. The intensity of broadband Internet access, together with the associated skills and capacities base, matter for a region’s overall FDI attractiveness. Fixed internet subscription is significantly higher in the capital region than in any other region: 2019 figures indicate this is over 300 000 in Bratislava compared to approximately 210 000 in Košice and about 160 000 in Banská Bystrica (Statistical office of the Slovak Republic, 2020[8]). In Banská Bystrica, the share of household with Internet access (79%) is lower than in any other Slovak region and also significantly below the national average (82%). Košice, by contrast, performs in par with the capital region, with around 83% of households having access to the Internet (Statistical office of the Slovak Republic, 2020[8]).
Notes: Data refers to the eight Slovak self-governing regions, which are defined as TL3 regions in the OECD classification (and as NUTS III regions by Eurostat). (see Box 6.1 for more information on current data limitations and the territorial classifications used in this report). Data as of 31 March 2019.
Source: (Statistical office of the Slovak Republic, 2020[8]), Indicators T 17-1 and T 17-2.
Inward FDI is concentrated in Bratislava while Košice drives the FDI performance of the East
The east-west divide in economic performance and competitiveness which characterises the Slovak Republic also affects regional FDI stocks (Fabus, 2018[30]) (OECD, 2021[15]). The places with the highest FDI stocks are almost exclusively situated in Western Slovakia. Similarly, the regions with the lowest level of FDI stocks are situated in Central and Eastern Slovakia (Dudás, 2019[31]).
The performance of Bratislava in terms of FDI attraction surpasses all other regions. In 2019, the Bratislava region accounted for 69% of the total FDI stock in the Slovak Republic – that is, almost five times the cumulative share of the next two best performing regions (Žilina and Trnava, 14% in total) (Figure 6.11). Statistics on the Bratislava FDI stock could however be influenced by methodological issues, e.g. concentration of company’s headquarters in the capital city (Dudás, 2019[31]). But even looking beyond Bratislava, the FDI stock of western regions (Trnava, Trencín and Nitra, 14%) is higher than that of eastern regions (Košice and Prešov, 6%).
Source: National Bank of Slovakia (NBS), “Foreign Direct Investment”, www.nbs.sk/sk/statisticke-udaje/statistika-platobnej-bilancie/priame-zahranicne-investicie (accessed 18 March 2022).
The east-west divide in the FDI stock is also visible at the district level (Table 6.3). The top-10 sub-regional districts with the highest FDI stocks are almost exclusively located in Western Slovakia, with the five Bratislava city districts leading the ranking. All of the ten lowest ranking districts, by contrast, are located in central and eastern regions, with half of them in the sole Prešov.
The dominant share of the Bratislava region in total FDI stocks has remained substantially stable since 2012 (Grešš, 2019[32]). Bratislava’s comparative advantage in attracting FDI is likely to be rooted in its more favourable geographical location, infrastructure endowment and entrepreneurial environment (Grešš, 2019[32]) (Dudás, 2019[31]). Furthermore, the country’s key institutions are based in the capital region. The regions to the west of the Slovak Republic – in very close proximity to the capital region – are, most likely, benefiting from agglomeration effects which are strongly associated with concentrated FDI efforts in Bratislava.
If the west benefits from its proximity to the capital region, the center and the east lag behind. Košice is rather isolated in Eastern Slovakia as a reasonably strong FDI performer. The region accounts for 5% of the Slovak Republic total FDI stock – in par to the contribution of Trnava, Trenčín and Nitra in the west – and is responsible for almost 80% of Eastern Slovakia total FDI stock, far outstripping the performance of Prešov (Figure 6.11). The four Košice city districts drive the regional performance, attracting more than 75% of total regional FDI stock (National Bank of Slovakia (NBS), 2022[33]). Despite its central geography, the very different economic structure in Banská Bystrica has led to a very limited share of inward FDI (only about 2% of the national stock). FDI is concentrated in the central-northern part of the region (Banská Bystrica and Zvolen districts), while southern districts – less industrialised and more peripherical to the regional economy – fail to secure significant investment inflows.
Announced new greenfield investment projects based on fDi Markets data (Financial Times, 2021[34]) show the primacy of Western Slovakia as target region for such types of investment. Bratislava attracted almost one third of total greenfield capital investment in the Slovak Republic between 2010 and 2020 and roughly a further third went to the other western regions (Nitra, Trnava and Trenčín). The Košice region secured around 5% of total inward greenfield investment over the same period, while Banská Bystrica attracted less than 3%, ranking last among Slovak regions. The distribution of new jobs created from greenfield FDI across regions reflects the geography of investment. Greenfield investment generated 4 935 new jobs in the Banská Bystrica region between 2010 and 2020 (4% of the total), that is, less than one seventh of the 37 107 new jobs created in the Bratislava region over the same period. The Košice region performed better, securing 8% of all the new jobs created at national level in 2010-20 (although also remaining far below the Bratislava region).
Productivity premia of foreign firms are low across all Slovak regions
Productivity spillovers from FDI are more likely to occur if foreign firms perform better than domestic firms (OECD, forthcoming[35]) (Chapter 2). A productivity premium of foreign firms is observed across Slovak NUTS II regions, but it tends to be lower than in EU comparator countries such as Portugal, Latvia or Greece (Figure 6.12). In line to what is observed in the selected benchmarking economies, productivity gaps tend to be smaller in metropolitan regions, namely Bratislava. Central Slovakia, where Banská Bystrica is located, exhibits the lowest productivity differences between foreign and domestic firms.
The existence of a productivity advantage of foreign firms over domestic firms suggests some potential for spillovers. However, if the productivity difference is too large SMEs may face difficulties in closing the gap. Relatively lower differences in productivity, by contrast, could suggest narrower performance gaps and better absorptive capacities of domestic SMEs, which could facilitate knowledge exchange with foreign partners.
Note: See methodology in OECD (OECD, 2019[36]).
Source: (OECD, 2019[36]), FDI Qualities Indicators using data from the World Bank Enterprise Surveys.
