Banskobystrický Region - Case Study Report

Home , Brezno, Kremnica, Regions of Slovakia, Zvolen

BANSKOBYSTRICKÝ REGION - CASE STUDY REPORT

(WP6, Task 3)

Ján Buček

Ján Buček Department of Human Geography and Demography Comenius University, Bratislava, Slovakia March 2014

The research leading to these results has received funding from the European Union's Seventh Framework Programme (FP7/2007-2013) under grant agreement “Growth-Innovation-Competitiveness: Fostering Cohesion in Central and Eastern Europe” (GRNCOH)

1. INTRODUCTION This report had been prepared within GRINCOH project conducted in selected regions of Central and Eastern European countries. In wider terms it reflects the development in Banskobystrický region after 1989, but with special attention to period after the accession to EU and with respect to the global financial crisis impact. It attempts to reveal transformation problems as well as strengths and weaknesses in its regional development, regional policy and use of EU SF support. It is strongly influenced by city region concept, focusing on the role of key city of Banská Bystrica and its neighbouring city of Zvolen. This report is based primarily on standard statistical data, documents and publications available, enriched by 11 in-depth interviews carried out with representatives of institutions active in social and economic life of the region.

1.1. History and location

Banskobystrický region (in Slovak – Banskobystrický kraj) is located in southern part of central Slovakia, also as border region with Hungary. It is the largest region of the country (9 454 km2), only Prešovský region in the north-eastern Slovakia (8 973 km2) is the comparable one in terms of territory. The territory of region is composed by contrasting mountain (e.g. about 2000 metres in Nízke Tatry mountains) and valleys areas with large territory covered by forests. Basic level of spatial organisation of region includes 516 local self-governments. Within this number we can find 24 cities and 492 rural self-governments. Total number of population living in cities exceeds 350 thousand (2012). The two largest cities are Banská Bystrica (almost 80 thousand inhabitants) and Zvolen (more than 40 thousand cities), both located in north-west of region. The largest cities in south east part of region are Lučenec (28 thousand inhabitants) and Rimavská Sobota (24 thousand inhabitants - 2012 ). As a result of historical development, we can find also small towns in this region, with population below 5000 inhabitants (e.g. Dudince, Veľký Krtíš, Jelšava). Key urbanised area of the region is Zvolen basin concentrating within distance of about 20 kilometres cities Banská Bystrica, Zvolen and Sliač (spa city with about 5 thousand inhabitants). Road distance to Bratislava is 210 kilometres (motorway), to Košice 200 km, to Budapest 180 km, to Vienna 270 km and to Warsaw 500 kilometres. There is one international airport (Sliač), at present without regular passenger flights. Main railway node in region is Zvolen (especially in west, east and north direction). Banskobystrický region delineated in its current territorial framework in 1996 (see Figure 1) is composed by set of smaller historical regions (or their parts). It is important to mention that region has long lasting tradition of economic activities that substantially influenced the economic development of historical Hungarian and Austro-Hungarian states. While in Middle Ages it was significant territory thanks mining concentrated into set of cities (gold, silver, copper – e.g. Banská Štiavnica, Kremnica), this region also substantially contributed to early industrialisation of that time Hungary (mining, metallurgy – regions alongside Hron River, south east region - Gemer). During interwar Czechoslovak Republic region had been marginalised in economic terms. Regional economy lost its traditional links to the rest of former Hungary and faced new competition within newly established Czechoslovakia, with its well economically developed western part of country. The economic structure of region substantially had changed socialist industrialisation with large

2 investments in various kinds of industry that spread across whole current Banskobystrický region. However, this outcome of planned ecconomy structure emerged as very vulnerable during post- socialist market economy conditions. Historically, this region also had positively influenced its traditional links to northern Hungary and Budapest, especially in its southern parts, multiplied by presence of Hungarian minority (e.g. regions around cities Lučenec, Rimavská Sobota, Fiľakovo).

Figure 1 Territorial division of Slovakia according to regions.

1.2. Basic socio-economic characteristic

With a population number of 658 490 (2012), it is only fifth among all Slovak regions. It means that although being the largest Slovak region from the point of view of territory, population density representing a value of 70 inhabitants per km2 is the lowest one in interregional comparison (2012, Slovak average is 110 inhabitants per km2). Demographic situation can be regarded as the one of the decisive factors underlying socio-economic development of any territory. As a crucial aspects we can emphasize ageing and migration, as well as ethnicity and educational structure of population as very important. Age structure of population as very important indicator concerning the development prospects of the region is represented by ageing index. Ageing index of population has been continuously growing in all regions of Slovakia (Figure 2). Compared to the national average, the population of the Banská Bystrica region is slightly older. Within the Banskobystrický region, quite significant differences in the age structure of the population can be seen as well. In this region, older cohorts are concentrated mainly in the districts with the largest towns, namely Banská Bystrica and Zvolen, along with the adjacent district of Žiar nad Hronom located in the northwestern part of the region. The younger population occupies areas especially in the southeast of the region.

3 The second important demographic process that is strongly linked to social and economic development it is migration. Banskobystrický region, altogether with Prešovský region have the worst out-migration numbers among Slovak regions. Banskobystrický region is losing each year hundreds of its inhabitants by migration (e.g. about 900 inhabitants in 2012), especially in favour of more developed region (with the highest flow to Bratislavský region). However, total out-migration we can only hardly estimate according to official data. While in south east part of the region is very important outflow of young people, in western part it is problem of very qualified young people that follow better employment opportunities in other regions or in abroad. This region belongs to region with the highest number of people working abroad.

Figure 2 Ageing index according to districts in Slovakia (2012)

Source: Statistical Office of the Slovak Republic.

