Foreign owned companies contribute disproportionately to Czech economy

Figures from the national statistics office paint a pretty clear picture of foreign ownership of the Czech corporate sector. And while the benefits in terms of higher productivity are clear, the outflow of dividend payments is also spelled out.

Photo: archive of Czech Government

Large parts of the Czech economy are clearly in foreign hands. Most of the major banks are outposts of foreign financial institutions, most of the major supermarket chains are foreign owned, and the biggest industrial manufacturer, Škoda Auto, is a very successful part of the German-based Volkswagen empire. The country’s two other major car makers are also foreign owned.

According to figures from the Czech Statistical Office (ČSÚ) around a third of Czechs are employed in foreign owned companies. When you take out the public sector, that makes a considerable slice of private enterprise.

A hint of that is given by another figure from the office: that 42 percent of value added in the economy, basically wealth creation, stems from the foreign owned firms. That is just under twice the EU average for the foreign owned contribution which comes in at 22.6%. But if Czechs think that foreign predominance is excessive then there are other EU countries where it is even higher. Foreign owned companies account for 57 percent of wealth creation in Ireland; 45.5 percent in Romania, 42.9 percent in Luxembourg, and 42.2 percent in Estonia.

Foreign owned companies for the most part did not pick up the worst assets when they went on a buying spree in the early 1990s and those that started up from scratch had the advantage of bringing in the latest technology and know-how. But the difference in value added per worker between foreign and Czech owned companies is nonetheless considerable. The former comes in at 936,000 crowns a year compared with 573,000 crowns for the latter, a difference of just under a third.

The picture of foreign ownership across the board is not so surprising: its fairly strong in investment and technology sectors where foreign know-how can make an appreciable difference. It’s highest in information and communications sectors, 64.6 percent, followed by industry where 57.6% of output comes from foreign owned firms. In the water and waste sectors it adds up to 40.8 percent. Smaller proportions are found in transport at 26 percent, construction 14.9 percent, and energy at 9 percent.

While foreign investment over the last 25 years has been considerable, the other side of the coin is that most of the dividends from profits now flow outside the country. In 2014 the total of dividend payments exiting the Czech Republic is estimated at around 201 billion crowns.