Czechs Resume Investment Hunt With $1.1 Billion Tire Deal

The Czech government signed an 829 million euro ($1.1 billion) investment contract with Nexen Tire Corp (002350), boosting foreign direct investment which has slowed since the global financial crisis.

Prime Minister Bohuslav Sobotka, whose cabinet is trying to boost economic growth after a record-long recession, signed the deal today for a new factory that brings the South Korean company’s production closer to its European customers. Czechs beat out the Poles in the race to host the plant, which is the largest investment in the European Union state since a Hyundai Motor Co. (005380) 1.1 billion euro project in 2006.

The Czech Republic, like its post-communist EU peers, needs foreign investment to catch up with richer nations in the bloc after turmoil during the global financial crisis and an austerity drive exacerbated a record-long recession. The government is offering incentives to potential investors and plans to raise budget spending to help boost output.

“We agreed one of our key priorities, and maybe the most important one, will be fighting unemployment and efforts to support economic growth by all possible means,” Sobotka said after the signing in Prague today. “One concrete result is the successful completion of 13 months of negotiations, which will lead to the third-biggest direct investment in our country.”

Good Access

The Nexen factory may create 1,000 jobs during the first three years, the government said in a statement. The plant will be located about 80 kilometers north-west of Prague near Zatec, a town located in the region with the country’s highest jobless rate, at 11 percent in May.

Nexen considered more than 50 locations in six countries before choosing the Czech Republic, according to Chairman Kang Byung-Joong. The site “offers good access to important markets” such as Germany, France and the U.K., and is also close to “fast-growing” eastern Europe, he said in Prague.

Home to factories run by Hyundai, Volkswagen AG (VOW) unit Skoda Auto AS, and TPSA, a venture of Toyota Motor Corp. (7203) and PSA Peugeot Citroen (UG), the Czech Republic is Europe’s second-largest car producer per capita, according the European Automobile Manufacturers Association. In first place is neighbor Slovakia, which has plants run by Volkswagen, Kia Motors (000270) Corp and PSA Peugeot Citroen.

Growing Demand

“We’re planning to build a plant in the Czech Republic to satisfy the growing demand on the European market and ensure supply for top carmakers like Skoda, VW, Fiat and others,” Kang said.

While the Czech Republic remains the second-richest post-communist EU member, its gross domestic product per capita in terms of purchasing power declined to 80 percent of the EU average in 2013 from a high of 83 percent in 2007, according to Eurostat. Neighboring Poland, the largest of the EU’s former communist members, increased to 68 percent of the EU average last year, from 54 percent in 2007. Euro-area member Slovakia rose to 76 percent from 68 percent in the same period.

“Compared to other core peers, Slovakia and Poland, we haven’t scored particularly well, and probably not as well as we might have hoped,” central bank Vice-Governor Mojmir Hampl said in a June 19 speech at the American Chamber of Commerce in Prague, according to a transcript on the bank’s website. “Convergence, or catching-up, has almost stalled.”

The Czech economy expanded 2.5 percent in the first quarter, the highest annual reading in three years, after 1.1 percent growth in the previous three months. Before then, gross domestic product declined in seven consecutive quarters.

The Czechs attracted about 84 billion euros in green-field and brown-field investments from 1993 and 2012, with the inflow peaking at more than 9 billion euros in 2005, according to data from CzechInvest, the state agency in charge of negotiating with investors.

To contact the reporters on this story: Peter Laca in Prague at placa@bloomberg.net; Ladka Bauerova in Prague at lbauerova@bloomberg.net

To contact the editors responsible for this story: Balazs Penz at bpenz@bloomberg.net Michael Winfrey

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