Banskobystrický region is ethnically diversified. There is observed the third highest share of Hungarians (10.2%) and Romanies (2.4%) in Slovakia (2011) according to regions. For Romanies, it is necessary to mention that due to their unwillingness to confess their own ethnicity in Census, their genuine number is estimated to be at fourfold higher level in fact. Therefore, it can be assumed that minority ethnic groups compose about one fifth of the total regional population. The greater territorial representation of Romanies is registered in the eastern and southern part of the region. The territorial concentration of Hungarian minority spreads in southern parts, alongside the state border with Hungary. The educational attainment of population living in Banskobystrický region is characterised by above average share of inhabitants with primary education, and on the other hand, with relatively low

4 percentage of the persons with tertiary education. Proportion of population with secondary education is almost identical to the national average. When assessing the religious situation in the Banská Bystrica region we can state that right after the Košice region, there is the second lowest proportion of Roman Catholics observed (54.8%, 2011), which is mainly due to the highest regional proportion of believers grouped in Evangelical Church of Augsburg confession (10.6%), and just after the Bratislava region there is also the second highest territorial concentration of undenominational persons (16.6%). Compared to the other regions, unemployment rate is permanently the highest one, currently exceeding the level of 20%, in Banskobystrický region. Along with two regions of Košice and Prešov, it defies the national average and lags significantly behind other parts of the country. At the turn of the millennium, the unemployment rate in Banská Bystrica region even attacked the threshold of 25% (23.8% in 2002). Afterwards thanks to more positive economic development, unemployment rate had been reduced by almost ten percentage points, to below level of 15% (14.1% in 2007). However, following the outbreak of the global economic crisis, unemployment began to grow and was approaching the 20% level. The problem of this region is not only traditionally highest regional unemployment rate, but also the fact that in times of positive economic period, decrease in the number of people out of work is of the slowest rate right here. In this respect, the Banskobystrický region can be divided into south and east struggling with 25-35% unemployment rate (e.g. districts of Rimavská Sobota, Revúca, Poltár, Veľký Krtíš) and on the other hand, the north and west with values ranging from 10 to 20% (especially industrial and service based districts of the region – i.e. districts of Banská Bystrica, Zvolen and Žiar nad Hronom, see Figure 3).

Figure 3 Registered unemployment rate in Slovakia (2011)

Source: Statistical Office of the Slovak Republic.

As a consequence of the transformation processes, lack of interest by larger investors and needed restructuring of the regional economy, as well as higher unemployment rate, Banskobystrický region has taken the leading position among Slovak regions in the share of employment in public sector (public administration, social security – 12.8%, health and social work activities – 9.2%, education – 10.6%). Nevertheless, industrial employment is still very important source of workplaces with 27.7%

5 (mostly manufacturing). Employment in other sectors includes e.g. 3.5% in agriculture and forestry, or 4.4% in construction (2012).

1.3. Administrative and governance context

Key actor in public administration and regional development at the regional level is regional self- government. It is one of three key level of public administration with elected bodies (central, regional, local). It is territorial unit at the NUTS 3 level. NUTS 2 (there are four in Slovakia) and LAU 1 (79 units - okresy) levels are more statistical, coordination or state administration units. Important roles in public administration system have local self-government (LAU2), especially in cities. Slovak public administration follows dual model of its organisation with separate lines of state administration and self-government. The set of powers managed by regional self-government seems quite large and include such important fields as education (secondary, including professional, vocational), social services (e.g. social-services houses, protected housing facilities, single-parent housing, shelters, homes for children), regional transport (regional roads networks, public interests in transport) and regional culture (regional theatres, libraries, museums, galleries and cultural centres). It also has powers in regional development but with less executive nature (e.g. regional physical plans, regional development planning – development strategies). Minor powers concern coordination in tourism and health services (in minor extent also regional hospitals). Many powers are now executed by the regional authorities in partnership with other actors, or on a contractual base. Local self-government can be considered as more influential level of government. Its main powers include lower levels of education, social assistance, technical and social infrastructure development and maintenance, environmental services (waste management) and local spatial and development planning. Both sub-state levels of government are not answerable each other and autonomous. Nevertheless representatives of local self-government as elected regional councillors efficiently participate in regional self-government. Fiscal decentralization introduced a more autonomous financing system of sub-state governments since 2005. Both levels of sub-state government lack sufficient resources especially since financial and fiscal crises expanded. Strong limits in financial autonomy indicate the dependence on transfers for central state (tax and non-tax about 80%) and weak own resource base. Another issue is the very high level of the mandatory expenditures (obligatory expenditures based on legislation) and current budget expenditures. They usually oscillate at about 90 per cent of total expenditures in case of regional self-governments, and during the economic crisis years even more (Buček 2011). The lack of free resources in fact limits the initiative and expansion of self-government activities, as well as theirs investments. Total budget of Banskobystrický self-governing region were slightly above EUR 150 mln (2012) and total debt exceeded EUR 30 mln. Budget of City of Banská Bystrica exceeded EUR 50 mln (2012) and in a case of City of Zvolen EUR 27 mln (2012). Other important institutions that can influence regional development process in this region are Regional Development Agency, Regional branch of SARIO (Slovak Agency for Investments and Trade Development), Regional Chamber of Commerce and Industry, Business and Innovation Centre, two universities (Matej Bel University in Banská Bystrica and Technical University in Zvolen). There is dispersed set of offices responsible for labour and social affairs at the district levels. Especially all

6 larger cities enjoy vital associative life and non-governmental activities. They usually participate in shaping various development documents and initiatives, however they are usually not large from the point of view of staff number and they face lack of resources. Nevertheless, all actors have learned a lot on formation of partnership and co-operation, so there is potential for more efficient governance structure in future.

2. Trajectories of economic development and structural change, social cohesion 2.1. How the economic performance of the region can be assessed? The economic development in region can be assessed in absolute terms as positive. It documents growth of regional gross domestic product per capita from almost 3000 EUR (1995) to almost 9000 EUR (in 2010). However, the development trend is not positive in long term inter-regional perspective. The economic performance of the region is lagging behind other Slovak regions. While regional GDP per capita had been about 85% of country average at the beginning of the decade (e.g. in 2002-2003), it decreased below 75% of national average to the end of decade (2009-2010). The regional economy suffered its location and structural disadvantages since the early transformation period. Its position worsened its minor development dynamics during the most positive economic development period 2004-2008 in Slovakia (see Figure 4). While majority of regions enjoyed in more aspects quite outstanding scale economic expansion in this period, it was not so in this region.

Figure 4 Gross domestic product per capita in 1995-2010 (in EUR)

EUR 14 000

12 000

10 000

8 000

6 000

4 000

2 000

Banskobystrický region Slovak Republic

Source: Statistical Office of the Slovak Republic.

