Prague Should Dance the BREXIT Fandango

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Would You Care to Dance?
Prague is that shy girl sitting in the corner. She doesn’t realise she’s the prettiest girl in the room. As Paris, Frankfurt and Madrid strut their stuff and even Dublin, Warsaw and tiny Luxemburg show their moves; Prague has thus far refused to dance. The other European cities are, of course, all dancing the Brexit fandango: Seductively putting forward their credentials as a safe harbour for firms, especially professional service firms, relocating activities from London in response to Britain’s decision to leave the European Union (EU).
But what of Prague? Prague has so far been noticeably absent in putting itself forward as a destination. That is a mistake. It is the author’s opinion, and an opinion shared by many fellow Brits, that Prague has a lot to offer. The Czech government, CzechInvest and the City of Prague, shouldn’t be shy in outlining the case for relocation to the Czech Republic.
A One-Off Opportunity
The potential re-location of staff and activities from the City of London represents a one-off opportunity for the Czech capital to develop as a centre for high value-added, globally competitive, service industries. As an example, according to a November poll of investment professionals, undertaken by PwC, 85 per cent of the respondents in the asset management industry said they believed it would be necessary to relocate some UK-based investment staff to mainland Europe as a result of Brexit.
Whilst many large firms will merely develop existing infrastructure in say Dublin, Frankfurt or Paris, many medium and small firms will be looking to establish EU based subsidiaries for the first time. EU institutions, such as the European Banking Authority (EBA), will almost certainly relocate. Therein lies the opportunity.
Traditionally the Czech Republic has marketed itself as a cheap place to manufacture, distribute and service customers. Whilst car and electronic assembly may provide much needed employment, it is employment of the lowest paid most unskilled kind. Professional services, on the other hand, offer the prospect of high value-added employment not just for those relocating but for all the many local ancillary staff required. Tax revenues can also be expected to take a considerable boost. If Prague represents that pretty girl, there couldn’t be more eligible suitors!
‘Quality of Life’ and ‘Ease of Doing Business’ will be the Main Considerations
For well-paid professionals, currently living in and around London, it will be ‘quality of life’ issues, and ‘the ease of doing business’, that will be the prime considerations when considering where to relocate.
1)   Prague Is a ‘Magnet’ for Attracting Talent
Though ‘Quality of Life’ is a rather intangible concept, most people know it when they experience it. Mike Hordley, CEO HSBC Prague, comments, the ‘’Czech Republic is an attractive location from the standard of living perspective, as proved by the country’s excellent result in HSBC’s Expat Explorer survey of best places to live for expats. In the 2016 edition of the survey the Czech Republic was ranked 4th best destination for expats in the world, being the only European emerging market in top 10 of this ranking (the UK was ranked 22nd). This may be important for international investors who employ experts of different nationalities to provide them with career opportunities in different locations.”
Survey: EXPAT Quality of Life










The United Kingdom ranks 22nd in the league table.
Source: 2016 HBBC Expat Explorer Survey
Hordley’s comments are echoed by other Brit’s working in the Czech Republic. Oliver Donoghue, CEO of NonStop Recruitment, comments ‘’In a Global world, many companies have been making the most of a multi-cultural workforce that brings different experiences, methods of thinking and ultimately broader minds. To me, the issue with Brexit that will hit firms hard could be the inability to easily recruit a workforce that offers such benefits. Ultimately I am extremely proud of having a very diverse workforce in Prague and [post] Brexit it looks like we will continue to have that luxury whilst our competitors and peers in the UK will not.’’ Like Hordley, Donoghue views Prague as a magnet for talent: ‘’Prague is a fantastic city for service centres to be based in, the professional service talent pool crosses Europe as so many people are willing to re-locate to experience the city.’’
What Makes Prague so Attractive?
Whilst most Brits are aware of the rich history and culture the Czech capital offers. Less well publicised is the high standard of public transport, education, healthcare and the low rates of taxation. In all these respects, Prague ticks the right boxes:
·      Vibrant Cultural Life 
Prague isn’t just a charming city, there is indeed something magical about the City that boasts a hundred golden spires. Prague’s architecture spans more than 2000 years from Roman times, through medieval, renaissance, gothic, baroque, cubism, art nouveau, socialistic right-up to modern times.  Whilst the ‘cheap beer’ attracts stag parties, Prague has a rich cultural program of Jazz, opera, ballet. Weekends can be spent in the Czech mountains, famous spa resorts or visiting medieval towns, such as Český Krumlov, Kutná Hora or Telč. Wine connoisseurs can enjoy the vineyards in the ‘Tuscanesque’ landscape of South Moravia. Those wishing to travel further can visit the neighbouring countries of Germany, Austria, Poland and Slovakia which are just a few hours’ drive from the Czech capital.






