German investors fed up with Czech business “jungle”

The competitiveness of the ČR is damaged by corruption

The competitiveness of the Czech Republic is damaged by corruption and incompetence. In addition, the country is losing its advantage of skilled and cheap labor.

This is how German investors and managers in the Czech Republic see the business environment in the country.

Germany’s foreign business chambers released their sixth report on the investment environment in 12 post-communist countries in Eastern Europe. Ten of them are already in the EU, in addition Germans evaluated non-EU members Croatia and Serbia. The countries are rated by numbers – 1 is the best, 5 is the worst.

The worst rating awarded was 4.2, and it was received by the Czech Republic in the category “Fair public tender process”. The data of the German business chambers indicate that in this category, the Czech Republic has even worse reputation than Albania, Kosovo, or Bosnia and Herzegovina.

The Czech Republic’s rating in the category “Corruption and criminality” is worse than one year ago, but the country is still “only” the second worst, after Rumania.

The German report states that all countries in the region have problems with their public administration. “For years, the factors directly influenced by the state have been rated the worst by  (German) companies,” the report stresses. In addition, the situation in getting worse in most of the countries, with the exception of Poland, Estonia, and Lithuania. In the last three years, improvements have been registered also in Bulgaria

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On the contrary, the Czech Republic is getting worse in all categories. Five years ago, it was among the politically most stable countries in the region, with the rule of law guaranteed. Today, the country is below the average, and the report says that the Czech Republic is now closer to the Balkans than to Central Europe.

Expensive and unqualified labor

According to the report, an especially important factor for German investors is the situation of the labor market in their countries of interest. And the Czech Republic’s workforce appears to be costly. Only Hungary, Slovenia, and Croatia have more expensive labor. Also, German companies see the Czech Republic as the country with the second worst qualified workforce, after Bulgaria’s.

On the other hand, the Czech Republic is above the East European average in terms of the quality of domestic suppliers.

The report includes also a general question of the attractiveness of a given country for German investors. In all six yearly reports, the Czech Republic has topped this rating, because it is seen as geographically as well as culturally closest. Since 2009, the Czech Republic has received EUR 22bil in German investments, EUR 2bil more than Poland and EUR 12bil more than Slovakia.

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However, the Czech Republic’s attractiveness for German investors is decreasing every year, and today it is basically on the same level as Poland and Slovenia.

Infrastructure, institution, innovation

Also, the answers to the question whether German firms regret investing in a given country are worrying. German firms are most happy about their investments in Estonia and Poland, with only one in fourteen investors complaining. On the contrary, among those German firms that have invested in the Czech Republic and Slovenia, one in three is unhappy about the result. Characteristically, both countries are marked by costly workforce and chaotic political situation.

“We have almost the worst public service in the EU-27,” admits Radek Špicar, Vice-President of the Union of Industry and Transport. If compared to neighboring countries, the Czech infrastructure is getting worse – for example in spite of huge state investments, the Czech highway system is still unfinished. “We have a scarcity of low-skilled cheap labor, which is still needed by the Czech industry, on the other hand employers lack highly qualified workforce which would allow to focus on projects with high added value, on innovation, research and development,” said Špicar, adding that the Czech Republic has potential, but a lot of work is needed to be able to use it.

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Michal Mejstřík from the National Economic Council, an advisory board for the government, agrees. “We need to implement a new strategy which we call the strategy of the three Is – infrastructure, institution, innovation. And all this based on a population educated in a totally different manner. Otherwise, the future seems very gloomy,” said Mejstřík.

Read more: Pulled by German boom: 2010 in Czech economy
Read more: Manufacturing pushes Czech GDP growth to 0.6% in Q1

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