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Successfully investing in the Czech Republic

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last updated on 19 May 2021 | reading time approx. 4 minutes

 



How do you assess the current economic situation in the Czech Republic?

The Czech economy fell by more than 6 percent in 2020 compared with the previous year as a result of the Covid-19 pandemic, slightly more than initially expected. As a result, the Czech Republic was one of the moderately hard-hit countries within the EU in 2020. The many years of growth have thus been halted for the time being. In spring 2021, the Czech economy suffered a further setback. The third wave of the Covid-19 pandemic in February 2021 as a result of emerging mutations (especially from England) led to a very rapid increase in the number of infections, with the result that a strict lockdown was introduced, which again affected the Czech economy.

A rapid exit from the Corona recession does not yet appear to be in sight for 2021. Nevertheless, in addition to the industries suffering from losses, there are also winners of the crisis. In particular, the automotive, logistics and online retail sectors will continue to boom in 2021, while tourism and gastronomy in particular will lose out as a result of the crisis.

Overall, however, the economic situation in the Czech Republic does not look so bad, even though it will probably not reach pre-Corona levels until 2022 at the earliest. Ultimately, the Czech Republic's economic recovery will depend not only on the development of its main export market, Germany, but also on how the crisis is overcome at home.

 

How would you describe the investment climate in the Czech Republic? Which sectors offer the largest potential?

The location factors in the Czech Republic remain good despite the Covid pandemic. Investors can still rely on the existing positive framework conditions, i.e. high productivity, a high degree of employee training, legal certainty, but also a pronounced flexibility to react to existing trends and necessities in the market. Added to this is the geographical location with good connections to neighboring countries, which was further expanded in 2020. All this contributes to an overall positive investment climate in the Czech Republic. Despite the relatively high number of political parties in the Czech Parliament and the associated political debates, which sometimes flare up, the general political situation in the Czech Republic can be regarded as stable.
  

What challenges do German companies face during their business ventures into the Czech Republic?

The unemployment rate, which has been very low in recent years – one of the biggest challenges of all – rose somewhat in 2020 due to the pandemic. In February 2021, it was 4.3 per cent. However, it remains one of the lowest within the EU. This is partly due to the Czech government's various support programs in the context of the Covid-19 pandemic, e.g. the so-called antivirus program, which was launched back in spring 2020 for affected employers and will continue to be maintained in 2021.

The outbidding by employers for professionally qualified employees, which has been evident for years, has thus flattened out somewhat due to circumstances. Nevertheless, the shortage of labor continues to be felt – especially in certain industries, such as the logistics sector already mentioned.

Wage costs continue to rise. As of 1 January 2021, the minimum wage has been raised to 15,200 Czech crowns (approx. 580 Euros). The average gross wage has increased by 4.4 per cent to 35,611 Czech crowns (approx. 1,345 Euro). The highest wages are in the IT and communications sector as well as in banking and finance. However, the real estate and catering sectors in particular had to contend with falling wages in 2020.

   

How does the Czech Republic address the shortage of skilled workers?

The Czech Republic has indeed been a victim of its own success in recent years. The country has been and still is a good address when it comes to expanding investments abroad in Europe. The Czech government is trying to counter the shortage of skilled workers with various measures, even though this is not one of its priorities in the pandemic, the current situation has alleviated this problem somewhat – at least temporarily.

The planned reform of the vocational school system, which is urgently needed in the Czech Republic, is still pending.

 

In your opinion, how will the Czech Republic develop?

As an investment location, the country is likely to remain at the top of the scale of the most popular European countries in Central and Eastern Europe. It can be assumed that the Czech government will try to maintain the good business climate. Increased public debt as well as an increase in overall government spending will probably inevitably be the result.

In recent years, a veritable start-up boom has broken out in the Czech Republic. More and more young entrepreneurs are opting for self-employment and founding a start-up. The Czech government supports this trend, which the Covid-19 pandemic further strengthened and, above all, accelerated considerably. Already last year, young delivery companies of their own entered the market, responding to the high demand due to the flourishing online trade by expanding their fleets and continuing to hire new drivers. This also compensated – at least to some extent – for the loss of jobs in the service sector.

As a result of the Covid-19 pandemic, there is also a discernible trend toward e-commerce in the Czech Republic. Several independent supply chains have now been established. Other retailers – where they do not yet exist – have also stepped up the development or expansion of their e-shop activities. This development is likely to continue in the coming years.

Interest in opening pop-up stores, e.g., to sell seasonal goods quickly, is also growing. A sustained impact of this trend on the overall rental business in the retail sector can therefore not be ruled out.

It is to be expected that there will be a lasting change in business processes as a whole. Issues such as data security and data protection, including the transfer of customer data, will become considerably more important in the future.

As a result of the pronounced flexibility in the Czech Republic to react to existing trends and necessities in the market, which has already been demonstrated above, it is generally to be expected that the stable economic growth that has existed in the Czech Republic for years – even if perhaps not to the same extent as in the past – is likely to continue in the coming years. There is also a trend toward “nearshoring” – due to questions about the stability of supply chains from Asia as a result of the Covid pandemic and the temporary blockade of the Suez Canal – which will certainly not have a negative impact on the Czech Republic's further prospects of attracting additional investors to establish further new companies.

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