Ambassador of the Czech Republic to Ukraine: "Significant share of Czech investments has settled in the energy and agricultural sectors"

Until February 24, 2022, Czech companies were actively involved in various sectors in Ukraine, including machinery and automobile manufacturing, transportation infrastructure, energy, defence, biotechnology, and agriculture. They were modernising and enhancing the safety of Ukraine's nuclear power plants. The field of communal housing and environmental projects presented good opportunities for effective economic partnerships. However, the onset of the war in Ukraine significantly impacted the investment activities of Czech entrepreneurs, affecting their level of engagement. On the other hand, from the early days of the russian aggression, the Czech Republic has been actively supporting Ukraine with military equipment and heavy machinery. Since the beginning of the war, the Czech Republic has provided the Armed Forces of Ukraine with military equipment and materials worth nearly $2 billion, placing it among the top five largest arms suppliers to Ukraine.

We discussed with Radek Matula, Ambassador Extraordinary and Plenipotentiary, how our investment relations are faring during wartime and their prospects in these challenging times. We also discussed which significant gaps in the Ukrainian business climate Czechs perceive and the active military assistance provided by Czechia.

About the reasons for the decrease in Czech investments and prospects for their growth

– According to the information from the National Bank of Ukraine, as of 2021, Czechia invested $213 million in our economy as direct investments. The majority of their investments, amounting to $116.4 million (71.1% of the total volume of Czech investments in the Ukrainian economy), were directed towards Ukrainian industry. How does Czech statistics reflect the state of our investment relations during the period of 2021-2022, and where was the main capital invested?

– Czech statistics mainly provide general data on economic cooperation. However, when it comes to specifically the investment aspect of our contacts, they are measured in very small volumes. As for the year 2022, I currently do not have any information, but for 2021, it was only 29 million euros. Perhaps the reason lies in the fact that between our countries, trade rather than investment contacts currently dominates.

If we talk about the directions of Czech investments, the majority of them are concentrated in the energy and agricultural sectors. These investments are mostly focused in the most economically developed regions of Ukraine, namely Kyiv and Kyiv Oblast, as well as Lviv oblast.

– Can you name the three largest Czech companies currently operating in Ukraine and the scale of their investments?

– I would highlight one company, Moravské naftové doly, which is the largest oil and gas extraction company in the Czech Republic and is part of the private group KKCG (focusing on energy, from oil and gas extraction to renewable energy production). The company has invested in a gas field in Western Ukraine and will cooperate with Naftogaz Ukraine.

– Before the war, over 200 Czech companies were operating in our market. And now?

– Currently, 220 Czech companies are operating in Ukraine in sectors such as energy, healthcare, chemical industry, transportation infrastructure, and others. As an example, Hutira, Dekonta, and Zikmund Electronics operate in water management, Škoda JS, Tedom, Enkom in the energy sector, Linet, Comedeq, EGO-Zlín, Medin, MZ Liberec in healthcare, AŽD Praha, CZ Loko, Škoda Transportation in transportation infrastructure, and Zetor, Tatra Trucks in transportation vehicles.

I would like to mention that although the military actions seemingly suspended our economic and investment cooperation and posed high risks, Czech companies that were operating in Ukraine before the war have remained here to this day. They have not only stayed but also expressed their intention to expand and develop their business activities. And this desire applies not only to the current priority defence sectors of the economy.

– What will the investment situation be like in 2023, in your opinion? Is a significant decline likely, and which sectors of the economy remain attractive for investment?

– Unfortunately, there won't be any significant changes or breakthroughs in our investment relations this year. However, Czech-Ukrainian economic and political cooperation will continue despite the war. And the primary task is the reconstruction of Ukraine and the restoration of its economy. The Czech Republic as a state and our companies want to participate in this process.

As for regional assistance, we are ready to take responsibility for the Dnipropetrovsk Oblast. This region ranks third in terms of the concentration of Czech companies there (after the Kyiv and Lviv oblasts). In March, Tomáš Kopečný, the Authorised Representative of the Czech Government for the Reconstruction of Ukraine (who will coordinate the humanitarian, reconstruction, defence, and economic assistance from the Czech Republic to Ukraine), already visited the Dnipropetrovsk Oblast and discussed with the local authorities what kind of assistance the region primarily needs. In July, there are plans for a visit with representatives of Czech companies who are interested in specific projects in the Dnipropetrovsk Oblast.

By the way, in the winter, we sent plants for combined heat and power generation, diesel generators for hospitals and heaters for modular camps to the Dnipropetrovsk Oblast, and provided 12 temporary bridges to replace the ones destroyed in the Kharkiv and Kherson oblasts. The amount of assistance provided is CZK 1.3 billion (almost EUR 55 million – Mind).