Greenfield investors in Košice and Banská Bystrica target a limited number of industries
Both in terms of capital investment and jobs created, greenfield investment in the Košice region is concentrated in a narrow number of industries, reflecting regional economic specialisation (Figure 6.13, Panel A). The metal industry (steel, aluminium and other fabricated metal products as well as machine shops, turned products, screws, nuts and bolts) is the main target of foreign greenfield investors in Košice, accounting alone for almost 30% of total inward capital investment and 20% of the related jobs generated in the region between 2010 and 2020. The construction and automotive components industries overall attracted a further 40% of total greenfield investment (and over half of all new jobs generated) over the same period. The remaining regional stock of greenfield investment is distributed across a broad range of industries, including chemicals; communication; ICTs and Internet infrastructure; energy; and a number of services of higher value added (e.g. R&D, sales, marketing and support).
Greenfield investment in Banská Bystrica is even less diversified. The construction and automotive components industries also account for the bulk of inward greenfield investment in Banská Bystrica (Figure 6.13, Panel B). Each of these industries attracted around one quarter of total investment received between 2010 and 2020 and one third of the jobs it generated. Other manufacturing industries – including chemicals, ceramics and glass, metals or plastics – account for the rest of the regional inward greenfield investment stock, while the services sector (mainly business services, logistics, distribution and transportation) attracted a much smaller share of investment in the period observed. The high sectoral concentration of greenfield FDI in the two regions presents vulnerabilities in these territories to any downturn in the related sectors.
Source: (Financial Times, 2021[34]), Financial Times fDi Markets database (accessed July 2021).
Both regions count mostly micro firms and SMEs are unevenly distributed across economic sectors and regional districts
Micro firms account for the bulk of the business population in both Banská Bystrica and Košice. The Slovak business population is strongly characterised by micro and single person businesses (Chapter 2) (OECD, 2021[15]). The situation does not differ at regional level in both Banská Bystrica and Košice, where micro firms represent 90% of the total business population (OECD, 2022[37]). As observed at the national level, the prevalence of micro firms in the business population is a hampering factor for the aggregate productivity of these regional economies and can also deter foreign investment, reducing opportunities for FDI spillovers. Common challenges for micro businesses indeed include poor scale-up capacity and difficulties in absorbing knowledge and technology which can constraint the type of investments multinationals make in the regions.
SMEs density – i.e. the number of SMEs per 10 000 inhabitants – in Bratislava outstrips that of the other regions form the Slovak Republic (Table 6.4) (OECD, 2021[15]). Differences in SMEs density across regions outside the capital are also sharp. Banská Bystrica and Košice have the lowest SMEs density among Slovak regions.
Both in Košice and Banská Bystrica, SMEs operate in a limited number of sectors. In Banská Bystrica, firms above 10 employees are concentrated in the transportation and storage and industry sectors, while the rest of the economy appears to be dominated by micro firms (OECD, 2022[37]) (Figure 6.14). In sectors where SMEs are underrepresented, the likelihood of knowledge transfer from FDI to the domestic business centre is limited. In Košice, in addition to industry, some SMEs operate in information and communication, where firms register an above-average size of 14.7 employees each (the average in total economy being of 8 employees). This (most likely) reflects the dynamism of this fast-developing sector of the regional economy (Box 6.5) and increases the potential for FDI spillovers to materialise. In both regions, overall, SMEs and large firms are less broadly represented across the economy than in Bratislava, where the average size of firms exceeds the threshold of ten employees in a larger number of economic activities, including wholesale and retail, financial and insurance activities and real estate activities.
Notes: * Industry: excluding construction. ** Financial and insurance activities; real estate activities: except activities of holding companies. *** Total economy: industry, construction and services excluding insurance activities of holding companies.
Source: (OECD, 2022[37]), OECD Regional Statistics database: Business demography.
Both in Košice and Banská Bystrica, firms are unevenly distributed across sub-regional districts. SMEs and larger firms tend to cluster together in metropolitan and most developed areas, driving sharp sub-regional imbalances in entrepreneurial activity. This limits the potential for FDI spillovers to the local economy in the less developed districts, as foreign investors also tend to target the more industrialised and urbanised areas within the two regions. In the Košice region, the regional firm stock is concentrated around the capital (districts of Košice I-IV, Gelnica and Košice Okolie) – where almost all the large firms in the region also operate – while peripheric districts report less active firms (Statistical office of the Slovak Republic, 2020[8]) (OECD, 2021[15]). In Banská Bystrica, district-level differences in entrepreneurial activity are also sharp. Large firms above 50 employees appear to be concentrated in a few central and northern districts (e.g. Banská Bystrica (capital district), Banská Štiavnica, Brezno, Detva, Krupina). The number of active businesses in the capital district of Banská Bystrica is around 22 times higher than in the neighbouring districts of Žiar nad Hronom or Žarnovica.
Lower business survival and scale up capacity can prevent the formation of linkages with MNEs…
The Slovak Republic has one of the highest business start-up rates across OECD countries, but it also has among the lowest new enterprise survival rates – which most probably reflects the scale-up difficulties of its very large population of micro firms (Chapter 2). The rate of firm creation in Bratislava is lower than in the other Slovak regions (Table 6.4), but this suggests a more resilient SME and entrepreneurship ecosystem, with less firm deaths and higher survival rates (OECD, 2021[15]). In both Banská Bystrica and Košice, the rate of firms’ death is about twice than in Bratislava, and only about 63% of new firms survive three years after creation, against 67% in the Slovak Republic as a whole and about 80% in Bratislava (Table 6.4).
Low business survival rates in the two regions under review can deter FDI in these territories, not least because of an unpredictable supply chain. Targeted support and reforms to boost the survival rates of SMEs and micro businesses can generate a more attractive investment environment. Strategic collaboration efforts, which serve to benefit both MNEs and local businesses, can best be achieved in a more stable business environment (OECD, 2021[15]).
R&D capacity concentrates in the capital region
At the regional level, R&D capacity is concentrated in Bratislava. The capital region accounts for about half of total gross domestic spending on R&D in the Slovak Republic (Chapter 2) (Figure 6.15, Panel A). Bratislava also concentrates 55% of government R&D expenditure. Furthermore, Bratislava has 3.5 times as many R&D workers as Košice and over 7 times as many as Banská Bystrica (Statistical office of the Slovak Republic, 2020[8]). This indicates that skills, capacity and infrastructure related to R&D are mainly concentrated in the capital region, that contributes disproportionally to the national STI system.
