Analysis of tourism development in Slovakia as a precondition

The strategic analysis of the tourism development starting position is a precondi-tion for the applicaprecondi-tion of strategic management. The analysis comprises the ex-ternal macroenvironment analysis of tourism, the analysis of the relevant exex-ternal environment, and the internal environment analysis of tourism. Based on these analyses, it is possible to identify strengths, weaknesses, threats and opportunities of tourism development in Slovakia. The analyses serve as fundamentals to set an appropriate development strategy and tourism policy.

External macro-environment analysis of tourism

Tourism as a sector of economy, social, legal, political, technological and ecological environment. Globalisation has caused that the scene of various influences formation takes place beyond the state borders. Mutual linkages among national economies and continuing progress of European integration should primarily be perceived as new trends and opportunities that are meant to be utilised for further development. There-fore, we will focus on the data that point out future potential development trends in terms of the globalisation process enforcement. At the same time, we will take them into account when identifying strengths, weaknesses, opportunities and threads.

a) Economic and social environment

The gross domestic product of Slovakia has had at a high growth rate since the existence of the independent republic. A dramatic drop of the growth rate, which felled to 1.4% was noted in 2000 (app. 1). Such a situation was caused by the fact that system reforms had been repeatedly postponed. The GDP grew at fast pace after this time and untill 2008 and the beginning of the current economic crisis.

It is inevitable to assess not only the growth pace, but also the inner quality of this growth – its appropriate structure and growth’s resources. In the beginning of the transformation process, the GDP growth was chiefly linked with domestic consumption, whereas later on, till the crisis in 2008, it was mainly assigned to export. It is natural for Slovakia, a small open economy, to be directly dependent on export of goods and services. The structure of export and target markets are, however, demanding issues. Economic policy and transformation of the economy have focused on the support of large investments such as the automobile industry and industrial companies that – in time of crisis – can cause a shattering stop to production due to a sudden drop in demand.

In recent years, the inflation rate has been among the lowest in the economies of middle and eastern European countries. Its rate was positively influenced mainly by a cautious policy of the Slovak National Bank and the Ministry of Finances. Af-ter the Euro was introduced in 2009 and due to strong import dependency of the economy, inflation pressures started to be more intensive and lead to higher prices.

An increased deficit on the balance of payments account was the cause of the infla-tion growth recurrence since 2009. At this time, strong import dependency of the economy resulted in imported inflation. The increased pace of the inflation rate (4%) in 2010 is in these terms concerned with a continuing trend that had already started in 2009 with mirroring effects of price deregulation (app. 1).

A typical, yet probably long-term problem of the Slovak economy has appeared to be an increase of unemployment, which is a sign of its critical state. The develop-ment of unemploydevelop-ment in Slovakia has been predominantly marked by restructur-ing and privatization of the economy. Gradually, a slight decrease is berestructur-ing noticed in primary sector employment, however, the service sector still falls behind the employment rate of other developed economies. If the unemployment rate in Slovakia exceeds 15%, instability in the social system and endangered economy as a whole might be the consequence. A positive development of the unemployment rate and its decrease to 9.6% was reversed by the emergence of the financial crisis and thus in 2011 it rose to 14.4% (app. 1). In 2000, Slovakia suffered a historically high unemployment rate of 18.6%. The unemployment rate is not the sole problem;

the absolute value of unemployment is also alarming. At the end of 2011, more than 400 thousand people were unemployed. Another 430 thousand inhabitants of Slo-vakia worked abroad. If this group of inhabitants had not been able to travel abroad

2. Tourism strategy in Slovakia

to search for work, the unemployment rate would have reached 29%, which would be a European record. Information about unemployment needs to be assessed also with reference to the share of employed people with the total number of inhabit-ants. If the number of employed people in Slovakia was plus 700 thousand people, indicators such as value creation, tax collection, welfare rate and others would be at an acceptable level. Because of the low ratio – the number of employed people to the total number of inhabitants, the development level of Slovakia is inadequate.

The balance of payments fully mirrored the problem of an unbalanced econ-omy in Slovakia and foreign investments flow that is tightly connected with it.

