Corruption and FDI Robert Hejzák / CzechInvest 31st November 2005

Corruption and FDI Robert Hejzák / CzechInvest 31st November 2005

Corruption --- abuse of public authority for personal benefit --- real corruption environment vs. perception of corruption

5% 3% 0% 3% 21% 10% 18% 23% 31% 36% 46% 49% Generally lower costs Available workforce Stability of the environment Geographical conditions Investment incentives Educated and skilled workforce Inexpensive workforce Source: PricewaterhouseCoopers, 2001, Survey on Investment in the CR Three most important factors The most important factor Decision Factors to Invest in the CR

Size of domestic market Corruption Bureaucracy Telecommunications Land availability Political stability Quality of local management Sufficient infrastructure Favorable tax climate Economic stability Investment incentives Production and labor costs Experience: Performance of CR (1= very poor, 10=excellent) Expectations: Decision criteria (1=unimportant, 10=critical) Expectations vs. experience

Investors’ confidence (1.) 1.China2.03 (2.) 2.USA1.45 (6.) 3.India1.40 (7.) 4.Great Britain1.25 (5.) 5.Germany1.17 … (4.) 12.Poland0.96 (13.) 14.Czech Republic0.93 (17.) 19.Hungary0.88 FDI Confidence Index (scale of 0 – 2,5) Source : A.T.Kearney, 2004

Threat to the competitiveness of the Czech Republic Most serious threats to the competitiveness of the new EU 10 (% of responses) Source: A. T. Kearney, 2004

CzechInvest’s Experience ---small (administrative corruption) vs. large (political) corruption --- type of corruption depends on the kind of investment

CzechInvest’s Experience Source: Transparency International Global corruption barometer 2004

Administrative corruption ---granting entry visa ---master planning / building permitting and licensing ---founding new companies (entry into the Company Register) ---customs clearance …

Negative Impact of Corruption ---volume of FDI --- “high taxation” effect ---“country risk” and “credit rating” ---return on investment --- lack of transparency of the business environment – corruption image

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