The Slovak recovery plan in the digital sector does not yet count in the industry

2020-12-09

Within the Recovery Plan in the field of digitization, the Slovak government emphasizes state´s IT. However, private companies affected by the corona crisis are wondering how the targeted support for industry - that is still lagging behind in digitization - will look like. They have now presented their own proposals to the government.

By: Lucia Yar

Although the Slovak government talks about supporting the digital sector, the first plans of the "reform menu", which had been presented in October, do not specifically address it. Digitization in the country should be supported mainly through the state initiatives, by investing in areas such as digital education, improving eGovernment, cyber security, or ultra-fast internet connectivity.

Support for industry in this sector is therefore rather indirect: the state´s plans refer to tax reform, reform of the building law, or more effective management of R&D. Employers and the digital sector claim that even the proposed creation of new counselling centres, agencies or strategies will not be sufficient. According to them, the money that shall support industry in digitization, should be used much more purposefully. Similarly to the surrounding countries, they suggest to provide it for projects executed directly in companies.

Slovaks are late with the plan

Although Prime Minister Matovič promised Slovakia a "summer of reforms" and a series of public debates on how to use European money as effectively as possible, the debates took place only between experts and behind closed doors. The Slovak contribution to the Recovery Plan was initially presented by the Ministry of Finance in October. However, it turned out not to be a specific list of investment projects as required by the European Commission, but rather a kind of "reform menu" from which the government and various ministries have to choose.

The published document is rather a long-term plan for the next ten years and it may become the basis for a debate, as its implementation would not cost € 7.5 billion, which Slovakia is to receive from Brussels, but about € 30 billion. According to the “menu”, approximately € 500 million would be set aside for digitization.

Veronika Remišová, the head of the junior coalition party as well as the Deputy Prime Minister, responsible for informatization and investment, has similarly expressed her dissatisfaction with the proposal. Her For the People (Za ľudí) party, just like other coalition parties, presented its own priorities and a "recovery plan." According to it, the digital transformation should be based on the availability of high-speed internet for households (estimated at € 300 million) and eGovernment services for citizens (€ 300 million), the development of digital skills (€ 50 million), the digital economy and innovation (€ 280 million), and security in the digital space (EUR 90 million). "We will have part of the financing from the recovery plan, part from the Eurofunds," Veronika Remišová stated. However, more specific plans are lacking again. Deputy Prime Minister Remišová claims that "the primary goal must be to fulfil the need of citizens and entrepreneurs to deal with the state."

Resources for companies

Germany wants to finance the recovery of its economy and increase the resilience of companies primarily through loans. France has also chosen to support companies in the form of grants, which are to account for up to 40 percent of the planned funds. Neighbouring Czech Republic plans to use 32 billion Czech crowns to help companies as well.

However, in the current version of the Slovak Recovery Plan, the support of companies is not envisaged. Therefore, the Slovak private sector is not yet enthusiastic about it. Experts say that while most EU countries intend to support fourth-generation industry and build its resilience, the Slovak government fears that the market will lose jobs with new technologies. In general, a healthy market should not be built with state subsidies, the Minister of Economy Richard Sulík thinks.

Slovak industry lags significantly behind digitization standards in the surrounding countries. The pandemic, or rather the recovery after it, may exacerbate these differences. According to Eurostat, the country already supports its companies less than other EU countries, including neighbouring countries. Moreover, almost three quarters of Slovak companies do not have their own capacity to grasp the topic of Industry 4.0 professionally, despite the fact that they consider it important, survey reveals.

"This is a far-reaching problem, because the disadvantageous position of Slovak companies in the European competitive environment will be further deepened," experts from employers' associations and Slovak digital platforms say. They are currently presenting their own, detailed plan to rebuild the sector after the pandemic to the government.

"If we manage to achieve that companies in Slovakia will know what they need and where they can get it, we will be able to talk about the so-called qualified demand. (...) But if we only get to the point that companies know what they need, we remain halfway through, because the actual digital transformation of these companies will not take place," employers warn in their own plan proposal. Similar to other EU countries, they consider it necessary "to allocate resources to projects, executed directly in companies".

Investments in small as well as larger companies

Given the gap that Slovakia has in the field of digital transformation of its economy and society, companies are proposing an allocation for digitization in the total amount of almost € 1.73 billion. In addition to connectivity, eGovernment, human resources, and R&D support in digital technologies, they recommend investing in digital capacities and the application of advanced technologies (€ 315 million), or in the greening of the digital sector (€ 6 million).

Investment in the digitalisation of business and industry (€ 460 million) should also be significant. They propose the allocation of public funds to the budget of digital innovation centres, innovation vouchers (consulting services focused on project identification) or digitization credits (transition between vouchers and complex demand calls), demand calls, but also state-guaranteed loans to be the most suitable tools.

Furthermore, Slovakia considers companies with more than 250 employees to be large, not small, or medium enterprises. Those are however linked to suppliers - many other small businesses. Therefore, experts claim that the goal of the Slovak government should also be to motivate larger companies, which are often owned by foreign companies, to become leaders in the digital transformation of Slovakia through the sharing of their own best practices. However, the motivation of small and medium-sized enterprises, which create local economic ecosystems, is no less necessary in the digital transformation.

"Our common goal is to reach a quality proposal for a Slovak Recovery Plan, which the Slovak Republic can defend before the European Commission. Nobody wants us to keep getting it back for reworking," said Emil Fitoš, President of the IT Association of Slovakia and one of the authors of the submitted proposal of the private sector.

Slovakia, like other countries, must submit the plan to the Commission by April 2021 at the latest.

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