The U.S. Department of State’s Investment Climate Statements provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.”
Executive Summary
The Czech Republic is a medium-sized, open economy with 72.7 percent of its GDP based on exports, mostly from the automotive and engineering industries. According to the Czech Statistical Office, most of the country’s exports go to the European Union (EU), with 26.3 percent going to Germany alone. The United States is the Czech Republic’s second largest non-EU export destination, following the United Kingdom. Czech GDP growth slowed from 3.3 percent in 2021 to 2.4 percent in 2022, according to the Czech Statistical Office. High inflation, driven primarily by significant increases in energy prices caused in part by Russia’s war against Ukraine, contributed to the GDP drop. In 2022, the average inflation rate reached 15.1 percent, which was the highest since the establishment of the independent Czech Republic in 1993.
The Ministry of Finance forecasts Czech GDP will decline by 0.5 percent in 2023 due to the continued impact of high inflation.
The “Bill on Screening of Foreign Investments” entered into force May 1, 2021. The law gives the government the ability to screen greenfield investments and acquisitions for risks to national security by non-EU investors.
The Czech Republic has made progress in diversifying its traditional investments in engineering into new fields of research and development (R&D) and innovative technologies. EU structural funding has enabled the country to open a number of world-class scientific and high-tech centers. EU member states are the largest investors in the Czech Republic.
The United States announced on February 15, 2020, plans to provide up to USD 1 billion in financing through the Development Finance Corporation (DFC) to the Three Seas Initiative Investment Fund, the dedicated investment vehicle for the Three Seas Initiative and its participating Central and Eastern European countries, which includes Czech Republic. The Three Seas Initiative seeks to reinforce security and economic growth in the region through the development of energy, transportation, and digital infrastructure. During the June 2022 Three Seas Initiative summit in Latvia, the DFC and the Three Seas Initiative Investment Fund agreed to a term sheet that formed the basis of the agreement under which DFC will provide the first tranche of U.S. financial support for the Fund amounting to $300 million.
The European Bank for Reconstruction and Development (EBRD) agreed March 24, 2021, to a request from the Czech cabinet to return as an investor to the Czech Republic after a 13-year hiatus to help mitigate the impact of the COVID-19 pandemic on the economy. The EBRD’s investments in the Czech Republic primarily focus on private sector assistance and are projected to reach EUR 100 – 200 million annually (USD109-218 million). The EBRD plans to be involved in investment projects in the Czech Republic temporarily (maximum five years).
The Czech Republic’s state budget deficit amounted to CZK 316.1 billion (USD 14.4 billion) in 2022. As a result of Russia’s war against Ukraine, the Czech Republic appropriated in 2022 nearly USD 1 billion to support Ukrainian refugees and approximately USD 3.2 billion to help companies and citizens cope with high energy prices and inflation.
The Czech Republic has adopted environmental strategies to address the climate crisis. Public procurement policies include environmental considerations, and the government provides subsidies to companies for using modern low-carbon technologies, renewables, and resource-effective processes.
There are no significant risks to doing business responsibly in areas such as labor and human rights in the Czech Republic. While Russia’s war against Ukraine has contributed to an increase in energy prices, it has not otherwise impacted the investment climate in the Czech Republic.
The Czech Republic fully complies with EU and the Organization for Economic Cooperation and Development (OECD) standards for labor laws and equal treatment of foreign and domestic investors. Wages continue to trail those in neighboring Western European countries (Czech wages are roughly one-third of comparable German wages). While nominal wages rose by 6.5 percent in 2022, real wages decreased by 7.5 percent due to high inflation, according to the Czech Statistical Office. As of the fourth quarter of 2022, wages grew primarily in the electricity, gas, steam, and air conditioning supply, as well as in the financial and insurance sectors. As of January 2023, the unemployment rate remained the lowest in the EU, at only 2.5 percent.
To access the ICS, visit the U.S. Department of State Investment Climate Statements website.