In general, Dnipropetrovsk land and Czechia have long-term traditional economic relations: our entrepreneurs have always considered this region one of the most industrially developed in Ukraine. And as far as I know, today the Czech business is again interested in investing here, particularly in the electricity sector, transport infrastructure, and water treatment facilities. For example, since 2018, there has been a project office of Škoda Transportation in Dnipro, and the results of their work can be seen at Škoda's Czech factories. This year, discussions were held with the management of Škoda and Metrostav a.s. (the largest construction company in the Czech Republic and the second largest in Central and Southeastern Europe) regarding the implementation of certain projects for the restoration of destroyed infrastructure.

I also want to emphasise that in October 2022, the Czech government approved the Humanitarian, Stabilisation, Reconstruction, and Economic Assistance Programme for 2023-2025, which allocates 20 million euros annually. And it is not a loan but a donation from the Czech side. This amount also includes support for cooperation between Czech and Ukrainian companies.

About our interregional contacts

– Our interregional cooperation used to be actively developed. Specifically, since 2012, between the Kraj Vysočina and the Zakarpattia Oblast. How is it going now, and what projects have been implemented/are being implemented?

– Indeed, the regions have been cooperating with each other for a long time. During this period, hundreds of millions of Czech crowns have been spent on various projects in Zakarpattia, ranging from healthcare to current everyday issues. However, it's not about traditional investments here. Kraj Vysočina and Zakarpattia have created a joint fund called ViZa (an abbreviation of Vi – Vysočina, Za – Zakarpattia), where both sides contribute money equally and then decide on which projects to use it. But 99% of these shared finances are invested in the Zakarpattia Oblast.

– Over 10 years ago, the Czechs opened a factory near Zhytomyr for the production of electrical installation building products called Kopos. And in 2021, the company Elektromontáže Sýkora planned to build a factory for sorting and processing solid household waste in Sumy. What is happening with these assets today?

– Indeed, in the summer of 2011, the opening of the Kopos factory for the production of electrical installation building products took place in the Pryvorottia village, Brusyliv Rayon. The total construction cost was 5 million euros. Today, the enterprise is operational. Moreover, it has expanded its capacity: since April 2022, a new production line has been launched, and now electrical installation ducts made of PVC are manufactured in Ukraine.

As for the factory for sorting and processing solid household waste in the city of Sumy, its construction has been frozen due to the onset of military actions.

– In November 2021, Czech companies planned to participate in projects for the modernization of wastewater treatment plants and water supply systems in Ukraine (Lvivvodokanal, Chernivtsivodokanal, Sumyvodokanal, Kremenchukvodokanal, Vyshgorodvodokanal). Has cooperation occurred with these water treatment plants? In what aspects?

– It is one of the projects organised by our embassy. It involved 12 Ukrainian communal enterprises. In the first stage, they had the opportunity to learn about Czech expertise in this matter. Then our companies, which supply equipment for water utilities to detect damages and such, can participate in specific projects. However, the whole process is being delayed due to the prolonged war in Ukraine.

– Is it known what has happened to Czech businesses that found themselves in the territories controlled by the russian federation?

– If we're talking about events after 2014, there was one Czech company that worked in Donetsk, supplying equipment for mines and processing, among other things. Partially, they managed to evacuate their property to the Ukrainian-controlled territory, but the losses were immense.

Regarding events after February 24, 2022, I can mention our agriholding Agromino, one-third of whose fields are located in the Kharkiv Oblast. During the occupation, russians not only pillaged the company's property (equipment), but they also took the crops. However, despite all the difficulties, Agromino remained in the Ukrainian market. But the problem is that their fields are landmined, and until the demining process is completed, they cannot be used.

About the drawbacks of the Ukrainian business climate

– How do you assess our current business environment: what concerns Czechs the most, apart from the war?

– Certainly, for many Czech entrepreneurs, the war is the main obstacle today.There are, however, other aspects that affect their readiness to invest in Ukraine, including the establishment of joint business projects or the relocation of their production facilities here (as there is a shortage of workforce in the Czech Republic). I personally have met with representatives of Czech companies who are seemingly not against relocating to Ukraine but are not entirely confident that their investments here will be 100% secure. We are talking about untimely payments of debts to Czech companies (including VAT), widespread cases of corruption practices, and unjustified fines in Ukraine. Our entrepreneurs also complain about the imperfect legislative framework. However, Czech businessmen who have been working in Ukraine since 2014 note that the conditions for doing business in Ukraine are changing, including in terms of bureaucratic procedures.

Of course, it is necessary to improve the judicial system to the maximum extent. If disputes between entrepreneurs reach the courts, foreign investors should be confident that the court will be fair and unaffected by external influences. For example, before the war, there was a case where a Czech company working in the wood processing industry had its assets seized in Ukraine due to what it considered an unfair court decision made by Ukrainian judges. Our investors faced a similar problem last year as well.

– Some diplomats complain that in Ukraine, their entrepreneurs are demanded bribes to resolve business issues and they face raiding. Are Czech entrepreneurs on this list?

