Slovakian political and business leaders are engaged in a fierce quarrel over the new law that authorizes the state to take over bankrupt companies that it deems ‘”strategic.” The government has already designated its first target: Chemical firm Novácke Chemické Závody (NChZ), which filed for bankruptcy in September after the European Commission slapped it with a €19.6 million fine in connection with accusations of price-fixing.

 

The cabinet approved Economy Minister Ľubomír Jahnátek’s proposal to designate NChZ as a “strategic company” on the grounds that it plays a significant role in Slovakia’s economy and employs more than 500 people. The ministry’s report said the takeover will probably impact the state budget negatively, though it is not possible to estimate how much the government might get for the company in a public tender at a later date.

 

 

Analysis and forecast: increasing risk

 

 

Political Capital warned in latest risk warning, Most Significant Risk Factors that Could Hinder Economic Recovery in Slovakia:  “In the future we can expect steps that are extremely popular with the people, but which can deteriorate the business climate.” The first acquisition of a “strategic company” is now on the horizon and the dispute over the law is raging. Foreign chambers of commerce argue that it undermines property rights. The European Commission has requested additional information to determine whether the law complies with EU regulations.

 

It is not yet clear what will happen to NChZ. It is likely that jobs will be saved in the short term, with the government reaping the political benefit. On the other hand, it will be very expensive to breathe new life into the enterprise, so re-privatization is also possible.

 

Foreign chambers of commerce and investors are complain that the government’s failed to consult business leaders on the law and rushed it through in an untransparent manner. This suggests investor confidence is weakening. Since social populism is sure to become an increasingly prominent component of government policy ahead of the spring 2010 general elections, the administration can be expected to acquire more ‘strategic’ enterprises.