Czech Republic is presently one of the most advanced economies in CEE, and the most industrialized in the European Union (37% of the local economy relies on industrial sectors). The country has attracted significant foreign direct investment since the 1990s, priding itself with the highest FDI inflows per capita among CEE countries.
It ranked 32nd in the Global Competitiveness Index in 2019, and the Global Innovation Index 2020 confirmed its rising innovative performance by placing the Czech Republic on 24th place, up by 2 places compared to the previous year. The growth is driven, among others, by a shift in strategy from manufacturing to high value added production and services.
What have been, traditionally, the industries that the Czech Republic has relied upon, and how have things changed in recent years?
Our economy is known for being heavily industrialized, and also export oriented. Market wise, about 80% of our exports go towards the EU, and in particular Germany which welcomes about one-third of the goods and services we make available.
Motor vehicles (including parts and accessories), automatic data processing machines and equipment have traditionally ensured the backbone of our industry, but we have our eyes set on new directions now.
Specifically, our new strategy is geared towards nanotechnology, biotechnology, cybersecurity, IT and artificial intelligence. We are preparing big technology incubation projects and generally we are more focused on creative, high value added activities - quite a departure from our traditional sectors as you can tell. But we want to take this chance because the potential we see in front of us is tremendous.
It does come across like a significant change of direction. Do you already have available locally the expertize needed to dive into these new sectors?
We do already have good expertize and a strong R&D infrastructure which we developed in the past 15 years, since joining the EU. Furthermore, we have just finalized an initiative called passportization of the business environment, which means mapping the business environment in the regions of the Czech Republic. The result of this effort is a combination of statistical data and data obtained from interviews with mayors and entrepreneurs, which helps us to understand the business environment in the individual areas of the Czech Republic even better. We are also looking for ways to attract new inflowing FDI, on top of the EU funds we have available to support this type of activities.
When attracting FDI, what are there countries of origin that you look at with priority?
We have set up offices in 9 countries, notably the United States, Canada, South Korea, China and Japan. These are strong territories that generated the highest inflows of FDI in the last 25 years.
I would like to point out, however, that one key objective we have now is to help local companies expand into new markets, such as India, Vietnam or Latin America. The underlying idea is to move manufacturing activities in these areas, while keeping more value added tasks at home. This is one area where we collaborate with CzechTrade, whose mission is to help Czech exporters through their 50 offices around the world.
You have been with CzechInvest for more than 16 years now - what can you tell us about the impact of COVID-19 when it comes to investment appetite in the Czech Republic?
Global developments during this crisis have definitely impacted new incoming investment. However, we can see that not all sectors are affected in the same way.
The slow down is noticeable in more traditional sectors, like manufacturing in automotive, aerospace, advanced engineering etc. In contrast, the situation is very different in IT or shared service centers - their activity has increased, and demand for expansion or relocation is rising in the Czech Republic.
Another segment with significant growth has been medtech, in fact business in this area had urgent needs of expansion because of the pandemic situation.
Given the circumstances, what was the reaction from your organization as well as the Government?
We worked together with the Ministry for Industry and Trade and prepared a series of measures and investment incentives, which are now in the legislative approval process. I will highlight a few of the most impactful ones:
- decrease of minimum level of investment to 80 mil czech crowns, and 40 million czech crowns in economically weak regions. For medium size enterprises the condition is reduced to half and for small enterprises to a quarter, which means they can apply for incentives for investments as low as 10 million czech crowns.
- support in the form of cash grants for strategic health protection products (pharma and medical devices)
- a series of tools to reduce the adverse economic impact, accessible not just to Czech companies but also to international companies that are doing business here (eg. compensation of employees' salaries, interest free loans and warranties, partially covered lease for businesses affected by the lockdown such as shops, restaurants etc.)
How did businesses respond to these measures, are they satisfied?
The reaction differs as one would expect, but they seem generally happy and appreciative of the support that has been offered.
One initiative that stood out to us was the hackathon you organized to gather ideas about how to fight the coronavirus pandemic. What was the outcome?
Indeed, together with the Ministry of Industry and Trade of the Czech Republic, we also organized the two-month hackathon Hack the Crisis. More than 200 projects entered the hackathon. Fifteen projects advanced to the June grand finale, in which the eight best startups split almost 10 million Czech crowns in prize money.
The hackaton was won by DIANA Biotechnologies with its ultrasensitive tests on COVID-19. Within three months, the tests became one of the most used in the Czech Republic and helped to increase testing capacity. Saliva tests, which the company will launch during October, are also in the final stages of development.
Every market comes with its own set of challenges - in your experience, what concerns are most commonly raised by companies that are doing business in Czech Republic?
Two big challenges come to mind. One is the unemployment rate which was very low before the pandemic, below 3%. This has created an ongoing trend of labor intensive, low tech projects not targeting the Czech Republic anymore. This further explains our focus on pursuing high value added investments, but in parallel we have been promoting a system of smart investment, namely directing certain projects towards economically weaker areas in our country.
A second challenge is the building and permitting process, which tends to be more complicated than in many countries in Europe, and even around the world. Obviously this puts us at a disadvantage. There is an upside to this, however. A new act is being worked on by the Ministry of Original Development to adjust conditions and make the process simpler and faster. It has been worked for 2 or 3 years now, and should reach Parliament in the next couple of months.
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