– Yes, theya are. In particular, during the period of 2016-2018, there were acts of raiding against our companies. In one case, the business was taken over, while in another case, with the help of the embassy, the rights of the Czech business were successfully defended using the mechanism of the Intergovernmental Commission.

About military aid to Ukraine

– The United States (35% of imports), Poland (17%), Germany (11%), the United Kingdom (10%), and the Czech Republic (4.4%) are the largest suppliers of weaponry to Ukraine. According to calculations by Bloomberg,Czechia ranks 15th in terms of arms transfers to Ukraine since the beginning of the russian invasion. Isn't such a policy being criticised within the country?

– There is no country where 100% of the population would support any government policy. So, there are critics. But the majority of Czechs understand what is happening in Ukraine right now and believe that Ukrainians need to be supported, especially in the military aspect. We have no doubt that if russia conquered Ukraine, it would pursue its imperial ambitions and wouldn't stop there. And it is a fact that Ukraine is defending not only itself but also Europe. We cannot allow russia to win this war.

– There have been messages in the medi,a suggesting that our partners are using the war in Ukraine primarily for their own benefit: supplying old/Soviet weaponry and receiving modern equipment in return. Officially, the European Peace Fund compensates countries for about 84% of the funds spent on military aid to Ukraine, but each country calculates the cost of the equipment according to its own methodology. For example, Finland bases its calculations on 100% of the cost of new military equipment, Latvia on 99%, Lithuania considers 93% of the cost of new equipment, Estonia – 91%, and so on. And recently, in an interview with the Associated Press, President Zelensky said that Ukraine had to return air defence systems to the West because they did not work: one of the European countries sent the air defence system in non-working condition. How do you comment on foreign supplies of not-quite-new weapons that are also not fully functional?

– As far as I know, that was an isolated incident, and it certainly wasn't the Czech Republic.

Regarding Czechia directly, we supply what we currently have to Ukraine. For example, we only have T-72 tanks, and we provide them. Yes, in return, we will receive more modern tanks. However, it takes two to three years to produce them. Meanwhile, Ukraine needs tanks and other military equipment right now. But even if Ukraine waited two to three years for new military equipment, they would still need time to train soldiers to use it. We supply tanks that are already in the inventory of the Armed Forces of Ukraine, so the military knows how to operate them. Therefore, the question here is about the speed of supply, not about intentionally providing Ukraine with outdated weapons.

– The President of the Czech Republic, during his April visit to Kyiv, stated that we would jointly produce weapons, ammunition, and training aircraft, as well as repair tanks. The production can be partially or fully carried out on the territory of Ukraine. When is the launch scheduled, in what volumes and at which bases, what is the distribution of functions between the parties, and what are the financial obligations?

– This topic was initiated for discussion as early as the end of October 2022 at a joint government meeting: our prime ministers agreed to create a defence-industrial cluster, within which specific work is already underway. There are already six priority projects regarding the defence sector. However, they are not publicly disclosed. I can only say that it involves the establishment of manufacturing capacities (for example, for ammunition or other components of joint production) and joint repair and modernization of Ukrainian military equipment (such as T-64 tanks). The implementation of the projects is handled by the Intergovernmental Defence Cooperation Agency (AMOS) under the Ministry of Defence of the Czech Republic. Details regarding the location of the plant construction, volumes, and production launch are currently being discussed at the level of Czech and Ukrainian representatives (including UkrOboronProm and the Czech state enterprise VOP).

– How significant have the anti-russian sanctions been for the Czech Republic, especially in 2022? And is there an overall assessment of the economic damage/loss of profits for the country?

– Speaking in general terms, the war in Ukraine has had a negative impact on the global economy as a whole. It has also affected the Czech economy, and its growth has slowed down. It is expected that this year the slowdown will be up to 2.3% with inflation reaching 9%. Moreover, many Czech companies have suffered from the anti-russian sanctions, including the automobile company Škoda, whose profits dropped by 42% in 2022. However, despite this, the Czech Republic will continue to support the anti-russian sanctions and will continue to support Ukraine.

About the situation of Ukrainian refugees in Czechia 

– As of May 21, 2023, there are 337,858 refugees from Ukraine in the Czech Republic who have temporary protection status, which has been extended until March 31, 2024. Therefore, we continue to accept Ukrainians and provide them with accommodation, employment, and assistance. Financial aid is given to those who do not have the means to cover their basic living needs.

Regarding employment, out of the 337,858 refugees, 68% are of working age (65% women and 35% men). By the end of 2022, 51% of Ukrainian refugees who were previously economically active in Ukraine have been employed. Ukrainians are considered on equal terms with Czech citizens in our job market: salaries are no different from what Czechs receive. Of course, lacking knowledge of the Czech language significantly limits employment opportunities in one's field of expertise. However, it is possible to work in less skilled (manual) occupations.