23/12/2024 |Articles are machine translated
Jan Michal, CEO of CzechInvest. | Photo: CzechInvest
Although Taiwan’s TSMC did not invest in the Czech Republic, but in Dresden, Germany, a number of subcontractors could settle here. Jan Michal, the CEO of CzechInvest, believes this and in an interview explains what the agency is doing for this. We will still have to wait for a major investor to build a gigafactory in the Czech Republic. According to the head of the agency, the first strategic industrial zones will be prepared by the State Investment and Development Company in the next few years.
The Czech government presented the country’s new economic strategy in the fall. It is quite general, but I would still like to ask: Where does CzechInvest see itself in it? How can it contribute to the Czech Republic becoming one of the top 10 countries in the European Union with the highest gross domestic product per capita by 2040, as the Prime Minister wishes?
It is good that the Czech Republic has an economic strategy. It is important that further steps follow. As for CzechInvest, it is important for us that the strategy clearly defines the interest in developing an attractive investment environment. This is the alpha and omega for our functioning.
But CzechInvest alone cannot create an attractive investment environment.
That is certainly not the case, but CzechInvest provides feedback on how companies perceive the investment environment in the Czech Republic. Some of the things that we need to improve are already mentioned in the strategy. For example, it concerns speeding up permit procedures or ensuring sufficient available labor.
Our role is then to continue supporting strategic investments, including those that have already been implemented in the Czech Republic, because 70 percent of newly announced investments are from companies that are already here. And it is also important to reduce the outflow of dividends from these investments abroad. Therefore, it is also important to motivate companies to reinvest profits. And in terms of labor shortages, also to invest in automation.
Another important thing that the strategy includes is the support for new start-ups, startups and spin-offs. When we say that the current growth model of the Czech Republic has been exhausted, we must look for new sources of growth, for example here.
So from my perspective, when it comes to investment, the new economic strategy provides exactly the framing we needed.
Do you agree that selected sectors should be supported in some way?
The strategy defines several sectors. For example, clean mobility and automotive, semiconductor manufacturing, clean and sustainable technologies, or digitalization. We can talk about whether it should be something else, or whether it should have a little clearer targeting, but for me, these areas are absolutely fine.
Similar targeted support for selected sectors is being implemented by all key economies from the United States to South Korea to Japan. The Czech Republic, and indeed all of Europe, must do the same. We can talk about whether there should be something else between those areas, or whether it should have a little clearer targeting, but for me it is absolutely fine.
For example, when it comes to battery production, Europe already has negative experiences with its own projects. For example, the Swedish company Northvolt, which was supposed to be a demonstration of Europe’s competitiveness in the field of green projects, is having problems, unable to compete with cheap Chinese production. Isn’t that a risk?
We are on a long journey of transformation. Northvolt’s current problems are caused by the cooling of the electric car market. However, there is no doubt that electromobility will become one of the key technologies in the future, so from a strategic point of view Europe must build its independence, especially from China. It is not just about batteries, but also about critical raw materials for the development of these technologies. Of course, it will be difficult. Debates on the extraction of rare earths are taking place in some Scandinavian countries, and in the Central European region, such a thing would be much more difficult.
Our handicap is that we missed a certain period, we should have focused on similar investments a long time ago. By not doing this, gigafactories were created in other countries. Now we are trying to catch up with this gap.
So the effort to get a major investor to build a large factory in the Czech Republic to produce batteries for electric cars is still ongoing.
Yes, we are in contact with potential investors who could come to Dolní Lutyn in the Moravian-Silesian Region.
But the selected location in Dolní Lutyňa is still far from being ready to start building a strategic industrial zone there. Recently, it has even been shown that it is a flood zone.
It turned out that there was also a lot of rainwater there, because the drains from the land have not been cleaned for many years. Perhaps more water got there. However, studies being prepared by the State Investment and Development Company (SIRS) show that if a gigafactory were to be built there, flood control measures would be built, among other things, to improve the current situation. But you are right that there are other things that will need to be addressed, for example in terms of environmental impacts.
Nevertheless, you believe that such a zone suitable for a large investor could be created there.
Of course, because the land meets a number of parameters, including energy and transport infrastructure or the availability of labor. In addition, we need to support the transformation of the Moravian-Silesian Region. And it is also a matter of national importance.