Košice drives the R&D performance of Eastern Slovakia. It is the second Slovak region in terms of government R&D expenditure (accounting for 12% of the total) and R&D staff endowment (13%). It also accounts for 9% of total R&D expenditure in the Slovak Republic, ranking fourth across the eight NUTS III regions.
Notes: R&D personnel includes persons employed directly in the field of R&D as well as persons providing direct services to R&D (headcount). Other sources of expenditure: higher education institutions, private non-profit organisations and funding from abroad. Data refers to the eight Slovak self-governing regions. These correspond to the 8 OECD LT3 regions (OECD, August 2021[3]) and to the eight EU NUTS III regions of the Slovak Republic
Source: Statistical office of the Slovak Republic (2020), Yearbook of science and technology in the Slovak Republic 2020, https://slovak.statistics.sk.
R&D expenditure in Slovak SMEs increased significantly in recent decades, but remains below the OECD average (Chapter 2). This is a constant feature across businesses of all sizes (e.g. even MNEs invest little in R&D by international standards), with a high concentration of business R&D in a few large companies in automotive and electronics sectors. This, in turn, reinforces and perpetuates the Slovak Republic’ status as an assembly hub of intermediate, imported inputs, whose competitiveness is still derived from low production costs.
In absolute terms, business enterprises in Košice and Banská Bystrica spend almost the same amount in R&D – that is, about one sixth than in the Bratislava region. In Banská Bystrica, however, business R&D represents about half of total R&D spending, while in Košice business enterprises account for only 32% of total R&D – a figure that is more similar to that observed in Bratislava (37%) (Figure 6.15, Panel B). Like the capital region indeed, Košice attracts a higher share of R&D funding from government, HEIs, private non-profit organisations and foreign sources, resulting in a more diversified R&D expenditure structure. In western and northern regions outside the capital, the business sector accounts for a significantly higher proportion of total R&D expenditure – up to 70% in Trnava and 90% in Trenčin, which probably reflects the activity of larger firms (including multinationals) operating in the local manufacturing clusters.
In both Košice and Banská Bystrica, business R&D expenditure as a share of the regional GDP stands between 0.2 and 0.3%, which is lower than in the Slovak Republic as a whole (0.4%), and also ranks low across the eight NUTS III regions (Figure 6.16). The TL2 region of Eastern Slovakia, where Košice is located, also lags far behind the other NUTS II regions in terms of R&D staff employed by the business sector – i.e. 0.18% of total employment in 2018, which is about half than in Central and Western Slovakia (around 0.30%), as well as in the Slovak Republic as a whole (0.36%) (OECD, 2022[38]).
Notes: Panel A: Data refers to the eight Slovak self-governing regions. These correspond to the 8 OECD LT3 regions (OECD, August 2021[3]) and to the eight EU NUTS III regions of the Slovak Republic. Panel B: Regions are defined as TL2 level based on the OECD territorial grid (OECD, August 2021[3]).
Source: Statistical office of the Slovak Republic (2020), Yearbook of science and technology in the Slovak Republic 2020, https://slovak.statistics.sk (accessed 23 May 2022); (OECD, 2022[38]), OECD Regional Statistics database: Regional Innovation (accessed 23 May 2022).
Firms in Eastern and Central Slovakia are relatively well integrated in international patent co-operation networks
The degree to which patenting results from collaboration (either within the same region or country or with foreign regions) may shed some light on the level of R&D co-operation and knowledge exchange in national or local economies. Co-patenting implies the ability to establish external contacts and collaboration to access knowledge, technology, competences and skills that are needed to innovate. Co-patenting involving foreign investors also provides some insights on the degree of research internationalisation and firms’ integration in international knowledge networks (OECD, 2017[39]).
Overall, co-patenting is less diffused in Slovak regions compared to peer EU regions. In 2015, the number of co-patent applications filed under the Patent Co-operation Treaty (PCT) in Slovak regions compared low with peer regions in Portugal, Poland and the Czech Republic (Figure 6.17, Panel A).
International co-invention, however, seems relatively common among Slovak firms. In 2015, the share of co-patents involving partners from abroad was 90% in Central Slovakia, which ranks very high across comparator regions (Figure 6.17, Panel B). In Eastern Slovakia, almost 70% of co-patents resulted from collaboration with foreign regions, which is close to the average share of peer regions included in Figure 6.17.
Notes: Regions are defined as TL2 level based on the OECD territorial grid (OECD, August 2021[3]). Selected comparator regions are Portugal, Poland and the Czech Republic’s TL2 regions.
Source: (OECD, 2022[38]), OECD Regional Statistics database: Regional Innovation (accessed 23 May 2022).
Promoting and facilitating productivity-enhancing FDI
SARIO’s subnational offices in Košice and Banská Bystrica hold primary responsibility for FDI promotion in the two regions
Government agencies acting upon FDI-SME ecosystems have a larger footprint in Košice and Banská Bystrica than in any other regions outside the capital. Slovak government agencies have recently expanded their presence and services at subnational level through the establishment of regional offices and branches (Chapter 4). Outside Bratislava, Košice and Banská Bystrica host the majority of these subnational offices, reflecting their key relevance to the economy of Eastern and Central Slovakia (Figure 4.2). All the three main government agencies acting upon FDI-SME ecosystems under the Ministry of the Economy – namely the Slovak Business Agency (SBA), the Slovak Innovation and Energy Agency (SIEA) and the Investment and Trade Development Agency (SARIO) – operate regional centres in both Košice and Banská Bystrica. The presence and operation of these regional centres can be a factor in local FDI attraction and embeddedness, provided that effective linkages and collaborations are established with local investment promotion stakeholders (self-governing bodies, business networks and associations, etc.). Adequate policy attention should be paid to providing these subnational offices with the necessary autonomy and resources to tailor their services to the particular needs of their local area, build their own contacts and brands, and lead partnerships with regional and local authorities (Chapter 4).
