The economies of Central Europe offer some of the most exciting investment opportunities among the world's emerging markets. The availability of cost-effective labour and improving access to both large established Western European markets and the emerging markets of Eastern Europe and the former Soviet Union make these countries highly attractive to foreign investors looking for a location for their next European investment.

The Czech Republic has been one of the most successful transition countries of Central and Eastern Europe in the attraction of foreign direct investment (FDI), with nearly US$10 billion as the cumulative inflow of FDI recorded in the balance of payments since 1990.

By the beginning of 1999 a large proportion of the world's best-known multinationals had already set up operations in the Czech Republic including ABB, AssiDomän, Daewoo, Ford, Motorola, Nestlé, Procter & Gamble, Renault, Siemens, Toray, Matsushita, Linde and Volkswagen. In total there were over 47,000 foreign-owned or partly foreign-owned companies registered in the Czech Republic at the end of 1998. Out of these, some 800 foreign-backed companies were manufacturers employing more than 50 people.

Inflows of foreign investment have launched massive changes in the Czech economy. Foreign investors have brought much needed capital, technology and modern management skills to hundreds of Czech companies and thousands of Czech workers. Foreign-owned companies have also been major contributors to improving the export performance of the country. The inflow of FDI is a major contributor to the growth and expansion of the Czech economy. One in seven of all Czech manufacturing jobs are already supported by companies that have some form of foreign investment and these companies account for over half of all Czech manufacturing exports. The transformational effect of FDI is magnified in the Czech supply chain which is rapidly upgrading its capabilities to meet the new, tougher demands from their foreign-backed customers.

The impact of FDI is not limited to manufacturing alone. The range of service industries present in the Czech Republic has mushroomed in the past nine years. Traditional utilities have been privatised or are earmarked for sale. The financial services sector has been transformed by foreign banks offering corporate and retail services, by foreign insurance firms and by fund managers active in the Czech industry. Two large banks have been sold to foreign owners and three remaining large banks are scheduled for privatisation in 1999-2000. The tourism sector, one of the major growth areas in the Czech economy, not only benefits from the growing numbers of foreign visitors, but also from foreign entrepreneurial drive in creating new services and products.

Foreign investors are attracted to the Czech Republic by the excellent advantages it possesses over its closest regional rivals.

Main strengths of the Czech Republic

Geographical position

The Czech Republic has a strategic location in the centre of Europe with very good access to both the established western and emerging eastern markets. The European Union (EU) is the most important external market for Czech-based manufacturers and the Czech Republic is in the first group of countries to begin accession negotiations with the EU. Once the country joins, prospective foreign investors will be able to serve the world's most populated consumer market without barriers from their manufacturing bases in the Czech Republic.

Many foreign investors have used the Czech Republic as a springboard to expand their sales in countries further east. Foreign-owned firms located in the Czech Republic use the good contacts already established by Czech managers and entrepreneurs with partners in the countries of the former Soviet Union, as well as their long-term experience in dealing with these rapidly growing markets.

Extensive infrastructure

The extensive transport infrastructure and geographical position of the Czech Republic highlights its role as a crossroads of major European transit corridors. Several rail modernisation projects are currently underway with the aim to link the Czech Republic with the pan-European network of high-speed trains. The upgrade of the Berlin-Prague-Brno-Vienna/Bratislava high-speed corridor is expected to be finished by the year 2000. The motorway network is planned to double between 1989-2007. Priority has been given to the Prague-Pilsen-Germany motorway, completed in 1997 except for a short stretch near the city of Pilsen.

The Czech Republic has four international public airports operating scheduled and charter international flights. Five other Czech airports can be used for international charter flights and plans to upgrade them are underway.

Highly-developed domestic supply base

The Czech Republic has a long industrial heritage. Czechoslovakia had the seventh highest Gross Domestic Product (GDP) in the world between the two world wars. Much of that lead was lost during 1948-1989. But the isolation of Czechoslovakia from the international markets during that period paradoxically ensured that the Czech Republic has maintained a wide industrial supply base. Czech-produced machinery such as weaving looms, metalworking and rubber-processing machines are famous in many developed and developing countries alike, as is Czech-made equipment for power generation and minerals processing.

Highly-educated, cost-competitive workforce

Average labour costs are still much lower in the Czech Republic than in all western Organisation for Economic Co-operation and Development (OECD) countries and lower or on a par with those in many rapidly developing Asian economies. The Czech Republic can provide manufacturers with the high productivity levels that can only be produced by highly skilled labour. According to a 1995 OECD study, the Czech Republic has one of the world's highest percentage of graduates in the science and technical fields. The Czech Republic possesses a long-established system of vocational training based on a wide range of specialised three and four-year vocational schools. The ready availability of highly technically educated graduates of these schools, at a fraction of the cost of western labour, creates an outstanding environment for manufacturing companies, especially for those which need to generate higher value-added products.

High credit ranking

Renowned international risk-ranking institutions have given the Czech Republic one of the highest credit rankings in Central and Eastern Europe. Moody's current credit ranking stands at BAA1, while Standard and Poor's have awarded the Czech Republic an A rating. The confluence of the excellent rating with relatively low inflation (by Central and Eastern European standards) and stable macroeconomic performance mitigate the risks associated with investing in the Czech Republic.

New investment incentives scheme

At the end of April 1998 the Czech Government approved a comprehensive package of tax and business incentives available to new and existing investors. Investors who will invest over $10 million into manufacturing are eligible for the following incentives:

• a tax break for up to ten years;
• job creation grants (up to $3,300 for each job created);
• training and retraining grants (up to 50 per cent of the total training costs);
• provision of low-cost development land with infrastructure ready;
• duty free importation of machinery and equipment;
• location in a customs free zone (for investments of long-term benefit to the Czech economy).

Investment climate in the Czech Republic

CzechInvest's services to foreign investors

CzechInvest, the Czech national agency for foreign investment, has been established to promote the Czech Republic to potential investors worldwide, to facilitate the inflow of FDI and assist foreign investors in establishing or expanding their manufacturing operations in the Czech Republic. CzechInvest offers potential investors a range of services free of charge. These services include:

• the provision of relevant data about doing business in the Czech Republic;
• the provision of sector-specific information;
• assistance with finding suitable production facilities or joint-venture partners;
• organisational aid and execution of visit programmes;
• assistance in dealing with bureaucracy at both national and local level;
• processing applications for investment incentives;
• an introduction to services of the Association for Foreign Investment.

CzechInvest makes it easier to establish an operation in the Czech Republic. Our assistance helps foreign companies reduce the burden on their financial and management resources.

For more information, contact Hana Lässlerová Headquarters Politickych vìzòù 20, 112 49 Prague 1, Czech Republic. Tel: +420 2 2422 1540 Fax: +420 2 2422 1804 E-mail: lasslerova@czechinvest.com