Czech companies doing business in high-risk markets will now be able to apply for up to CZK 25 million in funding thanks to a new foreign ministry scheme unveiled on Tuesday. It says the plan is the first of its kind in Central Europe and follows the EU’s shift in focus from foreign aid to investment.
On Tuesday, the Ministry of Foreign Affairs inspired by a Europe-wide shift to support developing countries through investment rather than funding, unveiled its Záruka zahraniční rozvojové spolupráce (Foreign Development Cooperation Guarantee) project.
The scheme is aimed at all states on the OECD’s Official Development List, which is made up of more than one hundred countries worldwide that rank as low or middle income economies.
Martin Tlapa is the Deputy Minister of Foreign Affairs responsible for economic and development cooperation. He says that the project is the first of its kind in Central and Eastern Europe.
“We decided to follow what is being discussed on the EU level about how to be efficient in developing cooperation in developing countries. The consensus is to move from just giving money into difficult regions in Asia and Africa, to investing instead. This is something that was decided on government level last year and we prepared the program following this direction. Something that is really quite new among the neighbouring countries in Central Europe.”
The push to move from development contributions to more direct investment in promising businesses has been present in Brussels discussions since the migration crisis and is particularly relevant in regards to the African continent, where EU officials hope to create 10 million jobs in the next 5 years.
The foreign ministry’s scheme, seeks to simplify and increase the availability of projects offered by Czech commercial banks to Czech companies seeking to do business in high risk markets.
A total of CZK 50 million has been committed to the plan, with the maximum available withdrawable amount for a single investment lying at CZK 25 million.
The length of liability lies at 8 years and the guarantee can fund up to 50 percent of the investment.
The project is currently aimed at Czech companies, with local businesses in developing states unable to apply.
“It is aimed at Czech companies that are investing in developing countries. We will see what the demand is and will be flexible in adjusting all of the parameters based on the demands following discussions we have on the European level.”
He says that if commercial banks provide enough interest, the budget for the next phase could be expanded beyond CZK 50 million.
All business ventures can apply, but the deputy foreign minister believes that businesses focused on agriculture, healthcare and water management have a particularly strong chance.
“I think that in sectors such as healthcare, medical equipment and other devices, Czech companies are very competitive. Traditionally an important component of our cooperation in Africa is agriculture, agricultural technologies, food processing, as well as water cleaning and water management. It is likely to vary and to be based on demand. However, these sectors are considered to be strong on the list of companies interested in the project.”
The ministry is conducting a study aimed at identifying the sectors where Czech companies are most competitive in Asia and Africa. Something that could also be used as a selection measure, says Mr. Tlapa.
The project is to be announced on April 8th. Businesses can submit applications on a running basis and Mr. Tlapa says that requests featuring a strong business plan and an established base in the target country could secure the funds by the end of the year.
After a press conference, the deputy foreign minister and his aides attended a consultation meeting with representatives of Czech business and the commercial banking sector.
Some of those present brought up the fact that many Czech companies ask for loans directly through their local branches in the respective countries, whereas the foreign ministry’s plan only counts on investment guarantees being paid out to the company’s main Czech branches.
This, according to some commercial bankers, could slow down the speed with which money reaches businesses.
However, Mr. Tlapa says that in this initial stage of the project, focus will remain on core businesses.
“Of course some banks want to be more ambitious with the project. For example, they want to finance Czech branches abroad directly. That is perfect. We love the discussion. But I would like to say that we are just at the beginning. Let’s start with the core business and checking the success on the Czech side. Don’t forget that we have a problem with the amount of how much companies are willing to invest in developing countries and Africa. So this is a first step. But if it is a success, the minister and the government will be very interested in further developing the plan.”
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