Remarks by Angel Gurría
5 February 2019 - Bratislava, Slovak Republic
(As prepared for delivery)
Dear Minister Kažimir, Ladies and Gentlemen,
I am delighted to be back in Bratislava to present the 2019 Economic Survey of the Slovak Republic.
This launch takes place at the beginning of a very significant year in our partnership. The Slovak Republic will be chairing the annual OECD Ministerial Council Meeting this May, dedicated to harnessing digital transformation for sustainable development. I would like to thank the Slovak Government for their excellent support throughout the preparation of this Survey, as well as in championing our common efforts to ensure that the digital transition delivers on its vast potential across the economy and society.
The Slovak Republic continues to make important progress
Let me start with some good news. Thanks to sustained economic growth, at almost 4% on average over the last two decades, living standards have been catching up with higher-income countries. We expect strong growth to continue in 2019 at 4.3%. The unemployment rate has fallen below 7%, a historic low. Fiscal outcomes are solid, with a public debt-to-GDP ratio well below the OECD average and still falling. Slovakia’s financial system is healthy, with strong bank capital and liquidity.
While life satisfaction in the Slovak Republic is around the OECD average, work-life balance and social connections indicators are on average better than in other OECD countries. Inequality is comparatively low, and the relative poverty rate at 8.5% is below the OECD average of 11.7%.
However, to sustain this economic progress and to continue to benefit from strong integration into global value chains, the Slovak Republic will have to overcome significant challenges and move to more sophisticated and innovative production.
The Slovak Republic faces important challenges
Productivity growth has decreased since the crisis, exacerbated by the slowdown in world trade growth. Smaller or domestically owned firms, especially in services, have not benefited from spill-overs and diffusion, falling further behind in international productivity comparisons. Slovakia’s production has remained focused on downstream activities that incorporate little domestic value added, such as assembling cars. The economy is narrowly specialised in the automobile and electronic industries, which makes the economy more vulnerable to external shocks.
On top of this, the Slovak workforce is insufficiently prepared for the digital transformation. Educational performance continues to decline. One-quarter of the adult population is computer illiterate and there is an acute shortage of qualified workers in ICT, computers and electronics industries. 33.6% of current jobs in Slovakia are at high risk of automation and another 30.8% are at risk of significant change. These are staggeringly high numbers. In fact, it is the highest share among OECD countries.
To sustain its economic progress in the future, Slovakia needs to harness the potential of all its people and strengthen the capacity to innovate and adopt new technologies. This includes better adapting the skills of the workforce to the changing needs of the labour market, enhancing the business environment, improving the transport infrastructure, stimulating firms’ innovation capacities and addressing regional disparities.
The Economic Survey makes key recommendations for better lives in Slovakia
Let me highlight three concrete ways forward:
First, Slovakia needs to get the right skill mix for the digitalised future of work. An education reform needs to be at the forefront of these efforts. Early childhood education, better-trained and better-paid teachers are necessary parts of this transformation. The quality of tertiary education also needs to be enhanced through work-based learning and training on digital skills. The introduction of a career guidance system will improve graduates’ labor market outcomes.
Second, efforts also need to continue to improve the business environment to spur innovation, technology diffusion and encourage diversification of the economy.To make the public administrationmore effective and transparent and to eliminate unnecessary costs on companies in enforcing contracts and dealing with insolvency, the government should press ahead improving the judicial system. Implementing the recommendations of the ongoing project with the Council of Europe on further specialisation of courts, more attention to ethics awareness among judges and more technical and legal support would significantly improve the judicial system.
To encourage innovation and the transition towards a more diversified, knowledge-based economy, Slovakia needs a stronger research base. To step up R&D investments, which are currently at below 1% as compared to the OECD average of 2.3%, research collaboration with companies should be included in the assessment of universities and public research institutions. Specific support is also needed for SMEs and young firms that lag behind in R&D and have difficulties attracting external financing for innovation projects, whose outcomes are often uncertain. Direct support schemes, such as grants, should have greater priority vis-a-vis tax deductions, which are more difficult to monitor.
Investment in quality transport infrastructure and its management is another key avenue to boost productivity, reduce greenhouse gas emissions, foster even greater integration in global value chains, as well as reduce regional disparities between the well-connected Bratislava and the north, and the less-connected central and eastern parts of Slovakia. Among other measures, we propose creating a single entity for the management of motorways and first class roads; further improving administrative capacity to mobilise EU structural funds; and improving the transparency of the project selection process through publishing cost-benefit analyses and the reasons for specific project selection.
Last but not least, it is crucial to ensure that everybody can contribute to the economy and share the benefits. This is why the 2019 Survey includes a special chapter focusing on the inclusion of the Roma community. Slovakia’s Roma, who make up around 8% of the population, face extreme social exclusion. Almost 90% of Roma are at risk of poverty. Many lack heating, electricity and other domestic necessities. The probability that Roma born in segregated communities will end up in poverty is almost 70%. This poverty takes a terrible toll on people’s lives. The estimated difference in life expectancy between Roma and non-Roma is 6 years.
Building a more inclusive and prosperous society through integrating the Roma is critical for the prosperity of the Slovak Republic. Let me highlight three key ingredients for success.
Ladies and Gentlemen,
For the past twenty years, Slovakia has had a sustained and resilient growth story. But to keep up the momentum, the country must look to the future and equip all its people with the skills and opportunities to succeed. Please continue to count on the OECD as you design, develop and deliver, better policies for better lives in the Slovak Republic. Thank you.