Opening of the conference Entrepreneurial Future of the Czech Republic. | Photo: CzechInvest
If all the problems are resolved, which will take some time, how long will it take before you can tell the investor “here it is ready for you, you can start building”?
It will definitely take a year, but we are talking in units of years.
You are certainly cooperating with SIRS, which would be the developer of the project. Do you also help it to identify other suitable locations?
It is necessary to remember why SIRS was actually established. It was after the experience with the intention to build a battery factory in Líny near Pilsen. At that time, it became clear that the state was not prepared to provide a large plot of land prepared for a strategic investor in a relatively short time and that it was necessary to approach it differently. SIRS was partly established by splitting off from CzechInvest, as a joint-stock company, so that it could enter into business relationships, acquire property and invest in it – which CzechInvest cannot.
So of course we are cooperating and the goal is to prepare several locations for large strategic investors. SIRS now has several such locations in its sights.
Can you name some?
For example, they are in the region of North Bohemia, where coal was previously mined. Another location we are talking about is the Cheb II industrial zone. In the spring, we signed a joint memorandum with the city of Cheb, the Karlovy Vary Region and SIRS, which should lead to the development of this industrial park and the arrival of suitable investors. It could be an investor from the automotive, electrical engineering, semiconductor industry, but we can also imagine some pure pharmaceutical production and the like. It will depend on who shows interest. We are at the beginning. We are currently promoting this zone at real estate fairs, through foreign chambers of commerce in the Czech Republic and through our foreign representations.
If the Cheb II zone were to be created, would it meet the parameters for a really large investment?
The land for an investor in a gigafactory should be larger than 200 hectares, the Cheb zone has a total of about 140 hectares. Realistically, a building can be placed there on an area of less than 100 hectares. Our goal is to bring an investor there who will occupy at least half and the rest with other companies.
You said that you are in talks with potential investors regarding the occupation of the future zone in Dolní Lutyňa. What about other investors, not just the gigafactory? Are they interested in the Czech Republic?
We are in contact with a number of investors. Overall, we see that the economy is starting to recover a little and interest is picking up. By the end of October this year, we had already registered 23 applications for investment incentives, last year there were seven applications for the whole year. That is positive news.
Are these applications from investors that we also want? From what areas?
From various. There is the automotive, electronic, optical and other industries, there is a request for investment incentives related to the acquisition of certain important materials in the construction industry.
Of course, this does not mean that everyone will eventually receive incentives, they must meet all the conditions regarding benefits for the Czech economy.
I would also like to emphasize that investors overwhelmingly receive incentives in the form of tax breaks, not direct financial subsidies. Tax breaks are for five or ten years and often the investor does not even exhaust the financial ceiling. Moreover, the support provided is quickly returned to the economy; according to our calculations, the benefit compared to the incentive is up to five times.
What countries are the investors who want to come to us from?
It is sometimes difficult to distinguish, because the incentive is often requested by a foreign company that is based in a country other than the ultimate parent. Most often, these are companies from Germany, the Netherlands, Switzerland and the United States. Then there are companies from Japan and South Korea, and now we hope for greater interest from companies from Taiwan as well.
Are these mostly new investments or expansions?
The majority, around 70 percent, are expansions. The good news is that many of these expansions also involve a shift to a higher technological level, for example from the production of simple components to the production of complete systems or final products.
The most significant investment this year is, or rather should be, the investment of the company onsemi of up to two billion dollars in the plant in Rožnov pod Radhoštěm. Its goal is to expand the production chain of advanced power semiconductors based on silicon carbide. However, the amount of the incentive is still under discussion and not everything is finalized. Can we take it for granted?
It is a process that has several phases. The investor has announced that it intends to invest in Rožnov pod Radhoštěm, and as you say, negotiations are currently underway to provide an investment incentive. This must then be approved by the government, and it must also be notified to the European Commission. The investor is already taking some steps to prepare the investment. So everything is happening at once. This gives us confidence that the process will be successfully completed.
The investment incentive has been discussed for several months, and it should reach up to ten billion crowns. Is the problem in its amount? Or why it has not yet been approved by the government:
Unfortunately, I cannot comment on the course of the process and the volume and other details of the investment incentive, taking into account the interests of the investor.
As already mentioned, the incentive must also be approved by the European Commission. It is still being formed, so this will also represent a certain delay.
The Ministry of Industry and Trade is responsible for negotiations with the European Commission. But as I know the European institutions, continuity is ensured there and the work of the Directorate-General for Competition continues without interruption, so there should be no delay as a result of political changes in the Commission’s leadership. Everything could be settled by spring.