Banskobystrický region has been substantially influenced process of post-socialist economic transition. It is one of the most affected regions, due to unsuccessful economic restructuring. Substantial part of its inherited economic base collapsed or reduced its activities during the post- socialist period. The traditional industrial base of the regions as machinery industry (including armament industry), mining, textile, wood-processing and food industry had faced serious problems with competiveness. As a result, they considerably reduced their employment, or almost totally

7 collapsed (especially sectors like glass, textile and food processing industries appeared as non- competitive). Similar situation faced also agriculture and forestry although with minor role in regional economy. Down-scaled old and new economic activities were insufficient in replacing previous production levels and employment. Only minor part of industry had been successful in modernisation and increased its productivity (e.g. metallurgy). As a result we can observe higher dependence on employment in public sector. Previous deep and selective processes of post-socialistic economic transition to certain extent explain, that economic and financial crisis did not hit region so intensely. There had been reduction of production and employment, but these shifts were less significant when comparing to some other Slovak regions. The negative impact of post socialist economic transformation we can consider as much more important comparing to impact of crisis.

2.2. Heritage of former socialistic system? The social and economic situation in region substantially changed during previous more than two decades. Main statement of respondents usually had been that there are only very minor residuals of former socialist regime. There were comments on not satisfactory transformation of selected parts of social and political system, like inefficient judicial system. They mentioned more general influences of previous regime, like sustained older development models and spatial priorities (e.g. not adjusted priorities in transport infrastructure construction). Of course we can find “monuments” of socialist development well visible in not transformed and non-used industrial and agriculture premises spread across region. There are still not completed reconstructions of old socialist housing stock, obsolete public buildings and cultural heritage monuments, as well as not reconstructed peripheral road network or technical infrastructure networks. There are still not completely resolved environmental damages caused during socialist period (e.g. in industry and military locations). Not reformed has been fragmented local government system with large number of small units (although modernised as local self-government, or by means of inter-municipal co-operation) that reduce efficiency of certain development policies.

2.3. What is a direction of structural changes in the region? There is strong perception that region suffered by post-socialist transition and has faced unsuccessful restructuring. As a result, regional economy is weaker and we cannot identify any strongly competitive and leading larger sectors. Among factors that influenced slow restructuring and modernization of regional economy, there is absence of higher amount and more diversified FDI that caused serious difficulties. As a new feature of regional economy, we can observe growing role of small and medium sized enterprises and decreasing role of large companies. If we turn attention to current situation and shifts in structure of regional economy, we can detect:

 stable position of selected large companies in traditional industries (metallurgy, chemistry, construction materials)  regional economy starts to be more closely linked to well-established Slovak car and car components sector (including small group of larger enterprises)  regional sectors that faced stronger international competition (e.g. textile, glass production) have fragmented into small/medium businesses active in “niche” market opportunities with more specialised production

8  rising activity in location of logistic and wholesale activities

 deindustrialisation of Banská Bystrica economy, now predominantly oriented on services and public sector activities (education, health, administration), however less competitive comparing to Bratislava and Košice in globalised business services

 systematically rising attention to tourism in selected parts of regions. Nevertheless, it should be noted, that this restructuring processes are unequally distributed across the region.

2.4. What external factors have had the most significant impact on regional development? The external factors of regional development have been less important as it has been expected and needed in region. While EU membership and joining Eurozone has been positively evaluated, less positively had been evaluated use of EU funds, insufficient has been the role of FDI, as well as impact of cross-border cooperation. Central state interventions also should be more extensive and better addressed. The financial and economic crisis had less influence, and more pressing is influence of general public finance consolidation. Among positive factors we can mention EU membership as well as joining Eurozone. It attracted new investors, improved access to EU markets for many companies. One of the key external factors of the development is for sure access to EU funds. Their role is perceived as very positive, although not without criticism. Very positively are perceived especially measures focusing on improvement of living conditions, school facilities, social assistance, health, housing, transport infrastructure, environmental improvements. With criticism is reflected their insufficient role in needed substantial mobilisation of economic development in region. Among factors that could influence regional development more we can mention border location and cross-border relations. This influence is not so extensive as in other parts of Slovak-Hungarian region (western Slovakia), although cross-border economic linkages are growing. The effects are less generous also due to the fact that neighbouring regions are not among the best performing regions of their respective countries (e.g. Nógrad County). The economic and financial crisis has less significant influence on regional development. The situation in regional economy has not been very good and it worsened only slightly. Nevertheless decline of business activity, reduction of employment and investments has been visible. Serious impact has had subsequent public finance crisis that has limited activities of governments at all levels, including regional self-government and local self-governments in region. National as well as external pressure to consolidate public finance induced at least short term reduction or stagnation in employment, wages freezing and reduction in public sector investment activities. The latest development that concerns external factors concerns 2013 regional elections result. Newly elected right wing regional chair-person (Mr. M. Kotleba) more times expressed disillusionment towards EU funds role in regional development. He emphasised need to reduce dependence on EU funds. Banskobystrický self-governing region already surprised own secondary schools which submitted projects for modernisation of education with an announcement that it would not co- finance their projects. Despite the fact that his electoral victory has more reasons, part of

9 explanations include voters’ reflection of long term slow economic development in the region and insufficient attention to the needs of region within standard political parties and central government.

2.5. How the situation on regional labour market does affect social cohesion? Labour market situation in this region is belonging to the worst in the Slovakia in long term view. Unemployment rate had improved from its peak levels in 2004 to more stable level about 18% since 2008 (according to LFS, see Figure 5). Such improvement reflected positive impact of joining EU and economic expansion until the beginning of the economic crisis in 2008. Despite expectations, we cannot document any substantial changes in regional labour market within the last years, even linked to financial and economic crisis. Situation seems different if registered unemployment is taken into account. Unemployment worsened from 14.3% to 20.8% between years 2008 and 2012. It means that if there had been about 80 thousand unemployed persons in 2004, it was about 60 thousand in 2012 according to LFS (according to registered unemployment database it was 66 thousand persons in 2012). Registered unemployment in part of districts is above 30%. Mentioned number indicates certain portion of unemployed persons working within “unofficial economy”, probably in agriculture, forestry, construction sector. There is also growing number of people working abroad. Total number of those working up to one year in abroad exceeded 16 thousand people (but increased at 5.4 thousand people between end of 2012 to end of 2013, according to LFS). Nevertheless, such processes mitigate deeper difficulties in social cohesion. Another source for social deprivation related to labour market situation can be linked to wages offered in region. Within the last years, average salaries in this region (e.g. EUR 675 in 2012) are only 80-83% of national average. This risk is balanced by lower level of living costs in region. Majority of powers in social affairs and needed expenditures are under the control of state administration (or covered by separate insurance system). It does not generate any tensions in social cohesion in region. Increased social expenditures that have been needed especially since 2009 are not linked to regional or local budgets. So it is not considered as any burden for region as such. Due to well working and stable system of social assistance and social affairs regulation there are no signs of rising social deprivation. Worse is situation in less developed eastern part of region. Also in this region systematic attention has to be paid to integration of Roma population. However, as it was already mentioned, long term existing lagging behind other regions led to search for different political elite able to solve regional problems.