The Slovak Agency for Investment and Trade (SARIO) holds primary responsibility for FDI promotion in Banská Bystrica and Košice. In addition to its headquarters in Bratislava, SARIO operates two regional offices in Košice and Banská Bystrica, which ensure its presence and activity not only in the two regions in question but also in the wider TL2 regions of Eastern and Central Slovakia. Through its regional offices, SARIO is the main public agency for investment promotion and attraction in Košice and Banská Bystrica. Indeed, since the former East Slovakian Investment Agency ceased its operation in 2019, no autonomous subnational investment promotion agency seems to operate in Košice, Banská Bystrica or the neighbouring TL2 regions.
Governments can adopt a wide range of institutional arrangements for FDI promotion and facilitation at subnational level, depending among others on the country size, the overall level of centralisation of the economic policy and the related multilevel governance mechanisms (OECD, 2021[40]). Similarly to the Slovak Republic, many other OECD economies have a centralised system of national IPAs that interact with subnational branches, including Ireland or the Czech Republic (OECD, 2021[40]). Other IPAs do not have subnational branches and rather rely on autonomous subnational bodies and institutions for local investment promotion and facilitation – this is the case for almost half of OECD IPAs (OECD, 2018[41]).
There is room to enhance the level of collaboration and engagement of the local network of FDI promotion and facilitation stakeholders
As part of its pivotal role in regional investment promotion, SARIO’s office in Košice interacts and maintains relationships with a wide network of regional stakeholders, mostly as information providers and reference suppliers. These include regional and municipal authorities, although poor organisation and co-ordination often limit the scope of self-governing bodies’ contribution and engagement in investment promotion and facilitation activities (Capik, 2019[42]). The adoption of tailored co-ordination mechanisms could help overcome these challenges. For instance in Sweden, a code of conduct agreement among the national IPA and the regions was established to better communicate opportunities and encourage exchange of information. As another example, the French IPA (Business France) has designed a formal information-sharing process to increase the efficiency of the collaboration with France’s 13 regions (OECD, 2021[40]) (OECD, 2018[41]).
The overall involvement of private capital in FDI promotion and facilitation activities in Banská Bystrica and Košice remains limited. The activities of the US Steel Economic Development Centre (EDC) in Košice between 2001 and 2007 represented a notable exception to the otherwise scarce engagement of private enterprises (Capik, 2019[42])(Box 6.3). Local chambers of commerce (such as the American ones – see also infra) also support SARIO’s investment promotion activities in both Banská Bystrica and Košice by acting as information sources and networking platforms amongst their members. Collaborations with SARIO’s regional offices are often project-specific and their intensity can vary on an ad hoc basis (Capik, 2019[42]).
The US Steel Economic Development Centre (EDC) in Košice represented an interesting example of private capital participation in the investment attraction process, and a unique one in Central-Eastern Europe.
The EDC was founded in 2001 with the primary objective of contributing to regional promotion and investment attraction to Eastern Slovakia. The EDC was initially planned to operate for a two-year period, but US Steel Košice ended up running it for six years, unit it was moved under the umbrella of the Košice Self-governing region as of 1st January 2008.
The EDC developed an extensive network of partners including public institutions such as SARIO, local and regional authorities, and universities. Being a part of US Steel, the EDC could leverage the company’s far-reaching international contacts in preparing and performing a variety of promotional activities, ranging from the publication of promotional materials to the organisation of road-shows. The Centre’s promotional activities mostly targeted the United States and Canada and aimed to attract manufacturing investors with potential to have a positive impact on the regional labour market.
During its six years of operation, the Centre drew 26 foreign investors to Slovakia, corresponding to an aggregate investments of USD 250 million, creating over 4 000 new workplaces.
The model developed by the EDC has subsequently been emulated in other parts of Europe. Upon the purchase of the Serbian steelmaker, Sartid, US Steel opened a comparable Economic Development Centre in Belgrade.
Source: (Capik, 2019[42]); (The Slovak Spectator, 2008[43])
Košice is one of the largest beneficiary regions of SARIO’s investment promotion and attraction activities, while Banská Bystrica has taken less advantage from them
Investment promotion agencies operating at subnational level play an essential role in reducing the information asymmetries that firms face when searching for a location and simultaneously use this knowledge of firm preferences to promote their regions (OECD, 2022[44]). In Banská Bystrica and Košice, SARIO’s regional offices offer a variety of services aimed to promote and facilitate investment, support matchmaking between FDI and local firms and embedding FDI in the local economy. These services include the provision of information to foreign investors, including tailored analysis on the regional labour pool, the biggest local employers and potential sourcing partners. They also include consultancy services to foreign companies and support to networking between self-governing bodies; the local business sectors; regional universities and research institutions; and foreign investors. SARIO’s regional offices also monitor and map available real estate in the regions and formulate tailored offers to local and foreign investors interested in starting or expanding their business in Central and Eastern Slovakia (SARIO, 2022[45]).
Košice is one of the largest beneficiary regions of SARIO’s investment promotion and attraction activities, while Banská Bystrica seems to take less advantage from them. Since 2002, SARIO supported more than 600 investment projects at national level, whose regional distribution (also in terms of job creation) is shown in Figure 6.18. After Nitra, Košice appears to be the second largest beneficiary from SARIO’s investment support activity, gathering 14% of all investment projects supported. The region also secured 14% of the jobs generated by the supported investment, ranking fourth across the eight Slovak NUTS III regions. Banksá Bystrica benefitted less from SARIO’s FDI promotion activity. Only 11% of total investment projects supported by SARIO indeed, and 10% of the jobs generated, were located in the Banská Bystrica region – only the Prešov region in Eastern Slovakia ranks lower.
Overall, the proportion of investment projects supported by SARIO in central and eastern Slovak regions increased over the period 2002-21 (SARIO, 2022[46]). Moving ahead, due policy attention should be paid to boost this trend and at same time strengthening SARIO’s focus on promoting and facilitating investment in lagging regions and districts, including Banská Bystrica and the less developed areas of Eastern Slovakia.