We are very interested in Korean investments in research and development, says Jan Michal in an interview. | Photo: CzechInvest
The Czech government decided in the summer that the new two units at the Dukovany Nuclear Power Plant will be built by the South Korean company KHNP. Do you expect any greater interest from investors in the Czech Republic in this regard?
The conclusion of the contract with the South Korean KHNP is expected in the spring of next year. This is related to the involvement of Czech companies in the supply chain within the contracts, which should be around 60 percent. This is one aspect of cooperation.
The second is to expand cooperation beyond the area of supplies in the field of nuclear energy, and not only in the form of direct foreign investment from South Korea. It could be cooperation between research institutions, where a number of memorandums of cooperation are already being created, or even sharing technologies under predefined conditions. But of course we are also interested in investments. The priority is the area of clean mobility, green technologies and energy in general, and semiconductors.
We are very interested in investments in the area of research and development. There are many Asian investors in the Czech Republic in the processing industry, but very few who would take the next step. And we would like to change that. The Hyundai car company is here and it would certainly be interesting for us if further investments in research and development in the automotive sector, for example in autonomous driving, came from South Korea.
Is that your intention for now, or are you already discussing this with someone, for example directly with Hyundai?
We are currently at the stage where we are discussing with the Korean side the identification of potential partners for these negotiations. In addition to the areas already mentioned, it may also include biotechnology, the pharmaceutical industry, or rail transport.
You mentioned earlier that you expect more interest from Taiwanese investors. Why? So far, they are rather bypassing us. Taiwanese chip manufacturer Taiwan Semiconductor Manufacturing Company (TSMC) is building a factory in Dresden.
We opened a CzechInvest office in Taiwan this spring, and its goal is to strengthen cooperation in the economic field. However, the main driver of the investments that could come to us is the aforementioned investment in Dresden, which will be the largest factory for the production of low-voltage chips in Europe. These are chips for light electronics, for example for mobile phones, i.e. different from those produced in Rožnov pod Radhoštěm – they are intended more for cars. Dresden is located very close to the Czech Republic, and that is an advantage for us. There is a workforce available in the Ústí nad Labem Region that can be involved in this, they can work for some subcontractors who could settle here. There is also a related chemical industry, for which this could be a new opportunity for modernization.
In Brno and the surrounding area, there are companies engaged in chip design – for them too, the Dresden factory could be an opportunity for cooperation.
At the end of August, we organized a large business mission of Taiwanese companies that are connected to potential suppliers of Dresden’s TSMC. With almost fifty representatives of these companies, we visited Ústí nad Labem, where we met with representatives of the city, the region, and the local innovation center, and we also showed them some potential locations for the location of their production.
But these are only subcontracts, no final production with high added value, which we are after.
I think that even subcontracts in a promising field will move the Ústí nad Labem region to a higher level than it is now. Which is also important for the entire Czech Republic.
Let’s be realistic. The grant support from Germany for the investment in Dresden was five billion euros, or 125 billion crowns. That is something that the Czech Republic cannot afford. In addition, other factors also played a role, such as the size and development of the German market.
How do you view Chinese investments? Is CzechInvest interested in them? Is it a Chinese company?
Chinese companies are already operating in the Czech Republic, including in the automotive industry, for example, Nobo Automotive Systems is preparing to produce car seats for European car manufacturers in South Bohemia. We are certainly interested in investments from China, but in some respects strategic and security aspects need to be taken into account.
If a Chinese investor comes to us from one of the areas we are interested in, i.e. technologically advanced activities that would bring new technologies to the Czech Republic and create qualified jobs, ideally with an extension to development and research, we will definitely talk to him.
In your opinion, would a Chinese final car manufacturer have a chance to receive some high incentive in our country?
The Investment Incentives Act does not discriminate against companies based on their country of origin. If the company establishes its operations in the Czech Republic, meets all other conditions, and its investment is evaluated by the Ministry of Industry and Trade and other relevant departments as beneficial to the Czech Republic based on our recommendation, then it certainly has a chance. If it is a large, strategic investment and an incentive in the form of a grant, the government makes individual decisions.
Are American investors still interested in the Czech Republic, or rather Europe, after they can benefit from support at home in the USA?