Figure 5 Unemployment rate development according to LFS

10 30

0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Banskobystrický region Slovak Republic

Source: Statistical Office of the Slovak Republic.

2.6. How the accessibility of different public services (health care, child care, education and training, labour market and social) can be assessed? The accessibility of main public services is generally considered by respondents as good. Occasional problems with accessibility are caused by very fragmented settlement network and peripheral location of particular sub-regions. It includes difficulties in operation of very small schools, less places in kinder gardens, more distant health centres, or absence of shopping facilities. Better is situation in more developed and urbanised northern part of the region. Due to control of state over basic labour market institution, the region is served well by standard labour market services. Education network at elementary and secondary levels are well developed. They are financed mostly by state via local and regional self-governments. Numerous school facilities had been renovated and modernized by use of EU funds. Part of respondents mentioned worse situation in secondary professional and vocational training. Previous network had been partly re-oriented in their training profile (also due to collapse of selected sectors of regional economy). At present, stronger position has education for service economy and administration. On the other hand, there has emerged absence of young prepared work-force in selected technical professions. Due to less positive social situation of households, there worsened access to good quality secondary education (e.g. inability to pay costs to study outside daily travel to school region). There are good opportunities for university education within the region. Two leading universities (Matej Bel University in Banská Bystrica Technical University in Zvolen) altogether have about 14 thousand students. Nevertheless, they do not provide full spectrum of university programmes (significantly weaker in technical, ICT and sciences programmes). Other universities also are not far from the region (in cities Nitra, Žilina, Košice, Ružomberok, Martin). There are also two small universities specialised in art (visual, drama, music).

2.7. What are the sources and scale of social problems (poverty, inequalities, labour market exclusion)?

11 Due to well organised and state guaranteed social system the scale of social problems is reduced. At- risk-of poverty rate in this region is 15.6% (2012) comparing to national average 13.2%. Social system is under permanent attention by all levels of governments. It improved within the last ten years thanks to changes in legislation and investments. Local self-governments are obligatory preparing and implementing local community plans concerning social situation and formulating needed measures in this field. Part of powers in daily assistance had been decentralised and they are provided by local self-governments that are able to respond to many social problems immediately. Much larger attention requires Roma communities (which is more complex problem concerning their living conditions and access to work and education). More difficult prevention to social problems we can find in micro-regions composing very small villages, too remote from urban centres, facing bad time and cost accessibility to centres of employment.

3. Development factors 3.1. What factors have played key role in development of the region in recent years? Banskobystrický region is less competitive and is lagging behind other Slovak regions. Nevertheless, it also underwent substantial increase of its productive capacities and living standard. Among factors that played positive role in regional development during the last period we can mention:

 central location and improved accessibility of western part of the region – western part of region is now in touch with better developed economy in Western Slovakia thanks to completed motorway to Banská Bystrica. It started to be integrated into economic networks expanding from west and it opens chances for better use of its location in central part of Slovakia.

 inherited economic structure – despite collapse and down-sizing of substantial part of „old” economy, there are still important companies in operation. Old traditions still offer many opportunities thanks to existing experienced workforce and knowledge of market.

 public sector support by relocations/deconcentration of important institutions from Bratislava (headquarters of - Slovak Post Office, Slovak Patent Office, Financial Directorate of the Slovak Republic), support of administrative function in smaller cities (Banská Štiavnica, Poltár, Revúca), support of public institutions in region (e.g. regional universities).

3.2. What are the main obstacles that hinder the development process in the region? It is difficult to identify in this region - either well developed diversified regional economy, or well working specialised regional economy advanced in minor set of sectors. It is not clear what can be considered as regional economy strength. Each sector represents smaller number of enterprises that are not enough clustered. We can outline set of obstacles that hinder the development in the region: • the existence of two diverse parts of the region also means need for different approaches to regional development, • poor attractiveness for FDI – less attractive and less prepared to attract. Therer were too large expectations and waiting for FDI based on experiences of other regions, emphasis on exogenous development and external support,

12 • absence of regional innovative capacities in private, as well as in public sector (insufficient research and development sector, including universities), • absence of suitable human resources for particular kinds of development and regional economy (training, education), long term unemployment indicating less suitable workforce, • diverse accessibility and slow development of crucial infrastructure in eastern part of region (missing motorways in north and east directions), • limited powers and resources of regional self-government, strong influence of partial/local interests, • not enough „regionalised“ external economic development policies and measures that could efficently address region’s needs, • political and institutional instability - within the region (but at central level too) – influences policy and programming activities and implementation, staff changes, institutional changes, lack of resources, • less developed region across border – despite effort for cross-border co-operation their less vital economies limit potential multiplication of development.

