The Czech Republic has benefitted in the recent years from being the biggest “pull” for foreign investors in Central Europe. But the city of Brno’s rejection of 2.7 billion-crown investment from Amazon has sent is a major setback for the country’s efforts to attract more investors into the country which will also soon be hampered by planned new EU rules likely to cut the maximum incentives that can be offered to foreign investors. In this week’s edition of Marketplace, the head of the government agency CzechInvest Ondřej Votruba discusses the Amazon case, the proposed cuts in incentives, and the agency’s plans for the depressed Moravia-Silesia region.
“I don’t understand Brno politics so this is my personal opinion. But there were many people, members of the public as well as councillors who represent them and want to be re-elected, who were saying it was too close to the city centre. It is not but it is within the city proper. They thought such a big warehouse did not belong there.
“Many people, associated in the group called Clean Tuřany, were against because they were concerned about increased traffic and trucks passing by their houses. They were not convinced that Amazon through their developer, CTP, would help build, and even help buy the land for, a new highway exit.
“They probably did not believe it would be done in time, and thought the warehouse would be there for years before the exit would possibly be built. This maybe points to some deeper issues of trust in Czech politicians and construction procedures and promises. That was perhaps the main reason why they were so concerned. But it’s very bad for the Czech Republic’s international reputation.”
As CzechInvest, couldn’t you have directed Amazon to other areas that would be more welcoming to the project and would not want to miss out on the 1,500 – 2,000 jobs that were supposed to be created there?
“Absolutely, we are doing our best to make that happen. But it will not be easy because, as you may imagine, after being rejected two or three times, Amazon’s trust in the Czech Republic and the Brno area has diminished.
“But it’s our job to make sure the second Amazon warehouse [besides the one outside Prague which is likely to materialize] is also built in the Czech Republic. We have already offered three potential sites for the logistics centre; we are in touch with Amazon almost every day and are trying to persuade them to do it here, too. It’s still not completely out of the question but I have to say the chances of the second warehouse would be placed somewhere in Moravia is less than 50 percent.”
There are other large investment projects in the pipeline, such as plans by the Korean tyre producer Nexen and the US electric carmaker Tesla Motors to build their plants here. Do you think the Amazon case affect their plans, too?
“The fact that after all the negotiations, Amazon was rejected in Brno, will have a negative impact. That’s obvious but we hope there will be no significant negative impact on the big projects we are dealing with right now.
“I’m sorry I can’t comment on most of them but what was already announced on the occasion of the Czech prime minister’s visit [at Volkswagen headquarters] in Wolfsburg is the expansion of Škoda Auto. The fact that VW decided to produce their new model in the Czech Republic is the best news we’ve had in years.”
I would also like to ask about the upcoming new EU rules for investment incentives. Under the proposed rules, which should come into effect in July, maximum support would be cut from 40 to 25 percent. What’s the latest news on this? Is the Czech Republic going to lose out to other countries in the region because of this?
“The European Commission decided last year that they would completely overhaul the rules for public aid in the EU. I think they perhaps don’t fully realize what it will mean because the competitiveness of the EU as a whole will decrease compared to its competitors in the field of attracting investment such as Russia, Turkey, and others.
“They decided to lower the ceiling from 40 to 25 percent, and that will affect the majority of regions in the Czech Republic. There are several regions, such as Prague, where no public aid is possible because Prague is rich. The problem is that all other regions expect Prague and southern Bohemia, the ceiling will go down. That’s a very negative signal for investors, maybe worse than Amazon not coming to Brno.
“Because of their economic level, Czech regions will be less competitive than some regions in Slovakia and Poland which are not as rich and have lower economic levels. In fact, some Polish and Slovak regions will have a higher public aid ceiling. So it will be tough for us to compete with them but we will of course compete with them and try to win the investors for us anyway.”
There is one region in the Czech Republic that could use foreign investors – the depressed Moravia-Silesia region with its unsustainable mining and heavy industry. Do you have any specific plans or strategies to address that?
“We do. The Czech government is trying to attract investors, not only foreign but Czech, or anybody, to create new jobs specifically to regions suffering from high unemployment which are referred to as A regions in the Czech law on incentives. These are districts where the unemployment rate is 50 percent higher than the national average.
“Two of them – Karviná and Brutál districts – are in that region, and the government decided two months ago to increase the so-called job grants four times. When an investor in these districts qualifies for incentives, they can now receive 200,000 crowns instead of the 50,000 they would receive before.
“But we are also working on our own measures. In fact, we decided yesterday we would visit Ostrava and the region to identify possible sites for future industrial zones. We will be making sure that these places are not affected by mining, and that they are attractive from other points of view – highway connections, proximity of the airport, of technical universities, and so on.
“When we find those, we will propose to the government to allocate money for the establishment of industrial zones there, and to attract investors there.”
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