‘’We apologise, but You’ll Have to Move to Gorgeous Prague’’. NonStop Recruitment, one of Europe’s fastest growing recruitment firms, has enjoyed exponential growth since opening Czech offices in Prague and Pardubice. For many professionals, the opportunity to develop their career in Prague is an attractive prospect. Illustration: Courtesy Nonstop Recruitment


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Unparalleled Transport Infrastructure 
There is no comparison between the transport infrastructures in Prague relative to London. The integrated transport network, between trams, metro trains and buses is fast, efficient and comparatively inexpensive. Indeed, the city of Prague recently announced that the price of the annual public transport ticket would be reduced [yes, you read correctly] from CZK 4750 to CZK 3650 (approx.GBP114). The dedicated tramlines, which can be used only by trams, buses and the emergency services, ensure fast and effective mass transit. Similarly, the modern, spacious, air-conditioned metro system easily surpasses the cramped (often sweltering conditions) experienced on London’s tube.
However, the jewel in Prague’s transport infrastructure is undoubtedly the Vaclav Havel Airport. This modern airport has frequent daily flights to most European destinations and all London’s major airports. Indeed, there are approximately 90 direct flights to London every week. While the flight time to London’s airports is around 1hr 49 mins (compared to 1 hr 19 mins from Frankfurt and 1hr from Paris), most expats find themselves living just 15-30 minutes from the Prague airport. With security control at the embarkation gates business travellers, with carry-on bags, rarely face long delays at either passport or security control.
·      Low Rates of Taxation 
The Czech Republic levies a 19% rate of corporation tax. This compares with 20% in the UK, 33% in France, 30% in Germany, 25% in Spain, 21% in Luxembourg and 19% in Poland. Only Ireland, with 12.5%, has a lower rate of corporation tax.
The marginal rate of personal income tax in the Czech Republic is a very competitive 15% (plus a 7% ‘solidarity tax ‘on high earners). This compares with 45% in the UK, 50% in France, 48% in Ireland, 47.5% in Germany, 43.6% in Luxembourg and 32% in Poland.
For professionals, used to seeing almost half their bonuses taken by the UK’s Inland Revenue (to fund Britain’s ‘benefit culture’), this will come as a shock. Furthermore, there are no local taxes. Dividends are taxed at 15% (though this is under discussion). Finally, there is no capital gains tax on securities held for more than 3 years. Time to pick-yourself up from the floor!
·      Health Care 
Czech healthcare works on a system of compulsory private insurance with patients choosing which insurance company to use. One of the author’s biggest surprises was that the Czech health system works so well (or the British NHS fails so badly). Doctors and specialists are accessible through numerous ‘polyclinics’ whereby different health professionals work together within the same building. It’s not uncommon for a doctor to refer you to a specialist in the same building to get an expert opinion. A referral that would often take weeks in the UK, can take minutes in a polyclinic. Prague’s hospitals are equally impressive. On my first trip to Accident and Emergency (A&E), at Prague’s biggest hospital, the author recalls a doctor apologising for making me wait 5 minutes.
·      Child Care & Education 
Another pleasant surprise is the Czech education system. One of the biggest positives is the affordability[i] and availability of kindergartens from the state sector for children aged 3-6 years. A large number of private ‘English speaking’ kindergartens are also located throughout Prague.
With full time schooling starting about a year later than in the UK, neat ‘copper plate’ hand-writing is still taught in State schools with a strong emphasis on the 3 ‘R’s: Reading, Writing and Arithmetic.  The Czech system of Grammar Schools will be familiar to any British parent. Once again, a number[ii] of well-regarded private schools can also be found in the Czech capital with some following the British curriculum or International Baccalaureate. Finally, Prague is home to Charles University; founded in medieval times, and The Czech Technical University (CVUT); which boasts to being Europe’s oldest (non-military) technical university. 
2)    Ease of Doing Business
Quality of life issues are clearly just one consideration when considering where to relocate. Firms face a number of practical issues which need to be addressed, e.g. finding the right staff, finding suitable premises, the general infrastructure needed to run a business. A large part of London’s appeal is its high score on all these points, but Prague punches above its weight in many respects.









