Czeching out the Irish role model

Ann Cahill looks at how the Czechs look to Ireland

THE Czechs won't claim that everything they know about attracting investment they learned from the Irish, but they will admit they copied the model and are still learning.

Czech Invest the Republic's IDA equivalent was suggested to the Government first by an Irish consultant and developed in 1993 by two Scottish experts who drew heavily on the Irish experience.

Martin Jahn heads up the company now and knows exactly what the two countries have in common and what is different.

"We adopted the business-like attitude of Ireland that says we are here to help the investor". However, he envies what he sees as the pro-business attitude of the Irish government and hopes it will be adopted by Czech politicians and civil servants in time.

Czech Invest, since its inception, has developed in much the same way as the IDA and has been active in helping formulate government policy towards industry, suggesting policies to the Government on subsidies, industrial zones and incentives. Many of these policies have been adopted.

He said they also learned another valuable lesson from the Irish play by the rules, though he ruefully admits this also means using the rules to your advantage. As a result they are the only candidate country not having to change their incentive regime to comply with the EU regulations.

The Czech Republic has been the tiger of central Europe in the past few years, attracting the highest per capita foreign direct investment of all the candidate countries about 6 billion per annum since 1999. The country is also rapidly moving from an economy dominated by basic low wage industries to one involving a more highly skilled workforce.

To prove this the latest survey of what investors valued in the Republic put, for the first time, labour costs on a par with workers' technological know-how. Wages in the Czech Republic are about a fifth to a quarter of the wages paid in Germany. This growth is not a new thing for the Czech Republic because, before the Second World War when still united with Slovakia, the state was one of the top ten most developed industrial states in the world.

What the Czech Republic has going for it is an excellent location at the heart of Europe, an infrastructure that was in place before Ireland had tarred roads, a young skilled workforce and, Martin proudly says, German style quality with greater flexibility and ingenuity than their nearest neighbour.

He believes they will maintain the low wage advantage over current EU members for about ten years, but acknowledges that they will not overcome their greatest drawback they are not native English speakers.

They also have a problem with the older generation and with what he calls their Soviet heritage bureaucracy. Only time and the younger generation will change this.

"We have been learning what is freedom and democracy and we are trying to define the limits between freedom and anarchy. We need people to be proactive and while this is a time of opportunity it also demands more responsibility and offers more insecurity."

About 60% of industrial output is manufactured by foreign-owned companies over half of them German and Dutch - and they account for almost 70% of exports and 40% of GDP.

Martin has no problem with so much of Czech industry being foreign-owned. "Czech industry is what is made in Czech. We learned this the hard way," he said.

However, of one thing Martin Jahn is adamant they are only in the Czech Republic on the presumption the country will become a member of the EU shortly. While they already have many of the advantages of membership, there are still problems: the delays at the borders for instance. Once they are members it will also be easier to get small and medium enterprises to invest their scarce resources in the country.

Head of external economic relations in the Ministry of Foreign Affairs Pavel Klíma said the move towards an open economy began in 1992 when they joined the OECD countries. Nevertheless, keeping unemployment low is difficult. It was down to about 6% in 1998 thanks to so many people getting involved in their own start-up businesses. However, unemployment is as high as 20% where the old industries, mainly mining and steel, are on the wane.