Michael Dolezal guest lecturer 551@mail.muni.cz The development of FDI in the Czech Republic UNCTAD/ASIT 2 Introduction somopro_bar01.jpg •Former graduate of ESF •Project administrator at JCMM •Responsible for developing international projects •EU funded cooperation/bilateral agreements UNCTAD/ASIT 3 Topics to cover •Introduction – definitions and importance of FDI •The nature of attitudes towards FDI •FDI in the Czech Republic •Future development UNCTAD/ASIT 4 Definitions •Foreign direct investment (FDI) is defined as a long term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based •control - owning 10% or more UNCTAD/ASIT 5 Definitions •Foreign direct investment (FDI) is defined as a long term investment by a foreign direct investor in an enterprise resident in an economy other than that in which the foreign direct investor is based •control - owning 10% or more UNCTAD/ASIT 6 Definitions •Greenfield investment - direct investment in new facilities or the expansion of existing facilities •Mergers and acquisitions occur when a transfer of existing assets from local firms to foreign firms takes place, UNCTAD/ASIT 7 Why firms invest abroad? RESOURCE SEEKING MARKET SEEKING EFFICIENCY SEEKING STRATEGIC ASSET SEEKING UNCTAD/ASIT 8 Development of global FDI flows, 1970-1999 (billion of dollars) 0 100 300 500 700 900 Source: UNCTAD FDI/TNC databa Foreign direct investment as an engine of globalisation: some facts •Dynamic increase in FDI flows (1999: $840 bill.) •Number of TNCs in 1992: 36.660; in 1998: 59.902 •Employment in all TNCs: 34.4 million (1998) •FDI flows grow faster than world exports or global GDP • UNCTAD/ASIT 9 FDI into developing countries •FDI most important source of external finance •Since 1990, 30 countries abandoned CPE, 80 liberalized invest. regulations UNCTAD/ASIT 10 FDI flows into developing regions UNCTAD/ASIT 11 The changing world of FDI (1) •In 1990´s FDI viewed as „good news“ after the 70´s and 80´s which were critical/hostile •Reasons for this „change of heart“: •renewed faith of countries in market econ. (CEE & China, etc.) •increasing globalization of economic activity/integration of international production/dynamic competitiveness UNCTAD/ASIT 12 The changing world of FDI (2) •„key ingredients“ - technology, intellectual capital, learning experience, organizational competence è more mobile across borders and increasingly housed in TNC •governments are modifying their attitudes (direct contribution vs wider impact) •global production chains •Ford Motor Company has relationships with over 1,600 production • supliers operating at over 4,600 manufacturing sites http://thi.uloz.to/e/2/2/e22c4d7f8775e930fc4e63578249a2a0.800x600.jpg UNCTAD/ASIT 13 Improved competitive position through • •Political stability •Liberalization and privatization •Reduction of red-tape and corruption •Improvement of the physical infrastructure •Strengthening of government institutions –Inter-governmental arrangements (protection of investmnets: MIGA – 70 members incl. CZ) • • UNCTAD/ASIT 14 Improved competitive position through •Strengthening of the finance and banking sector •Improvement of the domestic labour force •Development of the local private sector •A focused investment promotion strategy è Investor targeting •Regional integration and international co-operation (note: supported by EU {Interreg}) 2008 UNCTAD/ASIT 15 GDP in the Czech Republic Growth: manufacturing, services, telecommunication, civil engineering, trade, transportation vyvoj_hdp_95-09.png UNCTAD/ASIT 16 GDP in the Czech Republic Growth: manufacturing, services, telecommunication, civil engineering, trade, transportation Year-to-year change UNCTAD/ASIT 17 GDP in the Czech Republic RŮST HDP V ROCE 2004 Q1 Q2 Q3 Q4 Rok Původní odhad +4,0 % +4,8 % +4,9 % +5,0 % +4,7 % Aktuální odhad +3,6 % +4,2 % +4,3 % +4,7 % +4,2 % Změna -0,4 -0,6 -0,6 -0,3 -0,5 RŮST HDP V ROCE 2005 Q1 Q2 Q3 Q4 Rok Původní odhad +5,3 % +5,8 % +5,8 % +6,9 % +6,0 % Aktuální odhad +5,4 % +6,1 % +5,9 % +6,9 % +6,1 % Změna +0,1 +0,3 +0,1 0,0 +0,1 UNCTAD/ASIT 18 FDI in the Czech Republic UNCTAD/ASIT 19 FDI in the Czech Republic per capita FDI in recent years •in 2009 drop by -50% in FDI •number of projects same but smaller in volume (=less money) •export oriented country; HDP -4,9% •global recovery very slow UNCTAD/ASIT 20 UNCTAD/ASIT 21 FDI data (CZ, H, PL, Sl) 0 UNCTAD/ASIT 22 Investors divided by countries UNCTAD/ASIT 23 Structure of FDI UNCTAD/ASIT 24 Structure of FDI • UNCTAD/ASIT 25 The 1989 - 1997 