Electronics Production | June 17, 2008

Czech Republic still one of the ten most<br>attractive countries for investors

According to an Ernst & Young survey, the Czech Republic has held its position as one of the world’s ten most attractive countries for foreign direct investment, this year taking the 9th spot.
China has been ranked the most attractive destination for foreign direct investment, ahead of Eastern Europe and Western Europe.However, together with USA these regions remain the top destination for FDI. The fifth annual European attractiveness survey, An open world, presents both the opinions of 834 international decision makers and data on investments realized in 2007.

Europe has lost its longstanding number one “attractiveness” position for the first time in 2008, with the world’s regions have become much more equal in terms of where businesses want to invest. China with 47% is followed by India (30%) and Russia (21%). The United States dropped two spots to fourth place. “New regions, countries and locations are ready to compete on a level playing field with the traditional long-established locations of developed economies,” said Richard Singer, Ernst & Young’s Marketing Director, of the noteworthy shift.

With 5% of respondents citing it as a top FDI destination, the Czech Republic ranks 9th and holds on to its position of the previous year, when it shared 9th and 10th places with Brazil. The country also ranks among the top 10 most attractive countries for administrative/accounting back office and production units. “Of all the Central European countries, only the Czech Republic and Poland continue to place in the top ten most attractive countries for FDI. When it comes to production units, the Czech Republic dropped a few places but this is not necessarily a bad sign,” said Singer, adding: “The survey identifies Europe as the preferred location for administrative and back-office functions for 53% of respondents. However the lead in attractiveness held by Europe since the start of our monitoring in 2004 is narrowing.”

With 385 respondents considering establishing or developing activities in Europe, 7% are looking at the Czech Republic which puts it in 10th and 11th place together with Italy. Like last year, however, investors are not considering the CR as a site for their headquarters or R&D units.

“How to” invest is becoming more important than “how much” for investors considering sustainable location options. Survey respondents pay more attention to political and legal stability (54%) and telecoms infrastructure (51%) than labor costs (47%).

When asked how to make Europe more attractive, respondents cited a combination of increased flexibility in European labor markets (42%) and simplified regulations (39%). “Investors are also calling for innovation in education and the supply chain. Alongside high technology clustering and research and development, respondents also seek innovation in high-performance communication channels (48%), creative education (34%) and supply chains (27%) that will also allow them to prosper in mature economies,” says Singer.

However, investor perceptions are not yet backed up by the reality of investment flows. Despite a drop in perceived attractiveness and the subprime mortgage crisis, the United States leads the league table of FDI destination countries with 12.5%. Although 47% of survey respondents ranked China as the most attractive investment destination, it still draws less than 8% of global foreign direct investment (FDI) inflows according to the United Nations Commission for Trade and Development (UNCTAD). While only 33% of respondents ranked Western Europe as their top investment location choice, the region still accounts for 37% of global FDI inflows.

“The survey results reflect our experience – investment in production is falling, while on the other hand we continue to be a highly attractive country for services such as engineering or research and development,” says Alexandra Rudyšarová, acting managing director of CzechInvest. “An encouraging sign is that foreign investment in the Czech Republic is developing more and more in line with the situation in the old European Union Member States, rather than those to the east of us. Countries like China or India may attract investors with their reserves of relatively cheap labor, but one day that will end. The good results shown by Europe also reflect the fact that on a closer inspection of where to locate new investments, the old continent will always offer the majority of investors greater cultural, political and legal familiarity.”

Key results for the Czech Republic – comparison within Europe
• In job creation, the Czech Republic ranks third in 2007, up one place despite 14% fewer FDI jobs, due to a greater slowdown in job creation elsewhere. But it still maintains a steady job creation performance (15,102 jobs recorded against 17,569 in 2006)

• The country eased to 12th place in the ranking for FDI projects, down three places. Though still an attractive destination for European investors, the number of projects fell by 27% and recorded 83 projects

• The decrease in the number of jobs created is particularly visible in services, where job creation announcements fell by 68% compared with a 2.5% fall in new industrial jobs

Key results for Europe
• Despite advances in new global growth markets, Europe is armed with the steady confidence of its clients. The zone registers a record year for global FDI inflows and a 5% increase in the number of FDI projects (3,712 recorded in 2007, up from 3,531) – but the nature of those projects is changing

• FDI job creation in Europe falls by 18%. Moreover, industrial investment in Western Europe is collapsing: fewer than half as many industrial jobs were created by FDI in Western Europe in 2007 compared with 2006. Only 176,551 jobs were created in 2007, down from a record 214,987 in 2006

• Europe’s own companies are the biggest single source of foreign direct investment – especially into Central and Eastern Europe
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