Czech firms reluctant to partake in foreign aid projects

The Czech Republic spends around 430 million crowns a year on foreign aid, financing various development projects in Bosnia and Herzegovina, Ethiopia, Moldova, Mongolia and other countries. The government is increasingly trying to involve Czech firms and businesses in the process so that they find a foothold on local markets where they could continue doing business even after the government-sponsored projects finish. But Věra Venclíková, the head of the Czech Business Platform for Foreign Cooperation says that getting Czech firms interested is no easy job.

Věra VenclíkováVěra Venclíková “In the Czech Republic, only a few companies are involved in foreign cooperation projects. We try to persuade and inform the private sector about these opportunities; we do seminar and conferences to show what is possible and what is not.”

What is the typical company that joins your programme? Are they firms that already have business links in that country, or how do you choose them?

“It depends. The system of cooperation with developing countries underwent a transformation in 2008. Until then, each big ministry had a budget for their own projects, and they invited friendly companies to join. But then the system underwent an audit by the OECD, and since that time, everything has been under the Czech Development Agency, or CDA, and the agency uses a public procurement system. In the new system, more companies have access to the tenders.”

So who gets involved in those development projects?

“The typical company has good know-how in dealing with certain problems in certain sectors, for example environment, transportation, energy and others. The CDA then invites companies to first formulate the actual project, and then to compete in the tender. The largest firm which does that is Eltodo which is involved in some energy projects but the firms that get usually involved in these activities are middle-sized.”

Illustrative photoIllustrative photo The Czech Development Agency highlighted as one of the successes the modernization of a power plant in Ulaanbaatar, Mongolia. The firm that worked on that later stayed in the country and does business there. How difficult is it for the firms to do that?

“It needs investment capital as well as good and loyal local partners. As long as you receive money from the government, it’s easy because the firm has no risk. But when it stops and the firm would like to continues, there is great risk related to the capital, to different business environment and very difficult negotiations with the authorities and so on. So it is a brave decision to stay on the market and usually, that future business is unfortunately not a continuation of the government-sponsored project.”

These projects are not profit-oriented as they are paid for by the Czech government and other donors. How difficult is it to make the transformation?

“The key word there is profit. Under the development projects, all profit goes to the beneficiary. Let’s say that the beneficiaries are women with small children, for example, and the project is aimed at building a school or a hospital.

When the project finished, somebody can continue to provide services for this facility. And if we don’t think about how that hospital will continue to operate after the project is over, anyone can really get in and do it. So development projects should take this into consideration.”

Illustrative photo: Christian FalveyIllustrative photo: Christian Falvey “It’s difficult though, and it requires a lot of experience and planning. Until now, the projects were more on the NGO side, i.e. providing assistance to the people rather then training them to do things themselves. There is also the question of ownership; the beneficiary receives the project from the donors, so they just often wait to see what you can do for them. That’s not good because they should really start working on it too. That’s why we call it development cooperation. That kind of cooperation is much more important than the actual money you put in. But in many cases, it’s still aid or assistance.”

Which of the countries in the Czech development programme do you think has the best conditions for continuing doing business there after the cooperation part is over?

“Three of our members did it, and all of them set up branches in Balkan countries – Serbia and Bosnia where they continue to compete in local public procurement tenders held by the EU or regional authorities.”

The Czech Republic is ranked quite low on the TI’s corruption perception index; however many of the countries where you work are even lower. Is corruption a big issue there?

“That’s what I meant when I said it was difficult to negotiate with the authorities there. But we consider it a sort of advance that Czech firms know about when they negotiate because it’s part of the local customs. It’s not considered corruption but rather a rule; you have to pay them so that they talk to you. I have heard about a strange case in Ethiopia where there are a lot of NGOs and projects and so on. If you do a seminar there, they ask you to pay them for coming. The system is very strange. They think of us as of someone who comes and pays them.”

What do you think the Czech Foreign Ministry should change to get more firms involved?

“This year, the ministry began considering business to business programmes. That means that they have some limited funds to help Czech firms find partners in developing countries and for example carry out feasibility studies there. These studies can be very useful if they are done for a certain sector; if it’s paid for by public money, more companies can share its results. This kind of B2B programmes can help more firms to get involved in development and also investment projects.”