Results: Slovakia

SOFI Results: Slovakia

Ivan Klinec

Historic SOFI: Slovakia

SOFI was calculated for Slovakia from 1995 to 2014 and projected from 2015 to 2025. The value of SOFI in the year 2014 is 1. SOFI starts from 0.87 in 1995, reaches 0.90, following two years of growth, in 1997 and later decreases to 0.82 in 2000. There is stagnation in 2001 and slow growth to 1.01 in 2008, the initial year of the global economic crisis. From 2008 there is a slow decrease from 1.01 to 0.98, the latter value being reached in 2010, what follows are two years of stagnation on 0.98, and an additional three years of stagnation on 1.00 in the years 2012 to 2014.  The  decline which began in 2008 was caused by the economic problems of the Slovak Republic, especially the very high unemployment rates and very low expenditures on Research and Development. All of the above were also connected with the beginning of global economic crisis.

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Figure 1. SOFI Baseline for Slovakia (source: V4 SOFI Project calculations)

Projected SOFI: Slovakia

The projected SOFI value shows slow growth from 1.01 in 2015 to 1.10 in 2024 and stagnation on 1.10 in 2025. We can expect slow progress, which will be vulnerable to turbulences in world economy and also to changes in Slovak economic policy. The potential negative impact on the progress of SOFI would be attributed to the fixed industrial structure of Slovak economy and the long-term problem of high unemployment rates combined with the absence of an adequate policy which would address the latter issue. High levels of corruption can also be dangerous, as can be a very high general government gross debt and very low R & D expenditures.

SOFI variables

SOFI was calculated for a selected set of variables, basing on historical data from 1995 to 2014. Historical SOFI variables show us the weak and potentially problematic areas in the future development of Slovak economy and society towards 2025. The most problematic aspects within the period 1995-2014 are levels of corruption, people voting in elections (percent of national population of voting age), physicians per 1,000 people, population growth, research and development expenditures, unemployment and general government gross debt as percentage share of GDP.  The development in other areas is steady, with no negative impact on calculated or projected SOFI. The causes of the problematic development in the areas listed above are mainly connected to the transition process of Slovak economy and they are as follows:

  • Very high levels of corruption are connected with the democratic transition of the political and legal system in Slovakia and the negative heritage of the  communist system. This entails  differences from the legal frameworks of mature democracies.

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Figure 2. Levels of Corruption (source: V4 SOFI Project calculations)

  • A decrease in the number of people voting in elections (depicted as percentage of national population of voting age) is caused by the disappointment of citizens with the negative aspects of the transition process, such as very low wages, high levels of corruption, high unemployment and the absence of adequate policies to overcome these problems.

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Figure 3. People Voting in Elections (source: V4 SOFI Project calculations)

  • The decreasing number of physicians per 1,000 people is connected with the partial transformation  of the health-care system, lower wages and inferior conditions in comparison to mature countries.

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Figure 4. Physicians per 1.000 people (source: V4 SOFI Project calculations)

  • The drop in population growth is connected with very low fertility rates and the negative impact of the transition process.

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Figure 5. Population growth (source: V4 SOFI Project calculations)

  • The very low level of R & D expenditures (as percentage of GDP) is caused by the priorities of Slovak economic policy oriented towards supporting the industrial sector (mainly the automotive industry) and the absence of a policy for the development of knowledge economy in Slovakia.

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Figure 6. R & D Expenditures (source: V4 SOFI Project calculations)

  • Very high unemployment is a long-term problem faced by Slovakia and is caused by the specifics of Slovak economic transition and by focusing on the industrial sector as the main priority while neglecting knowledge economy.

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Figure 7. Unemployment total as percent of national labor force (source: V4 SOFI Project calculations)

  • The growth of general government gross debt (as percentage share of GDP) is caused by the low competitiveness of Slovak economy and very weak feedback within the process of the realization of economic policy.

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Figure 8. General government gross debt as percentage share of GDP (source: V4 SOFI Project calculations)

Real-time Delphi SOFI

As  part of the SOFI analysis a Real-time Delphi study was conducted with the goal of projected variables being assessed by Slovak experts. Ten experts participated in the Real-time Delphi, and, according to them, we can expect the biggest risks and opportunities in the following areas:

  • GDP per unit of energy use
  • Levels of corruption
  • Total unemployment
  • General government gross debt

Policy implications

The assessment of historic and projected SOFI and also of individual variables indicates the following policy implications which might accelerate the progress of SOFI for Slovakia:

  • Research and development expenditures can be raised to a higher level by the creation of policies supporting the development of knowledge economy in Slovakia, the declaration  of Research and Development as top priorities of economic policy would also be required .
  • The growing levels of corruption can be decreased by policies of transparency and by the improvement of the legislative process and a legal framework with the built-in function of feedback.
  • The High unemployment rate can be resolved by a shift of policy priorities from the  industrial sector towards education, science, research and development.
  • The decreasing number of people voting in elections can be resolved by the improvement of policies (especially economic policy) and by making the democracy more genuine.