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State Support Of Private Investments Essay

2615 words - 11 pages

Government support of several foreign investments in Slovakia without clear regulations has brought about a social discussion about fairness and profitability of such support. The Slovak republic needs new investments and therefore the government support is one of many economic tools of how they can be created or supported. However, there are certain problems regarding state support of private domestic and international companies, as for example how much should the government invest, which industry, region or company is appropriate, or whether it would be even worth to support private investments with direct cash or tax. Are there any other tools that can be used as an alternative to direct ...view middle of the document...

Because the balance of trade payments is also a part of the GDP calculation, the GPD is influenced as well.In the secondary stage the influence is connected with a more effective production, increase of qualifications of workers and managers, increase in salaries, productivity, production, multiply effects and others. The secondary stage basically represents all economic factors within a company that are influenced by the investor who enters Slovak business. The main reason that all these factors are influenced is the fact that all foreign investors bring highly sophisticated expertise from their foreign headquarters. This know-how is very often much better than our own systems of management. It is because it was developed during many years when our economy could not progress because of other economical principles which ruled our market (Era of communism). Another effect of foreign investments is the so called multiply effect that has big influence on international and domestic business as well. The reason behind is that establishing one big foreign investor in the Slovak republic will attract many other small investors. Suppliers, customers and even competitors are automatically connected with every foreign investment. It means that establishing one big factory can cause establishment of several other smaller ones, but their final effect on economy can be even bigger than the original big one. This is mostly done because the large international corporations often have long running monopoly contracts with smaller suppliers and these suppliers are suppressed to follow the investments of their "big brothers" in order to satisfy their needs.Tools to support investments in SlovakiaIn order to create a positive business environment and support foreign investments the state can use several tools to meet this aim. Here is the list of the most common:- direct cash support- tax holidays or tax decrease for a certain period of time- infrastructure development- decrease in the level of bureaucracy and law modification- regional supportIn the case of the direct cash support, or sometimes called investment incentives, the state is giving money to the investors in order to motivate them to establish their business in the country. However this way of supporting is very expensive and disputable. The state is basically giving money out of the budget which is created by our taxes for a private company. It is very often described as an economically unhealthy behavior that can frustrate the whole business environment. However, the issue also has an unseen benefit which implies that in the case of very important and strategic foreign investment, the money from the state can be a very helpful and good investment for the future. Sometimes it is the only way to deal with the poorest regions with high unemployment rate. How to differentiate between strategic interest of the state and private interests of a foreign investor?Tax holidays or tax decrease for a certain...

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