Source: SARIO (2022), Overview of successful SARIO projects, www.sario.sk/sites/default/files/sario-success-stories-2022-03-01-sk.pdf
The recent adoption of a place-based approach in the design of investment incentives has not yet shown significant impact on the investment performance of the lagging regions
In the Slovak Republic, the majority of FDI-SME diffusion policies applies to all regions in equal terms (Chapter 5) (EC/OECD, 2021[47]). However, FDI promotion policies have a stronger regional focus compared to other policy areas, as for instance SME innovation support programmes, and seek to enhance investment attraction in lagging regions.
The adoption of a place-based approach in Slovak FDI policy is relatively recent. Some increased attention to regional convergence in the design of FDI promotion policies was observed since the early 2000s, mainly spurred by the EU enlargement process and an adaptation to the European state aid rules. Before then, FDI promotion policy in the Slovak Republic had no regional development focus (Šipikal, 2011[48]). As other central European economies in the same years, the Slovak Republic concentrated its policy efforts on attracting FDI within its borders, without prioritising less developed regions over the others (Fabus, 2018[30]).
The current Regional Investment Aid Scheme, adopted in 2018 – i.e. the main instrument to support and facilitate productivity-enhancing investment in the Slovak Republic – applies to all regions outside the capital and offers preferential conditions for investment in Central and Eastern Slovakia with a particular focus on the least developed districts (LDDs). Investment in Eastern Slovakia, including Košice, can benefit from an aid up to 50% of the eligible costs. For investment targeting Central Slovakia, where Banská Bystrica is located, the maximum investment aid is 40% of eligible costs. Eligible costs include the purchase or rent of land and buildings, new technology and machinery, intangible assets (e.g. patents), or the wage costs of new employees for a 2-year period (SARIO, 2021[49]).
In spite of the strong regional imbalances, investment incentives in the Slovak Republic historically targeted the more developed regions (Fabus, 2018[30]). Over the period 2002-21, the Slovak Ministry of Economy awarded 235 investment incentives, about 85% of which targeted foreign investors (MH SR, 2022[50]). Table 6.5 details the results across regions. They show that the bulk of incentives was spent in the more developed areas of the country (Kristály, 2017[51]). In the east, Košice secured the fourth highest amount on incentives and the highest number of investment-driven jobs over 2002-21. The less developed central and eastern regions of Banská Bystrica and Prešov lag behind in terms of total amount of incentives received, volume of investment attracted and jobs generated. So far, the adoption of a more place-based approach in the design of investment incentives since 2018 seems to have had limited success in reversing these trends and raising the incentive shares of the lagging regions.
Investment incentives are a relatively common tool to address market failures, e.g. in the Slovak case lagging investment in the less developed regions, and narrow disparities in regional FDI attractiveness. Their implementation, however, requires regular monitoring to assess their effectiveness, evaluate the costs and benefits and ensure their transparency. In the Slovak Republic, the limitations recently introduced to state support in the most developed regions seem to have had limited impact as yet on regional disparities in incentives distribution, and therefore in investment attraction, across Slovak regions. Moving ahead, adequate evaluation and monitoring mechanisms should be put in place in order to carefully and regularly assess the efficiency of the existing financial incentive measures in supporting regional development and convergence in the Slovak Republic and allow for potential adjustments, in order to optimise the use of the public funding involved.
Supporting entrepreneurship and innovation
Government innovation and entrepreneurship agencies have a fair footprint in Košice and Banská Bystrica
In both Banská Bystrica and Košice, government innovation and entrepreneurship agencies have a fair regional footprint. The Slovak Business Agency (SBA) and the Slovak Innovation and Energy Agency (SIEA), i.e. the main government agencies acting in the field of entrepreneurship and innovation support under the Ministry of the Economy, operate regional offices respectively in Košice and Banská Bystrica (Chapter 4). The SBA’s National Business Centres (NBCs) set up in the capital cities of both regions serve as one-stop-shops for the delivery of business development services through the organisation of seminars, creative workshops, mentorship and business incubation programmes.
Košice and Banská Bystrica also respectively host two of the five European Commission’s Business Innovation Centres (BICs) established in the Slovak Republic, offering business counselling and consulting, investment consulting, information on (and linkages to) financing, technology transfer, advice on EU programmes, and networking opportunities (OECD, 2021[15]).
In spite of their legislative and financial constraints, self-governing bodies have a role to play in supporting regional entrepreneurship and innovation
Subnational tiers of government (i.e. regions and municipalities) in Slovak regions play an important role in supporting local entrepreneurial ecosystems through their wide range of responsibilities in the related areas of business development, education, infrastructure (including the construction and management of industrial parks) and supervision of economic activities (Chapter 4). For instance, the Košice regional and municipal governments support innovative entrepreneurship by facilitating networking, linkages and co-ordination between the different actors of the regional innovation and entrepreneurship ecosystem, including universities, research organisation, cluster organisations and other innovation stakeholders operating locally (Lavčák, 2015[52]).
The Banská Bystrica Self-Governing Region also supports innovation and entrepreneurship, either directly or through its agencies. In Banská Bystrica, regional government’s initiatives for entrepreneurship and innovation include a publicly-available online directory of the companies operating in the region, which is searchable by economic sector and company size (Banská Bystrica Self-governing Region, 2022[53]). The Banská Bystrica Development Agency, which is established and financed by the Banská Bystrica Self-Governing Region with an annual budget of EUR 1.5 million in 2020, implements diverse policies in the area of entrepreneurship and innovation support, both autonomously and in co-operation with other institutions, including regional branches of government agencies such as SIEA or SBA. Box 6.4 provides some examples of these policy initiatives.
Limited powers and financial resources currently restrict the scope of action of regional governments in the areas of innovation and entrepreneurship (Balaz, 2011[54]). In the Slovak Republic, innovation policy is not devolved to subnational self-governing authorities. The lack of funding at the local level limits the effectiveness of self-governing bodies in implementing local and regional strategies, including in the area of entrepreneurship and innovation (OECD, 2021[55]). More financial and legislative autonomy could increase the scope for regional governments’ action in support of regional innovation and entrepreneurship ecosystems (Horehajova, 2018[56]).
