German firms Czeching out

By bne IntelliNews March 26, 2012

Sherelle Jacobs in Cologne -

For years, the Czech Republic has been the apple of Germany's FDI in Central and Eastern Europe (CEE). But the country is now facing criticism for shortfalls in its business environment and reports of German companies moving their operations out of the country are on the up. This has raised questions about whether the Czech Republic will be Germany's favoured investment destination in the region for much longer.

German investment in the Czech Republic is high. According to Deutsche Bundesbank, since 1993 Germany has invested around €22bn in the country. The German Chamber of Commerce estimates that there are around 4,000 German companies operating in the Czech Republic. Germany is also a major provider of jobs in the country, with the top 15 German companies there alone providing 100,000 jobs.

German investment in the Czech Republic is heavily concentrated in the automotive industry - Volkswagen famously has reinvigorated Skoda Auto and Daimler manufactures car parts in the country. But German interest also extends to other areas, such as energy efficiency, the food industry and the medical technology sector. Siemens is one of the biggest players in these alternative areas; over the last year, its portfolio has included research projects with major Czech hospitals, the supply of medical equipment and power plant renovation.

Nonetheless, a survey released by the German Chamber of Commerce in the summer of 2011 caused a stir; although it asserted that the Czech Republic remains the most attractive investment destination in CEE, it found that the country ranks bottom in the region for transparency in public procurement, behind Kosovo and Albania. It also reported that the country has one of the worst reputations in the region for corruption. "We ask German investors each year about their satisfaction with the location of the Czech Republic. Most appear to have the same criticisms: no euro, no satisfactory legal certainty, lack of transparency in public procurement," says Bernard Bauer, managing director at the German Chamber of Commerce in the Czech Republic. "There is also the problem of corruption, and the Czech elite is not being reined in in this regard."

bne has heard one high-ranking German official call the Czech business environment a "swamp."

Perhaps the trend that has caused the most disquiet in Czech quarters is German companies' growing lack of satisfaction with the Czech work force. "Especially in the technical and commercial professions, it is becoming increasingly difficult to find good employees who also have practical experience," explains Bauer.

Fears that future graduates will lack the skills that German companies require has caused particular concern; since its accession to the EU, the Czech Republic has been haemorrhaging a worrying proportion of its best skilled graduates. The problem is so acute that even home-grown Czech firms are worried about the lack of skills possessed by the workforce, according to a recent World Bank report.

Growing German interest in emerging markets in other regions, such as the BRICs, has prompted some to worry about the long-term future of CEE, including the Czech Republic. However, with neighbouring country's like Slovakia making notable progress, the Czech Republic's biggest future competition may be painfully closer to home.

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