3A. External context of development: trade and FDI (external interventions see part 5) 3.3. Whether the regional economy is export oriented and how this is related to overall productivity and innovativeness? Slovak economy is in principle very open and export oriented. However, in a case of Banskobystrický region, the export performance of its economy is reduced. During the transformation period significant part of regional production capacities were not competitive on international markets and were transformed into smaller companies or even collapsed. Leading role in regional export capacity has industry. The region has only 4.7% share on total industrial export of the country (2012). Nevertheless, 66% of total industrial production is export oriented (it is by far less comparing strongly export oriented Slovak economy; based on data for companies with 20 and more employees). Total value of regional industrial export production is EUR 2178 mln (2012). Key role in export have companies located in districts Žiar nad Hronom, Brezno, Zvolen, Lučenec and Banská Bystrica. The largest exporters are minor set of important larger enterprises in steel (steel tube in Železiarne Podbrezová with about 3000 employees) and aluminium industry (Slovalco - owned by Hydro Aluminium Norway), automotive (Continental Automotive, Johnson Controls, Cortizo), chemistry (Evonik Fermas), wood processing (Kronospan), building and raw materials (Knauf, Slovak Magnesite Works). Most of companies are oriented on EU markets, with exception of magnesite producer, which is traditionally oriented in wider scale to Ukraine. All major exporters are highly competitive and innovative companies. However, in most cases these production units are dependent on research and development capacities located outside the region (in a case of foreign owned companies in abroad). Own research and development base traditionally has one of the largest employer in region Železiarne Podbrezová. Within the last years there are signs of improvement with expansion of research and development capacities in other companies. Significant had been opening of new development capacities in Continental Automotive in Zvolen

13 (with more than 130 employees, mostly with university education). Innovative and export capacity strengthen cooperation with Slovak universities and Academy of Sciences (e.g. in Slovak Magnesite Works, or by support of “INOVAL” – innovation centre for research in aluminium processing and aluminium products) and supported by EU funds

3.3. Is the region was attractive for FDIs and what was the impact of these investments on regional economy? This region is less attractive for foreign investments comparing to other Slovak regions. There is only minor set of more important foreign investors. Most of them took-over successful older companies, while only minor set are new green field investments (Continental, Johnson Controls). Accessibility of the region due to missing motorway connection had been for a long period one of the crucial factor that caused less attraction of this region. Now is already under operation full motorway connection form Bratislava to Zvolen and Banská Bystrica, but not to more remote eastern parts of the region. Another factor also mentioned by respondents is absence of qualified workforce and not completely prepared sites for new investments (despite the fact that there are delineated locations e.g. for industrial parks, they are not completely prepared, with absenting networks and services prepared to immediate use). Banskobystrický region missed periods when Slovakia had been the most attractive for foreign investments, so only very limited amount of investments are located in the region. The expected shift to the east stopped economic and financial crisis. As a result, only 2.5% of all foreign direct investment in Slovakia is located in Banskobystrický region (2011). In the period after 1997, this share has been slightly decreasing, and after accession of the Slovak Republic to the European Union in 2004, it has remained practically unchanged until now. Considering the foreign direct investment per capita, we can see that most of them are heading to Bratislava, traditional industrial regions with good transport connections located in the west and northwest of the country and to Košice. In the case of the Banská Bystrica self-governing region, we can talk about significant spatial dichotomy of foreign investment inflows (Figure 6), since the vast majority of districts in the region (except industrial regions of Banská Bystrica, Zvolen and Žiar nad Hronom) has achieved cumulative value of foreign direct investments below €500 per capita (on the contrary, in Banská Bystrica more than €4 000 per capita).

Figure 6 Foreign direct investment per capita in Slovak districts (2011)

Source: National Bank of Slovakia 2012

Absence of higher amount and more diversified FDI caused serious difficulties in restructuring and modernisation of regional economy. Absence of FDI inflow substantially reduced chances for more technologically advanced and innovative production (what happened in other Slovak regions). From this reasons regional economy is only partly integrated into global production networks. It is well reflected that only minor set of branches and companies is strongly export oriented. Nevertheless, these foreign companies provide significant number of workplaces and also attracted other new companies into the region.

3B. Endogenous growth factors: innovation and entrepreneurship 3.4. How innovative is regional economy and how this is related to educational and training system and its scientific base? The regional economy of Banskobystrický region is in minor scope innovation based. Crucial innovation activities are concentrated into set of large and medium sized companies, often with foreign owners. Productivity growth is only in small scope related to innovative capacity of the regional companies without FDI. Their innovative policies concentrate mostly on direct acquiring of new technologies. Part of regional economy in operates in less demanding segments of market (e.g. small companies in wood processing). Although there have been innovative start ups, they are not forming any substantial trend and part of these businesses are moving later on outside the region. There are two main educational institutions providing university education located, namely Matej Bel University (UMB, with about 10000 students, 2013) based in Banská Bystrica and Technical University (TUZ) in Zvolen (about 4000 students, 2013). Within the last years, number of students is slightly declining. There were indicated doubts concerning suitability of regional universities education profile and its linkages to regional economy. There is missing well developed university research and

15 education in more technical disciplines and natural sciences that could improve human resources and know-how transfers in the region. Too excessive is university orientation on economy, law, humanities and teachers training. In similar way, there are debates concerning too narrow orientation of Technical University (traditionally mostly focusing predominantly on wood processing and forestry, environmental sciences). However, even if there is specialised regional university e.g. in wood processing and forestry it has not sufficient impact on this sector. At the same time less attention is paid to technology advanced training in secondary school, although they are under direct administration of regional self-government. Research and development capacities in region are small. Total employment in R&D had been only 997 FTE (of which 825 researchers), of which only 500 in natural and technical disciplines (expenditures EUR 30 mln, of which about EUR 9 mln covered business sector, in 2012). Poorer innovation capacities also are related to destruction of older institutional base of research and development activities (e.g. serving machinery industry), and to unsuitable profile of existing research and education orientation of regional universities. The awareness of innovation needs and its possibilities are not well established within substantial part of regional businesses. Companies work on similar product and processes base as before. Lack of innovativeness is also related to absence of clear profile of the regional economy. Support of innovativeness and competitiveness is fragmented. Less successful has been attempt to form business innovation and technology centre in region (in Banská Bystrica).

3.5. How important is the sector of SMEs in the regional economy and what are the main linkages of firms? Although small entrepreneurs are considered as very important section of regional economy, the development in this segment of is not fully positive. The number of individual entrepreneurs stagnates, when we compare years 2006 and 2012 (it is about 42 thousand persons, or about 63 individual entrepreneurs per 1000 inhabitants, when national average exceeds 70 entrepreneurs). More positive is the development in enterprises sector. Within the last decade we can observe systematic growth in number of the smallest companies. Less positive is development in the size categories of companies with 20 employees and more. Number of companies in these segments of business environment is stagnating, or even declining (see Figure 7). It emphasizes rising role and attention which is needed to segment of individual entrepreneurs and “micro” companies in Banskobystrický region. Most of small and medium sized companies are located in western part of region or in larger cities (districts Banská Bystrica, Zvolen, Lučenec). In similar way, eastern part of region also has poor ability to attract or sustain larger enterprises.