Innolab
The pilot phase of this policy initiative was launched by the Banská Bystrica Development Agency at the beginning of 2021. Innolab is a physical space dedicated to stimulate regional creativity and innovation. It supports entrepreneurship development in the Banská Bystrica region through workshops, networking initiatives and support to the implementation of innovative business initiatives. Innolab aims to strengthen the capacity of regional firms and entrepreneurs to innovate and use new technologies, as well as develop skills in the local labour force in line with the needs of foreign firms. (www.innolabb.sk/)
Innovation Vouchers
The Innovation Vouchers initiative was launched in June 2021. The programme is implemented by the Banská Bystrica Development Agency in collaboration with the Slovak Innovation and Energy Agency (SIEA). Innovation Vouchers aim to promote and facilitate R&D and technology partnerships, as well as other types of collaborative projects (e.g. open innovation networks, joint bid for public procurement, etc.), among local businesses in the Banská Bystrica region. The programme targets all firms equally, irrespectively of their size or ownership (domestic vs. foreign). Beneficiaries include firms from all sectors, except fishery and aquaculture, as well as primary production, processing and marketing of agricultural products. (www.webnoviny.sk/vtechnologiach/siea-podpori-podnikatelov-v-banskobystrick om-kraji-dostanu-inovacne-poukazky-video/)
Source: (EC/OECD, 2021[47]), EC/OECD Survey on FDI-SMEs Policies in EU Member Countries.
Both regions have a fairly developed network of regional higher education and R&D institutions which may support local entrepreneurship and innovation ecosystems
Both Košice and Banská Bystrica host universities and R&D institutions of national relevance, which may contribute to enhance the regional entrepreneurial and innovation ecosystems. Universities have a role to play in fostering the business and innovation environment in the regions where they are located, for instance by providing more opportunities for entrepreneurship education or developing research and innovation partnerships with the business sector. The Košice region, which hosts 13% of the country’s university students, has three public universities: the Technical University of Košice (TUKE), the Pavol Jozef Šafárik University (UPJŠ), and the University of Veterinary Medicine and Pharmacy (UFVL) – all featuring research centres of national relevance in diverse fields, including natural science, energy, informatics, mechanical engineering and manufacturing technologies. The Slovak Academy of Science (SAS) – the main research performing institution in the Slovak Republic (OECD, 2016[57]) – also has a number of regional workplaces in Košice (7 specialised institutions including materials research, experimental physics, geotechnics, neurobiology, parasitology, livestock physiology and social sciences).
The Banská Bystrica region also has a fairly developed university network, featuring three public universities and the Faculty of Health of the Slovak Medical University based in Bratislava. The Matej Bel University (MBU) is the largest regional university based in the region’s capital, Banská Bystrica. It was established in 1992 and is rather humanities-oriented, with 6 700 students in six faculties: economics, political sciences and international relations, natural sciences, arts, education and law (World Bank, 2020[58]). The Technical University in Zvolen (TUZVO), with 2 350 students, has a unique national specialization in wood and forestry sciences – which reflects the region’s high levels of natural conservation (Lesáková, 2011[59]) and is also pertinent to the regional economy, offering opportunities for R&D collaboration with the private sector (e.g. wood processing companies and furniture producers) that could be further strengthened. The Academy of Arts (AoA) has approximately 600 students in dramatic, performing and fine arts. The Faculty of Health of the Slovak Medical University in Bratislava is also based in Banská Bystrica. It provides education in nursing, physiotherapy, and urgent medical care.
Several institutes of the Slovak Academy of Science (SAS) are also located in the Banksá Bystrica region. Among others, Inoval, a SAS research centre, specializes in aluminium research and is highly active in collaborating with industry. The centre was founded in the heart of the Slovak aluminium industry in the town of Žiar nad Hronom, where a cluster of aluminium companies is located. Inoval established five joint laboratories with industry, and supports PhD theses and diploma works. One of these joint research efforts resulted in a technology to produce car engine parts made of composites created from aluminium powders. The centre has other research lines pending and prototypes with potential for commercialization (World Bank, 2020[58]).
Universities can also support regional innovation and entrepreneurial ecosystems by providing entrepreneurship support infrastructure, particularly business incubators. The start-up and incubator centre at the Technical University of Košice (TUKE) focuses on innovative business projects from the Košice region. It supports the development of high-tech SMEs – both start-ups and spin-offs – mainly based on the outputs of research conducted under the aegis of the Slovak Academy of Sciences (SAS). The services provided include professional counselling, coaching and mentoring, and business models evaluation. The centre is a key component of the TUKE University Science Park (USP) TECHNICOM, a collaborative project conducted with the co-operation of the other universities in the region (https://startupcentrum.tuke.sk/).
Source: OECD based on American Chamber of Commerce (https://amcham.sk/policy-advocacy/regional-capital) and Interreg Europe (2020), Interreg Europe Policy Learning Platform - Peer review: Košice Self-governing Region 2020, https://www.interregeurope.eu/filead min/user_upload/plp_uploads/Peer_reviews/Peer_review_Kosice_self_governing_region_final_follow_up.pdf.
The overall lack of innovation capacity and culture in regional firms is a barrier to private sector engagement
Both Košice and Banská Bystrica witness examples of business associations’ involvement in regional SMEs and entrepreneurship support. For instance, local chambers of commerce in both regions play a role in furthering the interests of SMEs and strengthening regional business and innovation networks. In Košice, among others, the American Chamber of Commerce (AmCham)’s has been supporting entrepreneurship and innovation networks in the region through its office in the capital since 2004. AmCham’s activities focus on connecting companies, academia, startups and other actors involved in the development and creation of new jobs with high added value. AmCham has more than 70 member companies operating in the east of the Slovak Republic. Every year, AmCham organizes in Košice the East Innovation Conference, attended by member companies, students, politics and the general public. The conference wants to point out positive examples of start-ups and established companies and their R&D centres and highlight the potential of the region of Eastern Slovakia in the field of innovation (https://amcham.sk/). In Banská Bystrica, the regional office of the Slovak Chamber of Commerce and Industry (SOPK) (www.sopk.sk/bb) provides a broad range of business support services such as legal and financial consultancy for entrepreneurs, trade information services, development of foreign trade relations, organization of trade missions, educational activities, or the organization of professional workshops, meetings and seminars.