Of course, the so-called Inflation Reduction Act, approved by the US government the year before last, creates incentives for new investment and for the return of American investors to the USA, which means that competition is growing. It is difficult to find a completely new American investor.
But the largest announced investment this year, which we have already talked about, onsemi, is American. It is not completely new, it is precisely the case when an investor already present in the Czech Republic further advances its production to a higher technological level.
On the other hand, do you have any signals about the possible departure of any investors from the Czech Republic?
We are trying to retain existing investors, CzechInvest must pay more attention to this than before. Investment transfers are not an entirely exceptional thing in the economy, but I have no signals about the departure of American investors.
How do you think the Czech Republic ranks in terms of attractiveness for investors within the EU?
In recent years, there has been a certain decline in the inflow of foreign direct investment throughout Europe. That is, with the exception of France, where President Macron has strengthened support for foreign investors and those French companies that return home to France from abroad.
As for the Visegrad countries, we still remain the leader among them, despite long permit procedures, limited labor supply and high energy prices. Yes, recently Poland or Hungary have been announcing individual large investments, but the aggregate figures in terms of GDP still put us in the lead.
But such a position may not last long, because in Poland, for example, they have accelerated the permitting process. And combined with a sufficient amount of free space for other technology parks, this means that they can quickly prepare industrial zones for investors.
And there is another difference between us and Poland: We are more selective in who we provide investment incentives to. While we focus on selected strategic sectors, Poland is more benevolent in incentives.
You mentioned the lack of labor in the Czech Republic as one of the obstacles. Do you have any suggestions about what to do about it?
The Czech Republic has one of the lowest unemployment rates in the EU. Which is certainly also good news for investors, because it means a great benefit in the form of social harmony. On the other hand, it creates a certain need for labor migration. There are certain government programs to be able to bring qualified workers and highly qualified experts from other countries to the Czech Republic.
Personally, I think that this is not exactly the right path in the long term. We must go down the path of automation and robotization and at the same time activate the unused potential of the labor force that we have here. This requires some readjustment within the social system. To be more specific, the Czech Republic is one of the countries within the EU where the most parents, mainly women, drop out of the labor market for a long time as a result of parenthood. It is a topic for discussion whether we have created good conditions for mothers to be able to freely decide whether to return to work earlier.
So far, we have only talked about investment support, but CzechInvest has another leg, namely the support of startups. I agree that they are an important part of the ecosystem, but should the state support them? Aren’t venture and angel investors involved? The state should only create a stimulating environment.
If we are to look for new growth potential for the Czech economy, then the area of startups is certainly number one. And I am glad that this has also been included in the new economic strategy.
Creating suitable conditions for these investors is not an easy task, even in countries where they are far ahead of us. We can be inspired, for example, by Scandinavia, where they began supporting startups at the turn of the seventies and eighties, but also by the Netherlands, Ireland, Singapore, Israel and other countries. We study their models and choose what works and what can be implemented in our conditions.
A long-term strategy for the development of industrial zones plays a key role in attracting projects with high innovation potential, it was said at EXPO REAL 2024, Europe’s largest real estate and investment opportunities fair. | Photo: CzechInvest
When it comes to financing, the problem in the Czech Republic and in Europe in general is that capital markets are not as developed as in the US. There is a lack of venture capital and few angel investors. However, even in the countries we are talking about, there is some support from the state, which provides an incomparably larger amount of funds for starting startups than in our country.
In my opinion, support for startups is rather small here. Today, we have one national program, Technological Incubation, which has approximately 150 million crowns per year for a period of five years. This program will end at the end of 2027. And then we have a startup acceleration program and the European Space Agency ESA BIC incubator, from which it is possible to obtain additional funds. We are also discussing with the Ministry of Defense the possibility of drawing funds from the NATO Diana accelerator – this concerns startups in the field of dual-use and defense technologies.
It is known that only a maximum of twenty percent of all startups eventually “catch on”. However, CzechInvest has been supporting them for many years, so you certainly have some examples of successful ones.
You are right that failure in this area of business is common. As a successful project that CzechInvest supported today, I can mention, for example, the technological startup Dronetag, which deals with remote identification and helps manage the operation of unmanned vehicles in the sky. This is a technology that can also be used in the field of defense. Other successful companies are in the field of artificial intelligence, biotechnology or battery storage. Of course, not all of them will become unicorns, but even if a startup grows into a company with a market valuation of “only” hundreds of millions of dollars, it will be a great success.
