A privileged destination for the arrival of foreign capital and monitored by the Asiatic countries that intend to expand into Europe

The Czech Republic is back in fashion, or perhaps, for its customers, it had never faded into oblivion. The international economic crisis, coupled with the announcement of new, less generous incentive policies had caused many of them to waver. But the new favourable trend and end of the negative cycle of the economy – including the good results achieved, following the Central Bank’s policies on the currency – are now all rowing in the same direction. This is confirmed by Prague’s 25th position in the BDO International Business Compass ranking, which takes into account the attractiveness for doing business in 174 countries worldwide. The Czech Republic is actually in first position among the countries of the so-called New Europe, with nine positions ahead of Poland, 14 ahead of Hungary and 15 ahead of Slovakia in the international classification. This rating, together with that of Moody’s, allow Prague to look with languishing eyes to the “mermaids” of foreign investors, especially from the Far East: China and South Korea in particular.

As we said earlier, Prague, which ranks first according to the BDO index among the former communist countries, has gained many positions also thanks to the positive economic indicators (GDP, inflation, public debt) political (stable government) and social (education and health). However, to be honest, these good results contrast with the absence of the Czech Republic in this year’s ranking of the top 25 countries in the world that are most attractive for investments, compiled by A.T. Kearney (in 2005 and 2010, was respectively in 12th and 17th position according to the FDI Confidence Index). Nevertheless, this unattained entry has not discouraged Prague – to such an extent that Karel Kučera, CEO of CzechInvest, actually raised the stake: “Our goal, in the next few years, is to be in the list of the top ten countries in the world that are most attractive for foreign capital”.

According to CzechInvest government agency figures, in the first half of 2015, it actually mediated 49 investment projects (for both Czech and foreign companies), for a total of 21 billion crowns. At first sight, a rather disappointing result, if compared to the same period in 2014 (78 billion). However, this last figure appeared to have been “inflated” by the old more favourable incentive system, which had led many investors to take action before the current regime came into force. By the end of 2014, the total number of projects mediated by CzechInvest amounted to 147 (87 billion crowns).

For the last 18 months, the favourite sector for investors has been the automotive industry that, besides the highest number of projects involved, is also in first position for the amount of disbursements made. In first position is the South Korean tire manufacturer, Nexen Tire Corporation, that in the industrial area of Triangle (Žatec, Region of Ústí nad Labem), will build a 23 billion Crown factory (almost 800 million euro). Then other producers from the auto sector will follow: the German Brose and Continental Automotive, as well as the South Korean Hyundai Mobis.

Despite a decline during the first half of 2015, the trend is still considered satisfactory according to the minister for Industry and Trade, Jan Mládek: “The Czech Republic is at present a stable and open country that is committed to stimulating Czech and foreign investors in the continuous development of their business. In this last period, we have been strengthening investments in the area of data processing centres, shared services and the aviation industry. They are highly advanced technological sectors with a very high added value, that require great experience and a skilled workforce. But, we still have a competitive advantage here”. A further step to attract even more industries and foreign capital, is the simplification of the Building Act and an easier access to public tenders and European funds.

Asian investments spreading like wildfire

Also showing off their money, are the Chinese, who from various directions, are evaluating and testing the possibilities for direct investments and capital in the Czech Republic and that, in some cases, have already a foot in the Central European country. Within the next two years, four Chinese banks intend to open in Prague: the Bank of China, which is the only one that has, so far, officially confirmed its intention, then the China Construction Bank (specialized in financing transport sector projects, and which is obviously interested in the development of the Czech motorway network), the China Development Bank (specialized in financing road, rail and energy projects), and the ICBC (Industrial and Commercial Bank of China, one of the leading institutions in the world). And just to mention a few more examples, in mid-July an operation was concluded that allowed the Chinese Shaangu Power to buy 75% of Ekol, a Brno company – producer of steam turbines – for 1.34 billion crowns. Furthermore, the representatives of the Chinese province of Hebei have announced a three-year plan to build in Pasohlávky (30 km south of Brno), a large Spa facility, with nursing homes, wellness centre, hotels that will create hundreds of new jobs, thanks to a two-billion crown project.

As President Miloš Zeman stated quite recently, Beijing is alleged to be carrying out a sensational deal: it is interested in buying the historic truck manufacturer Tatra, with which it is having talks. And also Chinese are the business people who are ready to stretch out their powerful tentacles into the Czech real estate market, with a particular interest in buildings for commercial, shopping and office use.

Particularly dynamic in the Czech market recently is the example of the Chinese group Cefc. Besides buying two historical and prestigious properties in Prague, (Martinický palác in Hradčany and the former headquarters of Živnostenská banka on Na příkopě), it also has a 79.4% stake in Pivovary Lobkowicz, the fifth Czech producer of beer. Cefc is also going to become the owner of 60% of the Prague football club Slavia.

There are even rumours that the Fosun Group – the giant private Chinese group that recently bought Club Med, as well as the historic Palazzo Broggi in Milan, in Cordusio Square (former headquarters of UniCredit) – is also planning to invest in the Czech Republic from one to three billion euro in the real estate sector, including industrial companies, with a special interest for start-up technology companies.

Finally, if this wasn’t enough, the pharmaceutical billionaire Xiu Laigui, one of the richest men in his country, at the head of a group, which had a turnover of eight billion dollars last year, is evaluating business and shopping opportunities in Prague and its surroundings. The Czech Republic could thus become the European base from which to export business to the Old Continent.

Not only China, though. Also other almond-eyed people are watching the Czech Republic. Among them is the famous Taiwanese Foxconn, which produces the iPhone for Apple, has signed a new agreement with the Czech government to build a design centre for the development of products aimed at the European market, including a data centre. Foxconn, which is already present in the Czech Republic with two factories that produce hardware for the IT sector and the second largest exporter in the country, will invest another 2.5 billion crowns between 2015 and 2018.

A particularly consistent strategy that reveals a possible deeper objective of Asian business – especially by Beijing – to establish a geopolitical position in a country, such as the Czech Republic, that could function as a fundamental crossroads of interests in Central Europe.

Italy does not want to remain idle

And in the future, due to this recovery and rosy outlook for the Czech economy, even Italy could do its part. In fact, last winter, on the occasion of a visit by the Undersecretary for Foreign Affairs and International Cooperation, Benedetto Della Vedova, they discussed about reviving trade relations between the two countries and the amount of Italian investments in the Czech Republic. The strong promoter of the initiative was Ambassador Aldo Amati, who considers it one of his most important objectives. Large companies, such as Finmeccanica have been closely following the Prague government’s plans to increase the Defence budget. And also Ansaldo Nucleare, which is following with great interest Czech plans on atomic energy development, also took part at the meetings, along with about thirty Italian and Czech companies, with particular attention for the mechanical, plastic production, nanotechnology, automotive, clothing and food sectors.

It might be appropriate to say: the proof of the pudding is in the eating.

by Daniela Mogavero