The overall lack of innovation capacity and culture in regional firms currently represents a barrier to the direct engagement of the private sector in the development of the regional entrepreneurial ecosystem. In Central and Eastern Slovakia, the R&D and innovation capacity of the business sector is relatively weak by international standards and there is a high proportion of micro firms with limited scaling up and innovation potential in the total business population (see infra – SMEs absorptive capacity). This situation also appears to limit the capacity of the business sector to get involved in regional innovation and entrepreneurship policy making and implementation processes. The lack of innovation culture in smaller businesses is another factor that limits the private sector’s engagement in regional entrepreneurship and innovation policy (Klimovský, 2011[60]).
There is a need to improve the monitoring and evaluation of regional innovation strategies
Even in the absence of a formal devolution of innovation policy, regions may tend to adopt governance frameworks such as innovation and entrepreneurship strategies to improve co-ordination among local innovation stakeholders and enhance the overall coherence of their policy action (OECD, 2011[61]). The adoption of regional innovation strategies in the Slovak Republic is relatively recent. The first two regional innovation strategies were developed for Bratislava and Nitra in the early 2000s. In the subsequent decade, innovation strategies were also adopted by the other six regions (Horehajova, 2018[56]). There is a lack of evidence and information on the outcomes of these first experiences and their overall impact on regional entrepreneurship and investment performance.
Since 2021, the Košice region has a new Regional Innovation Strategy 2021-2030, which aims to develop a modern and creative environment for the emergence of innovative companies with cutting-edge technology (Košice Self-Governing Region, 2021[62]). The strategy was established by the Kosice Self-Governing Region, which is also responsible for its implementation. The strategy was defined via a participatory process involving representatives from the public, business, academic and non-profit sectors.
The strategy aligns to Smart Specialisation Strategy (S3) principles and builds on the national Smart Specialization Strategy (RIS3) 2021+, as well as the Economic and Social Development Programme and the Integrated Territorial Strategy (IÚS) of the Košice Self-Governing Region (Košice Self-Governing Region, 2022[63]). The Strategy’s focus on managing innovation and innovation processes is underpinned by strong coordination ambitions with national and regional innovation-oriented agencies or institutions. The strategy puts the accent on improving networking and connectivity among regional innovation actors and strengthening co-operation at regional level between research institutions and industry, thereby enhancing the commercial exploitation of R&D. It is unclear to what extent the strategy focusses specifically on FDI attraction or strengthening FDI-SMEs linkages for innovation, but its overall focus on supporting networking and collaboration among regional innovation actors could be conducive to raising the attractiveness of the regional innovation system to foreign investors. Appropriate monitoring and evaluation mechanisms will need to be adopted in order to assess the strategy’s implementation and its impact on the regional investment performance.
With funding support from the 6th EU Framework Programme for Research, Technology Development and Demonstration, the Banská Bystrica region adopted a regional innovation strategy in 2008 (BabyRIS, 2008[64]). The Regional Innovation Strategy of Banská Bystrica Region (BabyRIS) was developed since 2005 with the assistance of two foreign and one national partners – the Abruzzo Region in Italy, the Southern Estonia Region and the Nitra Self-governing Region – which contributed their experience in the preparation and implementation of the innovation strategies in their respective territories. Based on a SWOT analysis, the strategy identified five priorities for the regional innovation policy: innovation policy and culture; human resources for innovation; cooperation in innovation development; support of innovative companies; regional infrastructure for innovation. It is unclear whether a specific timeframe was established for the implementation of this strategy or if any evaluation exercise has ever been undertaken to assess its progress.
Košice city offers one of the best business environment across the country
In the Slovak Republic, regulatory hurdles on Slovak entrepreneurs may vary significantly across regions and cities. The high level of decentralisation for providing administrative services such as construction permits and the small size of municipalities has led to important differences in business operating environments across the country. According to the WB Subnational Doing Business 2018 – which assessed the business regulatory environment in the five cities of Zilina, Prešov, Košice, Trnava and Bratislava (World Bank, 2018[65]) – the largest spatial variations in regulatory performance are in the areas of getting electricity, dealing with construction permits and enforcing contracts (Table 6.6).
Košice city offers the second best business regulation environment across the five benchmarked cities and ranks at the top in the area of enforcing contracts. Trial time at the court in Košice (about 15 months) is two months faster than in Bratislava (World Bank, 2018[66]) (although this is perhaps partially explained by the different caseload of the two cities).
Overall, Slovak cities offer a good regulatory environment by international standards, except in some areas where challenges remain. All the benchmarked Slovak cities outperform the EU average in property registration, contract enforcement and (except Trnava) getting electricity. Processes related to starting a business, by contrast, tend to be more complex and lengthier than the EU average across all cities. Construction permits also remain one of the most challenging areas for cities of the Slovak Republic, suggesting that the administrative burden reduction efforts at the national level have not trickled down to cities.
Small cities appear to be more business-friendly than the capital. Surprisingly enough, Bratislava – the economic centre and capital of the Slovak Republic – scores the worst by ease of doing business compared to the five other municipalities (Table 6.6). It is also the only benchmarked city not to rank at the top in at least one area. Improvements in the capital city performance would not only close the gap with the other cities but also be reflected in the country’s global ranking.
Strengthening industrial clusters
A number of industrial clusters have started emerging which might enhance the development and convergence of entrepreneurial ecosystems in Slovak regions (Chapter 2). The Slovak Republic currently lacks a holistic regulatory framework on cluster support and development. At the institutional level, competence for implementation of cluster policy is fragmented across diverse ministries. In this context, clusters tended to emerge from the bottom-up, in the absence of specific policy support. To encourage the growth and flourishing of these emerging cluster initiatives, careful policy attention should be paid to improve their organisation, increase local autonomy and strengthen the support capacity of local authorities (OECD, 2021[55]).
