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Foreign Direct Investment

According to UNCTAD's World Investment Report 2021, FDI inflows to the Czech Republic fell to USD 6.3 billion in 2020 from USD 10 billion the year before. In the same period, the total stock of FDI stood at USD 189 billion. The country continues to rank among the largest recipients of FDI inflows into Central Europe. EU member states are the most important foreign investors in the Czech Republic. In terms of FDI stocks, the Netherlands is the largest investor in the country, followed by Luxembourg, Germany and Austria. Recent FDI data show a high share of Chinese, Korean and United States investors. Financial services and manufacturing receive the majority of FDI (the latter spearheaded by the car industry and metallurgy), followed by the real estate and wholesale and retail trade sectors. According to the latest data from OECD, FDI inflows to the country stood at USD 2.5 billion in the first semester of 2021, marking a 14.8% decrease compared to the same period one year earlier (mostly due to disinvestment in the first quarter of 2021).

According to the Government Agency for Foreign Direct Investment, the Czech Republic ranks first among central and eastern European countries in terms of FDI stock and per capita inflows. This is due to the introduction of investment incentives, the presence of skilled and inexpensive labour, and the geographical advantages of the Czech Republic, such as its location in the heart of Central Europe. Since May 2021, the Czech Republic introduced a new FDI screening mechanism in line with the EU guidelines. Under the new law, any non-EU investor must obtain a permit before acquiring more than 10% of the shares or voting rights of a company operating in a sector that is sensitive for the country’s safety or its internal or public order (e.g. energy, gas, heat and water management, food and agriculture, healthcare, transportation, communication and IT systems, financial markets, emergency services and public administration, military material, etc.). The Czech Republic was ranked 41st out of 190 countries in the World Bank's latest Doing Business report, dropping 6 spots compared to the previous edition. This was mainly due to near-stagnation of the country's progress with regard to the ease of doing business.

 
 
Foreign Direct Investment 201820192020
FDI Inward Flow (million USD) 11,01010,1086,293
FDI Stock (million USD) 164,225171,334188,772
Number of Greenfield Investments* 1339056
Value of Greenfield Investments (million USD) 3,0972,3692,155

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Czech Republic Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 2.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 6.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 9.0 6.8 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in the Czech Republic

Strong Points
Advantages for FDI in the Czech Republic:

  • The Czech Republic is a member of the EU but not of the euro zone
  • The country's central bank is strong and independent and regulates a stable currency. This gives the country excellent access to the European market as well as positive and stable international relations
  • A stable banking sector that has shown resilience to recent crises
  • Public spending at a satisfactory and controlled level
  • One of the lowest unemployment rates of Europe creates an optimum and healthy business environment. 
  • The country's long history of industrial production (the sector continues to have great potential)
  • The quality of its labour force (at high intermediate cost)
  • Central geographic location.

See the Doing Business Report 2020 for more information on the business environment in the Czech Republic (which ranks 41st out of 190 economies).

Weak Points

Disadvantages for FDI in the Czech Republic:

  • The economy of the Czech Republic is highly dependent on the level of exports and the inflow of foreign investment, which makes it particularly vulnerable in times of crisis
  • The country's euroscepticism and the lack of interest in adopting the euro can discourage some European entrepreneurs in the long run and make the country less competitive
  • The country has experienced political tensions, which may jeopardise its stability in the eyes of potential entrepreneurs
  • Legislative and judicial reforms are slow to materialise; this can be explained by a political history made of governmental coalitions.
  • The shortage of labour and the ageing of the population also constitute a significant obstacle to the country's development and limit the country's ability to meet production requirements
  • The automotive sector occupies a large share of the economy.
Government Measures to Motivate or Restrict FDI
In order to reduce the dependence of the Czech market on its European trading partners (mainly Germany), the government has undertaken reforms since 2011-2012 to diversify the country's export opportunities and the structure of its export market as well as of its economic fabric. To support these changes an export strategy (2012-2020) targeting fast-growing emerging markets and a strategy to improve competitiveness (launched in 2011) have been implemented. The Czech Ministry of Industry and Trade and CzechInvest, the investment development agency, have launched the "Welcome Package" initiative for investors, on 1 July 2013, which aims to make immigration procedures as easy as possible for foreign investors who require residence and work permits in the Czech Republic.

Moreover, the Czech government has put in place an economic program based on the promotion of entrepreneurship and the modernisation of public administration (so that it is more functional and transparent). As concrete consequences, this has for example made it easier to obtain public funding in the fields of science, research and innovation.

In 2019, the government made significant changes to the Act on investment incentives, eliminating incentives for investments targeting low-skilled labor growth, restricting incentive payments to primarily high value-added investments that focus on R&D and create jobs for university graduates.

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Investment Opportunities

The Key Sectors of the National Economy
Automotive, machinery, electronics, life sciences, airplane technique, business services, IT.
For further information, consult the section "Key Sectors" on the CzechInvest website.
High Potential Sectors
Information technologies, Software development, Life sciences; as the Czech government has taken strides in recent years to diversify its traditional investments in engineering into new fields of research and development and innovative technologies.
Privatization Programmes
No privatization program is currently underway, as the vast majority of the Czech economy is now in private hands following the privatization waves that started in the 90s.
Tenders, Projects and Public Procurement
TED - Tenders Electronic Daily, Business opportunities in the EU
 DgMarket, Tenders Worldwide
 Czech Tenders, Tenders in Czech Republic
 

Sectors Where Investment Opportunities Are Fewer

Monopolistic Sectors
None.
Sectors in Decline
Textile industry
 

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