Amidst a wave of reorganizations and restructurings in the country, new businesses are looking to enter Slovakia – but have to face its new FDI screening mechanism. Despite the slight economic downturn, there is yet reason to hope for better days, according to DLA Piper Country Managing Partner Michaela Stessl, especially given the prospects of the automotive sector.
“There is a lot of reorganization and restructuring work right now, as a direct consequence of the economic downturn that came about as a post-Covid result exacerbated by the war in Ukraine,” Stessl begins. “Lawyers are extremely busy with reorganizations and restructurings, which is impacting several areas, not just corporate.” She says that, depending on client preferences, these procedures could be quite complex. “Liquidation procedures in Slovakia are very complex and demanding in the best of scenarios, and the current situation is far from ideal for most businesses,” she says.
Clients looking to shift their business elsewhere, to downsize their business, or to straight-up shut down – all of this is impacting the business landscape in Slovakia. “Looking at matters from a long-term perspective, some businesses are leaving the country and creating room for others – and we have already seen a sharp interest,” Stessl reports. “Many foreign businesses, in particular from the US, are expressing a strong desire to establish themselves in Slovakia. These endeavors, largely by defense companies looking at CEE countries, are, also, complex and require a lot of careful, professional work.” On account of such replenishment in business numbers, Stessl notes she is “not too pessimistic, from a business perspective.”
However, these incoming businesses might be facing some hurdles. “As of March 1, 2023, a new FDI screening mechanism is finally in place, after two years of different iterations and drafts,” Stessl reports. With the new mechanism having entered into force, she says any new company seeking to establish its presence in Slovakia will have to apply “careful analysis to figure out if its actions trigger a screening procedure and a notification to the regulator, or if it has to be discussed with them beforehand.” According to her, this also applies to intragroup acquisitions and transfers of shares, which only creates the need for more attention. “The FDI screening mechanism represents a major point of interest for businesses, especially given the minor discrepancies between different EU member states that deployed it into their national frameworks. If not analyzed and approached properly, non-compliance could stifle a transaction or even terminate it and lead to substantial monetary fines,” she explains.
Ultimately, Stessl says the Slovakian economy is, right now, in “a bit of a downturn – there are layoffs, the state's budget is overindebted, and a certain percentage of the GDP needs to be used for defense purposes. Also, finding qualified employees for local businesses is a bit problematic nowadays.” Still, despite all of that, there are sectors of the economy that are performing well and are showing promise for the future, she notes. “Slovakia has a strong automotive sector and, recently, has managed to attract Volvo to engage in electric car production here. Consequently, this will attract other related businesses, such as battery makers, which could create additional ripple effects – all reasons for a more positive outlook,” Stessl concludes.