Figure 7 The development of entrepreneurial environment according to size categories of companies

Source: Statistical Office of the Slovak Republic.

3.6. Are there any clusters within the region and if yes – what are their main specialisations?

We cannot observe any clear signs of clustering process. From this point of view, region is behind other Slovak region. It is well visible, if we would like to identify naturally formed region, or if we would like to identify any well shaped cluster oriented policy. Traditional regional specialisation (e.g. machinery industry, wood industry, food industry) had been weakened during the transformation process. There are only very minor signs of emerging clustering around aluminium factory in Žiar nad Hronom and surrounding region (automobile industry components, solar systems). There is no special compact policy initiative based on cluster approach, although there were such attempts. It is problem to identify potential specific economic sectors, core companies, or other institution.

4. Governance and local/regional development policies 4.1. What was the outcome of regional development strategy implementation? Following existing legislation, regional and local self-governments are obliged to elaborate, adopt and implement their development strategies. They are known as Programmes of Economic and Social Development. Banskobystrický self-governing region adopted its strategy according to programming period 2007-2013 (modification in 2011). It focuses on 7 priority axes each elaborated into large number of measures. Regional strategy also contains own map of priority sub-regions for support in order to reduce intra-regional disparities. Such extensively outlined strategy it was not easy to implement under available capacities and resources. Similar strategies adopted all cities, including region’s leading cities Banská Bystrica and Zvolen. Most of cities have been successful in fields of activities closer to their powers, but less successful in addressing economic development. Although prepared with good intentions, especially older of these documents are in fact less strategic by nature. We can observe too large number of priorities, less executive implementation procedures, not fully elaborated sections dealing with financing (e.g. depending on uncertain external resources). They also focus more on fields closer to their powers. According to some of respondents there were features of more formal elaboration of strategic development documents. They also were too

17 pragmatically adjusted according to potentially available external resources. During the last a few years, new strategic documents are under elaboration with better quality expected in all aspects of strategic planning and programming.

4.2. Has the existing governance model in the region been effective and efficient? Current governance model is only slowly moving in favour of really working governance. Efficient co- operation among governments, private sector and non-governmental sector is in question. They used to co-operate in preparing various development documents, but their direct participation is unbalanced and less systematic, or concerns selected join projects. Only in minor scale partners outside public sector are directly involved and took over direct responsibilities for certain development tasks. The opinions of respondents can be summarised that there is intensive process of learning. There are already professionals and representatives of institutions that know each other and used to co/operate. There are signs of governance performance improving. The development in this field had faced problems with institutional instability and staff changes, political interventions, lack of capacities and financial strengths to fulfil more ambitious tasks. Partnership principle is already quite accepted and it starts to be general practice. Less is developed co-operation between cities and neighbouring local self-government, as well as among cities in core urbanised area Banská Bystrica - Zvolen. Among positive practices were mentioned activities initiated within LEADER programme and their local action groups.

4.3. What was the outcome of local/regional policies in different fields? The positive outcomes of local and regional policies have been achieved in fields in which positive combination of own and external interests and resources had been possible. Outcomes also are more evident in fields closely related to their powers. There are less widespread outcomes in economic development, if assessed by contribution to new employment generation or new businesses opening/attraction. Local and regional policies have been successful in fields like:

 Education facilities modernisation – kindergartens and primary schools,

 Social assistance improvement – including needed facilities,  Partial improvement in road infrastructure,

 Modernised system of environmental services and facilities (e.g. waste collection and disposal),

 Health services – including rescue systems, hospital facilities and equipment,

 Marketing and promotion activities, as well as infrastructure serving tourism. Less successful have been activities e.g. in adopting secondary school system to the need of regional labour markets, support of innovations, complete development localities availability (e.g. industrial parks), local roads.

18 5. External interventions: national policies and EU cohesion policy 5.1. Which type of policies (regional, sectoral, horizontal policies) have had the most significant impact on regional development in recent years? Due to the fact that specific national policy is missing, crucial is role of EU cohesion policy. There prevails general opinion that more significant are sectoral policies and less important is regional operational programme. Total contracted budget of project allocated to Banskobystrický region exceeded EUR 1.3 bln within 2007-2013 (end 2013). They concerned all operational programmes, with the exception of operational programme Bratislavský region. Absence of regionally specific regional operational programme had been often mentioned as significant aspect influencing less satisfactory outcome of external intervention by EU structural funds.

5.2. Does the structure of external intervention (national/EU) addresses regional needs? Banskobystický region is quite successful in implementation of EU funds projects comparing to other Slovak regions. It is regions with third highest funds allocation among all Slovak regions (2007-2013). Its share on total contracted projects in Slovakia exceeded 14%. The highest share on all projects with total value EUR 1.314 bln has projects in OP programmes - Transport, Environment and Regional Operational Programme (Figure 8).

Figure 8 Proportions of contracted projects in Banskobystrický region according to operational programmes (end 2013)

OP Informatization

OP Competitiveness and Economic Growth OP Research and Development

OP Education

OP Environment

OP Transport

OP Employment and Inclusion

OP Health

Regional OP

Source: Implementation of Structural Funds projects according to regions (end of 2013)

Most important projects included:  Motorways construction (EUR 437 mln)  Roads of I. class reconstructions (EUR 81 mln)

19  Integrated water management (EUR 92 mln)  Waste management (EUR 70 mln)  Infrastructure in education (EUR 77 mln)  Regeneration of settlements (EUR 63 mln)  Support of business activities in tourism (EUR 53 mln)  Construction and modernisation of general hospitals (EUR 50 mln). Respondent comments and experiences concerning structure and spatial allocation of projects had been slightly critical. It did not fully respect regional needs and potential. In more measures, in fact region had small absorption capacities, projects have been less competitive in some measures, while on the other hand, demand had been massive in other ones. Balance and concord that should be achieved in combining goals of development in wider terms (EU, national) and regional, it had not been reached in sufficient extent. Nevertheless, even if the structure of measures had been suitable, the scale of successful projects had been insufficient. It meant lower number of supported projects and without any significant impact on the regional development. Critical reflections also concerned too dispersed support to many less coordinated projects and absence of larger development projects within the last 4-5 years (outside motorways). Certain critical comments concerning impact of support are partly related to slow implementation and contracting of projects in programming period 2007-2013, so the real impact of this programming period will be better to evaluate bit later.

