AFI survey: 92% of companies have been impacted by rising raw-material and energy prices and wage pressures in the past six months

The Annual Conference of the AFI

Tuesday, September 6, 2022

2 pm - 9 pm

Prague

The Association for Foreign Investment (AFI) held its Annual Conference on 6 September at the congress centre of the Czech National Bank with the subheading “The Age of Opportunity and the Path to New Stability”. In the course of the conference, the AFI presented its representative survey of companies operating in industry and services in the Czech Republic. The conclusions drawn from the survey contain a number of suggestions for changes that will make life easier for companies, increase their economic activity and thus benefit the economy as a whole. The AFI also presented prestigious awards, namely the AFI Prize for Significant Contribution in the Field of Investment, which was awarded to ON Semiconductor Czech Republic, the Innovative Idea of the Year Award sponsored by CzechInvest, presented to Cyrkl Zdrojová platforma, and the AFI Prize for Long-Term Benefit to the Investment Environment, awarded to Ondřej Vlček for putting the Czech company AVAST in the position of a global leader.

 “Two essential findings of the survey relate to the prices of energy and input raw materials for businesses and the growing importance of the decarbonisation policy and ESG rules for companies. Businesses are clearly being crushed by energy prices, whether electricity or gas, and they lack clear and comprehensibly communicated rules according to which they can plan their business activities for the next several months. It is necessary to focus on systematic regulation of the electricity trade and to clearly communicate the outcomes. The other serious problem, which has been dragging on for more than a year, is the rising prices of input raw materials and primarily the shortage of key raw materials and components. At the same time, it is necessary to start systematically dealing with the production of key components within the EU. We have to start striving to bring as many important production and development centres as possible to the Czech Republic,” says Kamil Blažek, chairman of the Association for Foreign Investment.

Area – AFI commentary

Survey findings

GREEN DEAL

Companies have begun to familiarise themselves with the Green Deal and are starting to assign to it the appropriate level of importance.

“In comparision with the 2021 survey, when 20% of respondents did not know what to expect from the Green Deal, this year only 10% of companies offered this response. Forty-three percent see the Green deal rather as an opportunity and 47% see it rather as a risk.”

“Twenty percent of companies stated that they have a prepared ESG strategy; 40% do not have such a strategy but are preparing one, and 40% neither have nor are preparing an ESG strategy.”

Raw materials, energy and wages

The prices and unavailability of raw materials and components is a crucial problem for companies

Companies are aware that they must invest massively in buildings, energy savings and digitalisation, and they are preparing to do so.

“Sixty-nine percent of companies state that their business has been affected by the shortage of input raw materials and semi-finished goods in the past six months and 25% state they they have not been affected.”

“Ninety-two percent of companies state that their business has been affect by rising raw-material and energy prices and wages in the past six months.”

“Fifty-eight percent of companies state the they intend to carry out development in the area of digitalisation and robotisation, 53% in the area of new products or processes, 35% in the area of investments and structural modificaitons for the purpose of reducing the energy intensity of operation, 30% in the area of Industry 4.0, 23% in the expansion of production and warehouse capacity in existing operations.”


Again this year, the AFI survey had a great response from 270 companies. The survey’s prestige was underscored by not only the number of companies that responded, but also the composition of respondents from the ranks of top managers, owners, executive directors, CEOs, CFOs, HR directors and COOs. Thanks to the conclusions drawn from the survey, the AFI received suggestions that it intends to actively address with relevant institutions and the government with the aim of improving the business and investment environment in the Czech Republic.

It is clear from the survey that companies are constantly facing a severe shortage of employees. Two-thirds of the companies stated that they will need to hire new employees in the coming period, whereas only 4% are planning layoffs. Related to this is the necessity of easing quotas for foreign workers – a full 74% of companies would like such quotas to be abolished entirely, while 20% would like to see them increased and only 6% would maintain the status quo. Though the government has announced that this issue will be a priority, no progress has been made so far. The issue should thus be a priority item on the government’s agenda,” says Gabriela Hrbáčková, member of the AFI Steering Committee, commenting on the current labour shortage and adding: “The labour shortage in individual sectors is also connected with the restructuring of education. Eighty-one percent of companies would support the introduction of mandatory apprenticeships from the first year of secondary or vocational school with a minimum of 30% of the time of instruction subsidised. Companies expect that this step would increase students’ level of commitment and knowledge once they have completed their studies, as well as the possibility to cultivate future employees.”

