Czech Republic Passes Tests: Government Transition, EU Accession Bode Well for Foreign Direct Investment

by Joel Ranck
Lincoln Park Communications, LLC

Investors take note. The Czech Republic has proven itself a leader among Europe’s emerging economies. A dozen years of democratic and economic development helped the country weather the worst flood in 100 years last summer, survive a government transition, and build momentum toward EU membership.

Some outsiders viewed the center-left government that emerged in 2002 as a potential obstacle to foreign investment. A sign that this would not be the case came in the government coalition’s commitment to maintain a low inflation rate and continue the drive toward EU membership, which a growing number of Czech citizens also support. That this was the policy of the previous government is no coincidence. Nine of the 18 ministers in the new government served in previous governments. This level of continuity from ruling coalition to ruling coalition will ensure economic stability and a degree of comfort to most investors. However, that the Czech Republic can change governments at all and keep in stride economically should signal to foreign investors that the political and economic development that has taken place in the Czech Republic over the past 13 years has created a stable investment environment.

The growing support for EU membership by the Czech people further strengthens the country’s ability to secure and protect foreign investment. EU membership lays the groundwork for economic transition; hastens the flow of technology, goods, and services into the country; and encourages the export of products and services. However most of all, it makes it safer for foreign investments into the region.

In the 1990s, many U.S. companies looked to the then Czechoslovakia with the expectation that the highly educated and technically skilled citizenry of the country would soon join the economies of the West. Over the years, the productivity of the Czech labor force has greatly improved, and the income gap has shrunk. While further foreign direct investment is required to close a substantial part of the income gap, the average Czech worker in 2003 is a more productive worker and a more prolific consumer. Now it appears that the economy and democratic institutions are also ready to meet the needs of foreign investors.

The author is a public relations and marketing consultant based in Washington, D.C. He lived in Prague for several years in the 1990s.