The Košice region has invested in industrial clustering and developed rather extensive cluster experience in areas such as IT, robotics and automation. The region counts with two certified clusters:
The Košice IT Valley is a formal cluster organisation founded in 2007 to create an IT ecosystem in the east of the country (Box 6.5). It was established as a joint initiative of educational institutions, regional public entities (namely the Košice Self-governing Region and the City of Košice) and leading IT companies. The cluster association contributes to strengthen the regional innovation ecosystem and provides a platform for co-ordination and information exchange between public entities, the business sector and the regional education and research institutions, also fostering the development of the ICT industry in the region (Agency for Support of Regional Development Košice, 2015[67]). The cluster counts over 55 members, combining education and public administration institutions, IT companies and a section of businesses beyond the IT sector, including US Steel Košice. From the outset, the cluster adopted a strong collaboration ethos across the region, as a response to industrial restructuring (OECD, 2016[68]). The cluster is involved in a number of EU projects including Interreg Europe and Urban Innovative Actions.
The Automation and Robotics Cluster (AT+R) was established in 2010 with a strong internationalisation ambition and has been improving engagement in domestic and foreign markets. It supports diversification through combined innovation efforts in areas such as sensors and automated production systems and has been involved in EU Framework Programme projects. It offers a wide range of services, including testing, diagnostics and training.
Both the Kosice IT Valley and the AT+R cluster also have received an ECEI Bronze Label in 2013 (OECD, 2021[55]). The Košice IT Valley was also the first Central European Cluster to receive a ECEI Gold Label for cluster excellence management in 2015 (European Secretariat for Cluster Analysis (ESCA), 2022[69]).
The emergence of Košice IT valley has been driven by the Slovak integration into the European Union and the arrival of big global players and FDI in the early 2000s.
Small and micro IT firms of regional origin, sometimes spin-offs of the European Framework Programme projects, were born, supported by a new generation of graduates – or self-made men trained on computer games – surfing the wave of new programming languages, the growth of computer games, internet and mobile technologies. The process of e-government and orders passed through the Internet by the public administration also contributed to stimulate the IT business.
After the accession of the Slovak Republic to the EU (2004), key global players entered into the regional IT market, establishing subsidiaries. In particular, the arrival of the German T-Systems service centre changed the local ICT sector. T-Systems initiated the dialogue between the actors of the “knowledge triangle” – or “Triple Helix” (universities, public administration and firms) – and supported the establishment of the regional association “Košice IT Valley”, which marked the first IT clustering initiative in the region.
In fact, the formation of the Košice ICT industry has been heavily supported by a reconfiguration of the local knowledge infrastructure. The orientation of regional research and educational organisations, earlier designed towards industrial applications, engineering and automation, was shifted towards informatics, business information systems, software/game/multimedia developments and web design, in order to support a fast-growing demand for ICT and creative skills on the regional labour market. In that sense, the establishment of the Košice IT Valley cluster was an important step towards strengthening cooperation between the creative and ICT sectors, the city of Košice becoming a hotspot for media arts (UNESCO, 2022[70]).
Source: Abridged from (Hudec and Šebová, 2012[71]), otherwise stated.
The Banská Bystrica region counts with two certified clusters:
The Ipeľ Energy Enviromental Cluster (IPEEK) is a formal cluster organisation in the area of ecological waste management and renewable energy solutions established in the region since 2020. It counts with 16 members including firms, research organisations, universities and technology centres, 13 of which are SMEs (European Cluster Collaboration Platform (ECCP), 2022[72]). According to a recent survey, the clusters’ activities over the period 2020-22 focussed on networking and human resources development. New R&D and innovation-related activities are expected to be undertaken in the next three years. A cluster development strategy up to 2023 has been developed, which stresses the importance of developing co-operation with universities and research institutions (Havierniková, 2022[73]).
The REPRIK (Regional Innovation Industrial Cluster Rimavská Kotlina) cluster association was also established in 2020. It operates in the field of circular economy and innovative recycled material solutions. The cluster has 14 members, 9 of which are SMEs (European Cluster Collaboration Platform (ECCP), 2022[74]). The cluster membership features firms, universities and research organisations and other ecosystem actors. REPRIK also holds a ECEI Bronze Label from the European Cluster Excellence Initiative (ECEI), issued by the European Secretariat for Cluster Analysis (ESCA) (European Secretariat for Cluster Analysis (ESCA), 2022[69]) (REPRIK, 2022[75]).
An aluminium processing cluster is developing from the bottom-up in the Banská Bystrica region, particularly in the city area of Žiar nad Hronom (OECD, 2021[15]). The aluminium cluster is one former industrial sector supported by an injection of foreign direct investments, combining cutting-edge research and savvy producers linked to various value chains (World Bank, 2020[58]). The cluster was also triggered by the Slovak Academy of Sciences founding a research and development (R&D) centre in the region (see infra – regional governance and policy mix). This has enabled R&D cooperation with local firms and the commercial application of innovative solutions. As a result, the cluster now involves a number of innovative, export-oriented companies.
Some policy efforts are being conducted in Banská Bystrica to support the emergence of new industrial clusters in the sectors of ICTs and heavy industry engineering. There are signs of increasing policy attention to industrial clusters at regional level. In 2021, the Banská Bystrica Development Agency launched a policy initiative aimed to support the creation of industrial clusters in the region. The initiative involves different regional stakeholders, with the Regional Development Agency of Banská Bystrica playing the role of coordinator and facilitator. The first supported clusters are in ICTs and heavy industry engineering. In 2021, both clusters held kick-off meetings, where several project proposals for clusters development were formulated. In addition to the two pilot clusters, there are plans to support more industrial sectors in the future. The programme targets all firms equally, irrespectively of their size or ownership (domestic vs. foreign) (EC/OECD, 2021[47]).
Conclusions
Table 6.7 summarises the main findings of the current section regarding the regional governance and policy mix for FDI-SME spillovers in Banská Bystrica and Košice and derives some policy recommendations from them.
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Notes
← 1. The special status of “city” is granted by the Parliament to municipalities that are considered administrative, economic and cultural centres. They are in charge of providing public services to neighbouring municipalities (OECD/UCLG, 2019[83]).
← 2. A downturn in demand, following the global health pandemic and changing market conditions, is however likely to generate job losses.