Area – AFI commentary Survey findings

Employees

Companies want to hire new employees, but they do not have anywhere to recruit them from.

Companies do not want to lay off employees. (as of August 2022)

Companies are in favour of abolishing restrictions for foreign economic migrants – employees.

Companies very strongly want to participate significantly in the practical education of secondary-school students.

“Sixty-six percent of companies plan to hire and only 4% plan layoffs. Thirty-percent of respondents are planning to neither hire nor lay off employees.”

“Eighty-one percent of investors would support the introduction of mandatory apprenticeships from the first year of secondary or vocational school with minimum 30% of the time of instruction subsidised.”

Seventy-four percent of companies are in favour of abolishing quotas for employing foreign workers in the Czech Republic, 20% would not abolish the quotas, but would increase them, and only 6% would maintain the status quo.”


Commenting on the investment environment that the Czech Republic has to offer, Jan Linhart, member of the AFI Steering Committee, further adds: ”Though the Czech Republic outwardly declares its interest in investors that could build factories for the production of vehicle batteries or products that are important for energy self-sufficiency, in reality the country doesn’t have much to offer them. Besides the lack of prepared industrial zones and the length of the permitting processes, a major problem is the reluctance to provide investment incentives. This tool, which can compensate investors for some of the disadvantages of the given region being considered, is in fact unavailable for a lot of important projects. This is partly due to inappropriately set conditions, though the biggest problem is the non-transparent and lengthy approval process, which complicates the individual approval of every incentive by the government. Investors are not able to determine whether they will receive an investment incentive after a long wait, so they aren’t able to project its benefits into their plans. In reality, this means that projects end up in other countries, where governments are able to provide a binding pledge of incentives in a timely manner and are thus more attractive to investors than the Czech Republic.”

Area – AFI commentary Survey findings

Investors that have already invested in the Czech Republic want to further invest in the country, and aid in the form of investment incentives is very important for them.

In the survey, 68% of companies stated the opinion that investment incentives contribute to the overall growth of the Czech economy. Eighty percent of companies even stated that they plan to invest in the Czech Republic.


In addition to the presentation of the survey results, the AFI Annual Conference comprised four discussion blocks focusing on the Czech Republic’s position in the global economy, the Czech Republic as a safe country for investments, the results of the energy transformation and future popular trends in 2023 and 2024. A number of prominent figures of the Czech economy appeared at the conference, including economists Miroslav Singer of Generali, David Navrátil of Česká spořitelna and Eva Zamrazilová of the Czech National Bank, as well as Petr Očko of the Ministry of Industry and Trade and CzechInvest, Pavel Sovička of Panattoni, Libuše Šmuclerová of CNC, Milan Šlapák of GE Aviation and Jakub Tobola of Veolia.

The speakers held a lively discussion mainly involving the issue of investment incentives, the lack of industrial zones in the Czech Republic, the impact of the energy crisis and the influence of the war in Ukraine on the prices of raw materials and on the business sphere. “We see a clear opportunity for Czech companies in the chance to take a significant slice of the pie in war materiel and the post-war reconstruction of Ukraine,” adds Kamil Blažek.

Area – AFI commentary

Survey findings

Ukraine

A surprisingly large percentage of companies see business opportunities in the reconstruction of Ukraine.

“Sixty-three percent of investors state that their business has been affected by the invasion of Ukraine and 20% state that their business has not been affected.”

“Thirty-five percent of investors want to participate in contracts in Ukraine, 65% do not.”

Properties

“Thirty-eight percent of investors operate in their own properties, as compared to 29% that operate only in leased premises.”

“Seventy-three percent of companies stated that their properties are technically capable of coping with the ongoing energy crisis and 27% stated that their properties are not suitable.”

“Eighty-four percent of investors stated that if their properties are not technically suitable, then they plan investments in their existing properties for the purpose of improving their technical standard, whereas 16% of investors want to relocate to new properties.”

Regional support

What municipalities and political representatives should do to support investors in their region.

  • Improve transport infrastructure
  • Ensure sufficient housing capacity
  • Ensure a sufficient number of places in preschools and schools
  • Reduce the administrative burdon, carry out digitalisation
  • Do not interfere in business
  • Communicate, cooperate and engage with companies


The partners of the Annual Conference were Panattoni, CzechInvest and Bilfinger Tebodin.

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