The balance of foreign trade was constantly negative till 2008, with its peak of

€ 2,56 billion in 2006 (app. 1).

Not only was there a breakdown of the balance of trade, but also negative de-velopment of the balance of services was recorded, particularly in transport and tourism. This trend led to an insufficient coverage of a growing deficit in the bal-ance of trade and the balbal-ance of services. There was a deficiency in coverage by foreign investments. There are three forms of foreign investments influx into the economy to be distinguished; foreign direct investments, portfolio investments, medium- and long-term loans. In this field, obvious improvements have been identified; nevertheless, the inner structure of foreign investments remains risky in a long term perspective. Balance of trade surplus in 2010 and 2011 was 946 and

€ 778 m thanks mainly through slightly more vivid import and export dynamics (app. 1). The sole oriented focus on the automobile industry and export aimed at certain target countries represent a high risk regarding the unbalanced structure of the economy. In the future perspective, such a single-sided orientation may cause difficulties in the case of crisis or market instability.

Expansive state fiscal policy has blatantly marked the deficit character of the state budget. Constantly higher expenditures than incomes were caused by vari-ous factors linked with GDP development, unemployment and low tax collection.

After the introduction of demanding structural reforms between 1998–2002 and after high deficits, the period of 2002–2008 was significant with rather intense improvement induced in particular by the positive effects of economic growth.

The deficit reached 8% in 2009 and gradually decrement thereafter (app. 1). It is noteworthy, that the deficit in the economy was tight correlated with the abrupt state indebtedness that took place in 2006 and with the onset crisis in 2008. In 2011, Slovakia’s debt ratio reached 55% of GDP whereas this ratio was under 30%

before 2006. A piece of advice resulting from the hitherto development points out that it is unbearable to permanently live above standards and that partial economic success will not last forever. Unreal expectations connected with eco-nomic growth lead to indebtedness that may not be to financeable in the future.

Social development of society is greatly conditioned by its demographic structure.

The share of women in the total number of inhabitants in Slovakia has been grow-ing slightly since. Crucial changes were noticed in development of the number of inhabitants. Till 1990, there were more than 90 thousand children born annually, till 2000 it was only 75 thousand children and after 2010 it has been only 50 thou-sand children.⁴⁷ At the same time, the number of people at productive age grew more gradually. It means that in the following years, the group of post-productive aged people will consequently grow as well, because of increases in life expectancy.

Disposable free time consisting of holidays, weekends and bank holidays is suffi-cient; nonetheless, its potential in tourism is inadequately utilized due to deficient competitiveness.

In recent years, the average wage has grown progressively. At the end of 2011, it reached € 786 (app. 2). It is worth mentioning that the value corresponds with gross pay, whereas net pay is € 565. When assessing the average wage, it is essential to take into account regional disproportionalities and calculation methodology. The lowest average wage is in the Banská Bystrica and Prešov region; the highest one is in the Bratislava region. Calculation methodology is disputable regarding the involvement of higher income earners. The overall average wage data is therefore obviously biased and overvaluated.

In summary, the gross domestic product of Slovakia grew continuously apart from the year 2009. Since 2010, the growth pace has evidently slowed down. The quality of GDP growth was disputable mainly because of the investments’ place-ment conditioned by massive governplace-ment expenditures at the expense of private investments within 2006–2010. The government still supports great investment projects, despite the change in economic policy, and neglects support of small and medium sized businesses. In the long term, the GDP growth has been influenced by export to a rather small number of countries. Therefore, it is difficult to comprehend an absence of measures to reinforce incoming tourism support. GDP structure, export structure, strong import dependency and indebtedness of the economy on the level of 60% of GDP represent crucial risks for the future. Balance of payments is also a critical aspect, since its stability has been mainly ensured thanks to restric-tions in consumption. Nothing has been done in the support of foreign capital entry that would bring along know-how that would extend beyond the assembly lines.

