Written by: Philippe Riboton
WHEN THE SEMI-CONDUCTOR giant Flextronics decided a couple of months ago to close down its Brno assembly plant, some suggested it embodied the failure of the incentive program introduced by the social-democrat government. These voices were quick to explain that those tax holidays and other investment incentives targeted towards greenfield investors are actually useless since they are offered to cynical investors that take advantage of them and then pull out of the country. However, they forgot to mention that Flextronics actually downsized its production capacity due to a downturn in the semi-conductor business worldwide, and consequently closed down a couple of its global facilities, including the one here. What they also forgot to say is that without such measures, the rating of the Czech Republic compared to other emerging countries would actually be lower, resulting in foreign investors putting their money elsewhere. Our cover story this month, dedicated to Asian investments, is further proof that incentives actually work. Some of the investors quoted don’t hide the fact that incentives made the Czech Republic more attractive. But that was not the only – or even the primary – reason for them to come here. Another key factor is of course the cost of labor in a country that is pretty well situated, from a transportation and logistics point of view. This cost has been rising dramatically over the last few years, and if it gets too close too quickly to that of western Europe, then investors may eventually consider going to cheaper havens, located more to the East side – with or without incentives. Asian investors will be no exception to that rule, as they are strongly represented here in the area of industrial assembly. Therefore the recent “Asian investment boom” should be regarded with caution: if the cost of labor continues to rise at the current pace, or if the automotive industry is hit by an unexpected recession, chances are that in the end the only Asian investor you’ll see around will be the Chinese take-away restaurant on the corner.