5.3. Has the Cohesion Policy resulted more strongly in the improvement of economic potential or competitiveness, or has it rather affected social well-being? According to respondents cohesion policy is perceived as more successful in the field of social well- being. Less positively is evaluated impact on economic development. The support of the business activities, innovations, vocational training, university-business links were less successful. The most respected fields of cohesion intervention with the impact on economic development were considered investments in motorway network that linked key area of region – cities Banská Bystrica and Zvolen, with western part of Slovakia (Bratislava). Within sectoraly focused policies is considered as more influential support of tourism. However, more visible and well accepted by citizens were various projects that led to improvement in the fields of education, regeneration of the physical environment in cities, social services, hospital modernisation, rescue system modernization, environmental improvements and energy savings. It is considered as significant improvement of public services standard in region.

6. Future prospects 6.1. What are the main opportunities and threats for the development of the region? Main opportunities that can positively influence regional development include:

 better integration of development strategies and co-operation of development among cities in key area of the region covering cities Banská Bystrica and Zvolen (and spa cities Sliač and Kováčová)

20  extensive renewal of historical social and economic linkages to nearby Hungarian regions and to Budapest, expansion of cross border cooperation in business and employment

 better exploitation of location in centre of the country, with potential for combined use various modes of transport (road, railway, airport) for new businesses and logistics

 revitalisation and modernisation of old production tradition of the region in new market framework e.g. in wood processing and food processing

 good potential for the tourism development in manifold combination (mountain, ski, spa, historical heritage, urban, cycling), including second homes  better use of available natural resources (e.g. forest, building materials). On the opposite, there are threats that can influence the development of the region in future:

 unclear specialisation of regional economy  dependency of public sector interventions and public sector employment  absence of urban centres that could serve as development cores in peripheral part of the region  less positive population development combining ageing of the population and out-migration of young and trained population to other parts of the country and abroad, especially from southern part of the region  strong influence of political cycle generating various discontinuities in policy formation and implementation  slow and less elaborated integration of Roma population.

6.2. How would you specify recommended future objectives (spheres) of national development policy? Key problem mentioned by respondents was that there is absenting any elaborated and financially backed national regional development policy outside regional policy framework incorporated into EU funds support. Existence of separate national regional development framework should serve as important complementary component. Respondents emphasized need for larger respect to regional differences and specific needs and potential of Banskobystrický region. Co-ordinated multi-level regional policy framework could bring more effects in regional development. For future mostly recommended spheres of national development policy is to concentrate support into specific measures in fields of:

 Tourism  Secondary education, including its accessibility

 Technical/sciences education and research at universities

 Support of traditional regional economy - wood processing, food production, natural resources exploitation (e.g. serving construction industry)

 Support of development and business oriented institutional environment in peripheral regions and smaller cities.

21 6.3 Recommended future objectives (spheres) of the EU Cohesion policy? The experts involved in regional development policy emphasised following potential recommendation to EU Cohesion Policy:

 Retreat from distribution of funds into numerous small projects at least in certain OPs, shift towards a few well located larger economic development and innovation based development project in region (2-3) closer to its endogenous potential,  Protect existence of support programmes focusing on improvement in living condition and public services especially in peripheral regions multiplied by implementation within well developed spatial co-ordination,  Support for cohesion among countries and regions in “New Europe”, e.g. by substantial improvement of transport infrastructure in north-south direction (e.g. to Budapest and Krakow), support of transport infrastructure of lower hierarchy in cross-border areas,  New forms of integrated support of agriculture, rural areas, food production and nature protection, with much larger involvement of private and NGO sector,  Realization of more regionalised development policies, respecting regional objectives and not only central state or EU objectives,  More attention to support of small and medium enterprises in cities with position of functional urban regions centres,  Careful consideration of increase in co-financing provided by self-governments for more responsible project submission to reduce too excessive and less coordinated demand for support (higher co-financing as a tool support for submitting projects that are really important), balanced by less demanding administrative procedures.  Permanent attention to Roma communities inclusion.

7. CONCLUSIONS 7.1. What are the main trends in restructuring the regional economy? Regional economy is facing long term sectoral and size restructuring with less positive outcomes. Region is currently missing clear specialisation and important leading sectors that could generate positive spillovers are absenting. Several trends seem important:

 more important is employment in public sector and services, including the centre of region – Banská Bystrica,

 regional economy starts to be more closely linked to strong Slovak car and car components sector,

 traditional positions still hold bigger enterprises in traditional sectors, but their role is decreasing,  some traditional regional sectors that faced strong international competition (textile and glass production) fragmented into small businesses searching for “niche” market opportunities with more specialised production  larger attention and investments went into tourism combining natural beauties, mountaineering, skiing, historical heritage and agro-tourism

22  stabilised is situation in agriculture, with renewed attempts to establish new production facilities.

 we can expect repeated attempts to renew effort to more extensive use of natural resources in the region (magnesite, silicates, decorative stones).

 as potential source of local economy strengthening we can consider wood processing and furniture, although until now weaker in finalisation production.

7.2. What factors of regional development were the most important (exogenous, endogenous, structural, socio-political, others)? Unfortunately, external factors did not achieve sufficient scale to influence regional development substantially. It is the case of FDI, EU and national level support, or cross-border development effects that did not lead to breaking scale of development effect. Endogenous and structural factors also are under dispute. Among them existing traditional structure and long time operating enterprises are playing important role, but wider scale restructuring did not happen. Natural resources are not sufficiently exploited, although they provide certain kind of future possibilities (forests, construction materials, other raw materials). Important limit for more vital development is absence of availability of suitable human resources, at least in part of the region. There are also important infrastructure deficiencies that limit development prospect of the region. We cannot forget on socio-political aspects. Longer term perception of region as stagnant led to set of political decisions in favour of this region or its parts. Already since nineties there were at least interim attempts to build “third centre” of Slovakia in Banská Bystrica and its surrounding (first two centres are Bratislava and Košice). They were especially (re)location decisions concerning institutions under influence of state, or intervention into administrative division of the country. Although not all of them remained in Banská Bystrica, it was important support of it restructuring as service based centre. Nevertheless, such intervention cannot substantially influence development dynamics in the region.