Tension in the economy is also transferred into the state budget that is gradually changing in the areas of revenues and expenditures. An increase of the indirect tax share is observable nowadays, as well as the share of personal income tax, which in praxis indicates a considerable decrease of public consumption.

Based on the provided information, we may conclude that economic man-agement of Slovakia lacks strategic dimension. Single-sided orientation of the

47 Štatistika obyvateľstva [online]. 2012 [cit. 2012.05.20]. http://www.statistic.sk.

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economic policy performed by the government has led to the underestimation of several crucial areas that had a key significance for the economic development of Slovakia. Absence of an economic policy and its partial policies (e.g. tourism policy) were the causes why the government – preoccupied by operative decisions – completely underestimated the significance of tourism for economic develop-ment. Risks related to single-sided orientation of economic policy are enormous, despite the fact that Slovakia has attained undeniable achievements. European Union membership is thereby a new chance for the development tourism, which we have not yet benefit from yet. Crucial changes have been identified in the society structure in recent years. These include, above all, birth rate decrease, ageing of the population that willin the future result in older retirement age. Simultaneously, multiple growths of living costs and instability of real wage are other obstacles in tourism development.

b) Legal, technological and ecological environment

Significant changes have been noticed in legislation in the last ten years. The fast speed of the legislative process has brought around a number of errors and short-comings that still cause serious problems. By means of the legislation changes, liberalization of social system and development of the liberal competitive business environment have been achieved. On the other hand, legislation does not support business activities and more on the contrary, due to its complexity, inconsistence and frequent amendments it causes mistrust of the business public.

More than 100 acts have been adopted by the National Council of the Slovak Republic every year for the last few years. Since 1998, all governments have prom-ised to foster tourism as one of the economic policy priorities. The tourism act was supposed to have been already adopted in 2000. It was not even introduced in time, nor adopted, since the Ministry of Finances did not approve of the financing system to support tourism development needs. The Act No. 91/2010 Coll. on Support of Tourism was amended and reissued and currently, the Act No. 386/2011 Coll. is in force from the 1 December 2011.⁴⁸ Although the system of tourism financing is not sufficiently handled yet, the act at least represents an inevitable basis for the future.

The technological environment is another crucial driving force designated for economic development. It involves transport development and further introduction of information technologies. Since 1993, motorways construction has been financed from domestic resources, foreign credit sources, PPP projects, and co-financing from EU funds. These resources have not always been acquired fluently, in some

48 Zákon č. 91/2010 Z. z. o podpore cestovného ruchu a Zákon č. 386/2011 Z. z., ktorým sa mení a dopĺňa zákon č. 91/2010 Z. z. o podpore cestovného ruchu.

cases they were less profitable in terms of interest rate or loan maturity. Inefficient performance of the economy was in contrast with the fast pace of its indebtedness.

Within the period of motorways construction, several serious problems that dealt with financing have occurred. The outcome became evident in the form of the state’s outstanding payables and the works were stopped temporarily. Original plans of the rapid motorways construction have been revised and amended and the works continue at a slower pace.

At the end of 2011, total length of motorways was 475 km, further 400 km are to be built yet (app. 3). It is planned to accomplish the northern and the southern motorway corridor to Košice, by 2017. It is essential to ponder not only over the efficiency of construction, but also over its period. In 2017, 28 years will have passed since the political system revolution in Slovakia, and it is inevitable to comment on the fact, that the motorway from Bratislava to Nitra was already in operation before 1989. A partial degradation of quality of classified roads (1^st, 2^nd, 3^rd class) has taken place. First class roads were 3318 km in length by the end of 2010, which represents a 10% growth in comparison with 1989. Transfer of competencies from the state to self-governing regions has led to delimitation of second and third class roads since 2000. First class road conditions have enormously worsened due to insufficient repairs and overloads caused by international road cargo. Second and third class roads suffer from inferior quality as well, and this is caused by inadequate financing of regions. The need to build motorways is extremely urgent concerning the amount of car owners. The number has risen to 1.521 m in 2011, in comparison with 1993 when the number was 994 933 (app.2). In 1960 there were only 13 cars per 1000 inhabitants; in 2010 it was 430 cars. Originally, it was estimated that 440 cars per 1000 inhabitants will be reached by 2020. Danube is navigable along 172 km, the Váh along 79 km. There are 14 non-public airports, 13 public airports – out of which 8 are international – operate in Slovakia.⁴⁹

Critical situation arises in the area of bus and railway services. As a result of de-velopment trends, the number of transported persons decreases each year. In 1995, 89,47 mil people were transported by train, whereas in 2010 it was only 46.58 m.