Mike Hordley, at HSBC Prague, notes: ‘’there are a number of factors that make this country an attractive place [to do business]. Central to this is Czech Republic’s location in the heart of Europe, its strong heritage in manufacturing and its proven ability to innovate in both traditional and new industries. This is supported by a highly educated labour force and strong language skills, together with good quality telecommunication and transport infrastructure, developed financial services, and a solid legal/regulatory framework for businesses (The Czech Republic was ranked 27th in World Bank’s ‘Ease of doing business’ ranking, better than a number of other EU members, incl. both highly-developed economies of the Netherlands, France, Spain and Belgium, as well as emerging markets such as Slovakia and Hungary).’’
Alluding to the strong ties between China and the Czech Republic, Hordley adds: ‘’CEE countries like the Czech Republic are well positioned to benefit from the growing focus on China’s One-Belt, One Road strategy, bridging the increasing connectivity between Asia and Europe and providing access to both established and new markets’’.
·      Educated, Bilingual Professionals
In 2015/16, according to data from the Ministry of Education, some 22,281 students graduated from economics and finance related courses, while a further 72,884 remain enrolled on such courses. Additionally, thanks to the popularity of International MBA programmes (there are 10 such programmes in Prague) and professional qualifications, such as ACA, CIMA, ACCA, CFA, there is an underutilised supply of financially literate professionals. Claire Zenkerova, partner at the professional training company ineo.click s.r.o. (formerly BPP) notes ‘’…there is already a pool of talented, well-educated young people in the market place with good English and an awareness of what it means to be a Business professional.’’







Furthermore, while French and German labour laws are relatively inflexible, Czech labour laws are, in many respects, probably even looser than in the United Kingdom.
Foreigners often worry about the difficulty of understanding the Czech language. They shouldn’t. With a thriving tourist industry, Czechs are used to dealing with foreigners. Some 69% of graduates boast either fluency or an active knowledge of English[iii]. The figure reaches 85% once those with a ‘passive knowledge’ are included. For those keen to assimilate the language a number of language schools offer intensive introductory courses which are usually more than enough so that foreigners can get by. 
·      Infrastructure
Omar Sattar, the Scottish Managing Director at Colliers International in Prague, notes that it is possible to find quality office space in Prague. Indeed a number of significant office developments are due for completion this year.
According to data compiled by Colliers, ‘’the cost of commercial office space is significantly cheaper in the Czech Republic than the UK, France, Luxembourg or Germany. In terms of office costs, amongst the BREXIT relocation hopefuls, only Poland can offer similar savings’’.    








Occupier Cost Index 2016* [Euros]







So what’s the Catch?
What are the potential drawbacks? One obvious one is the Czechs own attitude towards the EU. On some measures, the Czechs are even more sceptical of the EU than the British! That aside, there seems little political will for a ‘Czexit’ from the EU. Indeed, it is quite possible that the Czech Republic will eventually adopt the Euro, though not any time soon.
Corruption remains one of the most often cited problems in the Czech Republic but, as one Brit commented, it does appear to be ‘’moving in the right direction’’[iv]. The UK’s institutional, legal and regulatory framework enjoys international standing. By contrast, in the Czech Republic, the protection of property rights can seem relatively weak. However, it should be noted some of these risks can be mitigated by the careful drawing up of legal contracts and arbitration clauses outlining where and how disputes are to be settled. Furthermore, for regulated entities relocating just part of their activities to the Czech Republic, the UK’s Financial Conduct Authority (FCA) will probably remain their primary regulator.

Don’t Be Shy!
Numerous European cities: Paris, Frankfurt, Madrid, Warsaw are seeking to attract British firms and have conducted ‘roadshows’ in London. France and Germany are even considering changing their labour laws to make them more palatable to British firms. Meanwhile, Ireland’s regulator is seeking more staff to cope with the backlog of business license applications!
But what of Prague? With so much in favour of Prague as a location, the absence of the Czech Republic from the Brexit relocation debate is difficult to understand. This reticence to promote Prague is even more difficult to comprehend given the good relations between the two countries.
As Oliver Donoghue puts it: ‘’Why CzechInvest or even the government has not done more to attract organisations to consider the country since Brexit is beyond me. I can see other lower cost locations advertising in airports and the business press, yet you never hear of the Czech Republic. It's a hidden Gem, and would be a real shame to remain so!’’

Jeremy Monk MBA, ASIP, BSc (Hons), DIC
Investment Director,
AKRO investiční společnost, a.s.
Prague
1st February, 2017

For reading this article in Czech, please click here





[i] State kindergartens typically cost around CZK600 (GBP20)/month. Private kindergartens up to CZK10,000 (GBP320)/month.
[ii] English Speaking International Secondary Schools located in Prague: International School of Prague, The English College, English International School of Prague, Riverside School and the Prague British School (several branches).
[iii] Survey by STEM for CzechInvest, 30th June, 2014
[iv] As at writing the Czech Republic ranks 47th in the 2016 Transparency International Corruption Perceptions Index alongside Malta and Cyprus.

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