Czech conditions good for foreign investment

Related tags Czech republic Investment Macroeconomics

The Czech Republic, the first CEE country to be admitted into the
OECD, has attracted a large amount of foreign direct investment
(FDI) since 1990, making it the most successful new member state in
terms of FDI per capita, writes Anthony Fletcher.

Some $6.3 billion was invested in 1999, $5.6 billion in 2001, $8.4 billion in 2002 and $2.6 billion in 2003. FDI has combined with growing domestic investment to ensure that growth is healthy and sustainable.

FDI targeted towards the food and tobacco sector totalled €108 million in 2003, up from €84m in 2002. Taken from 1993, FDI in the food and tobacco sector is the third largest at 13 per cent of total FDI after machinery and equipment at 38 per cent and petroleum and chemicals at 15 per cent.

In addition the interests of the Czech food industry are also vigorously defended by the Federation of the Food and Drink Industries of the Czech Republic, which represents the sector at both national and European level. This suggests that the sector has a strong independent voice and that the Czech Republic has a consolidated civil society.

"We're proud we can help companies in the Czech Republic,"​ said Josef Sajdl, head of legislation at the federation. "We've negotiated about funds with the Ministry of Agriculture, and lobbied to have the transitional period for new labelling laws to be extended."

Sadjl says that the food sector enjoys a good working relationship with the Ministry of Agriculture, while relations with the Ministry of the Environment can at times be a little fraught. "The problem there is that they sometimes appear to have the idea that every act of production has a negative impact and must be paid for,"​ he said. "They are not quite as open-minded perhaps to arguments of economy."

The Czech Republic therefore appears to be a good location for foreign companies to invest. The country's investment grade ratings from international credit rating agencies also suggest that the market economy is well consolidated and is miles ahead of the likes of Russia and Romania. Standard and Poor's gives the country a rating of A-, Moody's gives it an A1 while FITCH-IBCA also gives it an A-.

There are investment incentives for both Czech and foreign manufacturers who are introducing new production or expanding existing production facilities. CzechInvest​, the investment and business development agency of the Ministry of Industry and Trade, offers full tax relief for 10 years for newly established companies and partial tax relief for 10 years for expanding companies.

In addition, the government can cover 35 per cent of the costs of training in the regions where the unemployment rate is higher than the country's average. However the total amount of the aforementioned investment incentives (with the exception of training and re-training) cannot exceed 50 per cent (65 per cent in the case of SMEs) of the investment made into long-term tangible and intangible assets.

The country has already been successfully penetrated by a number of foreign companies. Nestle for example has had a presence in the Czech Republic for over ten years, which has allowed it to consolidate its hold on the confectionery market. According to Jitka Findejsova, a Nestle project manager based in Prague, the firm owns many local brands, but is slowly pushing in well-known international brands such as Kit-Kat and Crunchie.

Findejsova believes that EU accession has made the county more amenable to international business. "It is better now because we have less taxes. So after entry, business with other countries has increased."

So far foreign direct investment has helped fuel growth and ensure that the Czech economy recovered after the recession in 1997 and 1998. GDP rose by 3.3 per cent in 2000 and by 3.1 per cent in 2001, and although economic growth slowed down slightly in 2002, the Czech economy was able to cope with both significant strengthening of the exchange rate and economic stagnation in EU countries.

In 2003 GDP increased in constant prices by 2.9 per cent.

Related topics Processing & Packaging

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