In the same period, the number of people transported by bus dropped from 722 m to 312 m. Railway companies are among the most indebted companies in Slovakia.

Nowadays, old bank credits are serviced by new ones. A long lurking problem is the low transport speed by rails and inferior quality of equipment.

An inconvenient state of transport infrastructure and services is one of the major reasons why tourism development is falling behind. Without the accomplish-ment of main motorways and speedways, further developaccomplish-ment of many regions is constricted. This affects their lower utilisation efficiency in tourism. Regarding

49 http://www.mindop.sk [2012.05.20].

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dominant target markets in tourism, which mainly include neighbouring countries of Slovakia, and considering the most frequent mean of transport used by incom-ing tourists – car, accomplishment of motorways construction is simply inevitable.

Introduction of new products in railway transport will not dramatically influence tourism development, given the number of tourists using this mean of transport.

Building up a network of regional connections with airports in Warsaw, Budapest, Prague and Vienna and a better capacity utilization of national airports (Bratislava, Košice, Poprad, Sliač, Piešťany) may contribute to partial improvement of the situ-ation. The current capacity of the airport in Bratislava after the reconstruction in 2012 is 5 m passengers a year.

A unique feature of Slovakia is the variety of natural landscape beauties and their dense concentration on a small area in Europe. Certain regions in Slovakia have significant high levels of damaged countryside that is not yet fully observable and its harmful effects will be obvious in several years.

Air pollution is the most positive development as there have been significant decreases in particular chemical compounds in the air. As a result of a closing down old industrial factories, substances such as sulfur dioxides, nitrogen dioxides, heavy metals and carbon dioxides have been greatly reduced, however, carbon dioxides is rising due to increased motorization. The most air polluted towns in Slovakia are Bratislava, Banská Bystrica, Žilina, Košice and Nitra.⁵⁰ The state of surface waters is another difficult issue. Since 1989, water consumption has been cut by 50% mainly due to the decrement in the industry. 20% of the main Slovak rivers (Danube, Váh, Hron, Bodrog and Hornád) have a V ranking purity, which means much polluted watera higher level of pollution. Only 69.5% of soil in Slovakia is entitled to be clas-sified as non-contaminated. 28.7% of soil is on verge of risk, 1.4% is contaminated and 0.4% is intensely contaminated. As a matter of fact, we may conclude that one third of soil in Slovakia is harmed due to chemical industry, agriculture and other activities. Water erosion has caused 40% of soil being damaged so far.

The conditions of protected areas are getting worse as well. In 2010, more than 20.1% of the total number of 982 protected areas with the total area of 101 837 hectares were endangered. The relation between nature conservation and tour-ism is considered critical. An example of it is the development of sports and rec-reational facilities, where the nature conservation does not allow even a simple reconstruction.

The legal environment development is determined by the entry into the Euro-pean Union. Quality enhancement of legislation and law enforcement is expected in the future. Permanent changes of key commercial laws are major difficulties in the business sphere and contribute to ambivalence of business conditions. The

50 http://www.minzp.sk [2012.05.29].

process of establishing tourism legislation, providing guidelines for tourism ob-jectives, competencies and financial resources, is rather slow. Progress has been achieved by adoption of the Act No. 91/2010 Coll. on Support of Tourism. Despite the government’s proclamation accrediting importance of tourism in the Slovak economy, tourism remains a marginal issue regarding its strategy and support of its development. The inefficient system of justice and insufficient law enforce-ment are identified as demanding challenges and a point for European Union officials.

The technological environment falls behind the world standards and it is one of

The technological environment falls behind the world standards and it is one of