Kmec: Slovakia Must Shift from Cheap Labour Model

Bratislava, 4 November (TASR) – Slovakia is caught in a so-called middle-income trap, and the only way forward is to transform its economy from a model based on cheap labour and the quantity of foreign investments to one built on a highly skilled workforce and higher-quality foreign investments, Deputy Prime Minister for the Recovery Plan and Knowledge Economy Peter Kmec (Voice–SD) said at a press conference of the Institute for Freedom and Entrepreneurship on Tuesday. Kmec spoke in response to the latest Digital Competitiveness Ranking by the Swiss International Institute for Management Development (IMD). “Slovakia is not in an ideal position, but this is a challenge to transform the Slovak economy, which stands at a crossroads. Until now, we have largely relied on the quantity of foreign investments, based on the low cost and availability of labour. As Slovakia integrated into Western European and transatlantic structures, a very favourable business environment emerged here, encouraging foreign investors to relocate some of their production capacities from more demanding markets and economies to Slovakia and, more generally, to Central Europe,” Kmec explained. However, he noted that this model is no longer sustainable. “Slovakia is in a so-called middle-income trap. The only way is to transform our economy from a model of cheap labour and high-volume foreign investment to one based on a more qualified workforce and higher-quality foreign investments,” Kmec underlined. He described the middle-income trap as a complex model that is difficult to escape. “The Digital Competitiveness Index clearly shows where Slovakia must improve, as this represents the path toward transforming the Slovak economy,” he emphasised. As part of the Recovery Plan, from a package of €6.4 billion, Slovakia was required to allocate 20 percent to digitalisation. “We are striving to create an environment that motivates not only the public but also the private sector to innovate more through digital transformation,” Kmec added. He stated that Slovakia aims to reach 2 percent of GDP for science, research, and innovation support by 2030. “At present, we are at 1.04 percent. The EU average is 2.2 percent. Slovakia's goal is to allocate 0.8 percent of GDP from public sources and 1.2 percent from private sources. The greatest challenge is to motivate and encourage the private sector to invest more. Today, private sector spending stands at around 0.5 percent to 0.6 percent, meaning it must significantly increase its allocation by 100 percent,” Kmec concluded. Earlier on Tuesday, the Institute for Freedom and Entrepreneurship announced that Slovakia fell by five positions to 57th place out of 69 countries in the latest IMD Digital Competitiveness Ranking. Switzerland, the United States, and Singapore took the top three spots, while the other Visegrad Group countries (Czech Republic, Hungary, Poland) ranked ahead of Slovakia. The Institute for Freedom and Entrepreneurship collaborated on the ranking. mf