development •No incentive schemes, only „good conditions“ •"In the process …... the decision is based on price, business plan, sufficient financial funds a reliability of investors. I see no need to involve any unfair criteria while assessing ….. to make the decisions impartial“ (Mr. Vl. Dlouhý) •Special conditions negotiatied on an individual bases - Skoda to VW, Rakona to Procter and Gamble •The crucial role of the „human factor“ / •“power of reference“ (Panasonic) • UNCTAD/ASIT 26 1998 and onwards development •Since April 1998 – governmental decision •Since May 2000 - Act on Investment Incentives (72/2000 Coll.) • •Clear investment incentives and eligibility criteria • UNCTAD/ASIT 27 Additional changes in 2002 •Strategic service projects (customer contact centers, high-tech repair centers,…) •high proportion of added value •high proportion of skilled label •closeness with IT & Telcom •Technology centers •innovation centers close to manufacturing (changes to product, production facilities…) • UNCTAD/ASIT 28 Year 2003: on the way to Europe •Treaty of Accession (Athens April 2003) •Refferendum (June 2003), YES: 77,3% •CZ joined EU on May 1, 2004 •almost 80% of Czech laws harmonized •100% of EU technical standards adopted •investment incentives compliant with EU •challenges? „brain drain“ & struct. funds UNCTAD/ASIT 29 CzechInvest - a helping hand •Advise and support new and existing entrepreneurs and foreign investors in CZ •Worldwide representation in Europe, USA, southeaest Asia and Japan •Comprehensive services for investors –Full information service –Handling of investment incentives –Business properties identification –Supplier identification –After care services •Business infrastructure • development •Acces to SF • Struktura projektů UNCTAD/ASIT 30 CzechInvest - record •Since its establishment, CzechInvest assisted: -771 investment projects -projects worth 551 bil. CZK -153 000 jobs • UNCTAD/ASIT 31 Recent evaluation by Czechinvest •„While in 90´s we were very attractive for huge green-field investments which required enormous investments in premises, machinery and equipment, today the Czech Republic is increasingly chosen by companies that do not require the expensive equipment, but primarily invests in training and training of their employees - programmers, designers, researchers and so on “ says Alexandra Rudyšarová, the CzechInvest director. UNCTAD/ASIT 32 Selected barriers •Highway newtork not fully developed, some regions are not connected •Lenghty administration & lots of paperwork •Bill No. 326/1999 Coll. – long term residence •living standars not yet on European level (schools teaching fully in English only in Prague) •Drop in number of graduates with technical background (on all levels of education system), tight cooperation with technical universities •Slow Euro introduction. In 201x? In 202x? UNCTAD/ASIT 33 Future trends? Difficult to predict! UNCTAD/ASIT 34 None National IPAs IPA world survey Others: Aruba, Bahrain, Fiji, Hong Kong, Maldives, Malta, Mauritius, Palestine, Palau, Vanuatu Regional IPAs Case study: Brno and Amazon Amazon.com_Customer_Service_Center_(Huntington,_West_Virginia)_003.jpg •Amazon in Brno •2,5 bil. CZK investment •1500 jobs UNCTAD/ASIT 35 UNCTAD/ASIT 36 Case study: Brno and Amazon •October 2013 - Amazon announced two large distribution centers in Brno and Dobrovíz open by Christmas 2014 •December 2013 - Brno councilors conditional approved the construction of a giant warehouse provided the Road and Motorway Directorate (RSD) would build a connection to the highway •January 2014 - councilors refused to contract RSD with highway connection , Amazon project found deadlocked •February 2014 - councilors again refused several variants of contracts for the construction •March 2014 - after the next disapproval contracts with RSD Mr. Onderka Mayor of Brno, announced that it is the end of the project •April 2014 - Amazon addressed it would look elsewhere, Brno councilors nevertheless subsequently approved the sale of land for highway ramp and gave the project their OK, then the company took the time to think •May 2014 - councilors approved an update of the land-use-plan, which allows the construction of a giant warehouse at the Černovická terrace •June 2014 – Amazon announced that the company will no longer pursue the construction of a warehouse in Brno UNCTAD/ASIT 37 http://www.czechinvest.org http://www.cnb.cz http://www.unctad.org/wir More info available at UNCTAD/ASIT 38 THANK YOU FOR YOUR ATTENTION