7.3. Has the productivity growth been related to the increase of the innovative capacity of the region? The productivity growth is only partly related to innovative capacity of the region. Regional economy is predominantly dependent on external sources of innovation. An innovative production linked to increased productivity is mostly concentrated into large companies and companies with FDI. Within other parts of regional economy, more influential seems internal elementary technology and organisational innovations. There are very limited sources of innovations within the region that are outside business sector.

7.4. Are social disparities and economic growth within the region interlinked? And how? (lower level of inequalities and exclusion / higher growth? or?) Despite long term less positive economic growth, the level of social disparities did not change in any wider scale. The most important role in this reduced level of inequalities has strongly mitigating

23 effect of centrally regulated social system. In similar way, all important public services are under central state supervision and acceptable funded, so the standard of service provision is similar to other regions. We can observe significant effort to reduce social disparities and provide more efficient and accessible services. As a result, thanks to this centrally regulated and supervised system, particular portion of better economic development outcomes generated in other Slovak regions are redistributed to this region, with equalising effect on social disparities.

7.5. What were the most successful regional/local policies? Within the last decade more elaborated planning and programming activities have developed in local and regional self-governments. It included formation of more direct linkages between local and regional needs, theirs development policies and access to EU funds. The most successful policies covered physical improvements of key public spaces and public buildings, reconstructions of school buildings and modernisation of their teaching facilities. Important had been intervention into social assistance, including centres of social assistance provision, or modernization of selected health care facilities. Among very well evaluated policy fields were mentioned environmental improvements. Cities, micro-regions as well as regional self-government quite successfully improved its activity in support of tourism. An effort that addressed improvements in local and regional road infrastructure led to partial upgrading in this field. Slowly has progressed policies in secondary education, innovation support, preparation of development areas.

7.6. Has the external intervention been important for development of the region? If we take into account as external intervention influences generated by national and European levels, there are diverse effects. Both these levels positively influenced social sphere and quality of life, or so called public consumption. It has been support backed by large scope of resources, including those spend on investments. This role is highly esteemed within the region. However, the effects on economic development were less impressive. We can face quite extensive criticism e.g. of EU policies and EU funds programmes among citizens as well as experts. There had been more times expressed disillusionment towards EU funds role in regional development by newly elected Regional Chairperson Mr. M. Kotleba (directly elected in November 2013). He emphasised need to reduce dependence on EU funds. Similar criticism concerned also national level, as less responsive to regions’ needs. Well developed national policy of central state intervention into regional development in this region is absenting (an do not offer good condition for region to do it, due to under-financing of regional self-government). Existing support framework is often considered as too sectoral, not fitting into specificities of region. We have to cope with opinions on less attention to this region, or not enough preferential policy tools to attract more business into the region by upper levels institutions. It is related e.g. to less important role of FDI in the region, and incapability to attract more foreign companies into the region. There have been mentioned opinions on formulation and elaboration of different development model, combined with different sources of acceleration, as it is often prescribed by external actors.

24 References and documents Programme of Economic and Social Development of city of Banská Bystrica 2007-2013 (Program hospodárskeho a sociálneho rozvoja mesta Banská Bystrica na roky 2007 – 2013). Adopted in 2007. Programme of Economic and Social Development of city of Zvolen 2007-2013 (Program hospodárskeho a sociálneho rozvoja mesta Banská Bystrica na roky 2007 – 2013). Adopted in 2008. Programme of Economic and Social Development of Banskobystrický self-governing region 2007 – 2013 (Program hospodárskeho, sociálneho a kultúrneho rozvoja Banskobystrického samosprávneho kraja). Adopted in 2007, updated in 2011. Statistical Office of the Slovak Republic. Economic, Social and Demographic databases. Available at www.statistics.sk Statistical Office of the Slovak Republic. Statistical Yearbook of Science and Technology 2013. Implementation of Structural Funds projects according to regions (end of 2013) Available at http://www.nsrr.sk/ - in Slovak.

Annex 1. Institutions covered by in-depth interviews:

1. Banská Bystrica City Office, Department of Social Affairs and Project Management (Mestský úrad Banská Bystrica, Odbor sociálnych vecí a projektového riadenia) 2. Zvolen City Office, Department of Urban Development (Mestský úrad Zvolen, Odbor rozvoja mesta) 3. Office of Banskobystrický Self-governing Region, Department - Intermediate/Managment Body for Regional Operational Programme (Úrad Banskobystrického samosprávneho kraja, Odbor – Sprostredkovateľský orgán/Riadiaci orgán pre ROP) 4. Office of Banskobystrický Self-governing Region, Department of Regional Development (Úrad Banskobystrického samosprávneho kraja, Odbor regionálneho rozvoja) 5. Banská Bystrica Regional Chamber of Commerce and Industry (Banskobystrická regionálna obchodná a priemyselná komora) 6. Regional Development Agency in Banská Bystrica (Krajská rozvojová agentúra v Banskej Bystrici) 7. Business Incubator and Technology Center Banská Bystrica (Podnikateľský inkubátor a Technologické centrum Banská Bystrica) 8. SARIO - Slovak Investment and Trade Development Agency, Regional Office Banská Bystrica (SARIO - Slovenská agentúra pre rozvoj investícií a obchodu, regionálna kancelária Banská Bystrica) 9. Matej Bel University, Department of Geography, Geology and Landscape Ecology (Univerzita Mateja Bela, Katedra geografie, geológie a krajinnej ekológie) 10. Matej Bel University, Faculty of Economics, Department of Public Economy and Regional Development (Univerzita Mateja Bela, Ekonomická fakulta, Katedra verejnej ekonomiky a regionálneho rozvoja) 11. Rural Parliament of Banskobystrický Region and Regional Office of National Network for Rural Development (Vidiecky Parlament Banskobystrického kraja, Krajské pracovisko Národnej siete rozvoja vidieka)