Let’s Support Startups. Otherwise, the Czech Republic Will Be an Assembly Plant Forever

20/07/2020

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The Czech economy is experiencing the worst downturn since the economic crisis in 2008. There are only few companies that have not been affected by the coronavirus pandemic. The OECD talks about GDP falling by 9,6% which puts us in 5th place in this unflattering ranking. It is entirely legitimate to discuss how the government is now trying to kickstart the economy, because it seems to have completely forgotten about one group of companies. I am talking about young companies, startups, if you will. By its steps, it gambles on the future of Czech business.

Why do startups play such an important role in the Czech economy? Above all, they bring innovation and innovative processes that move the economy into the sphere of production of hi-tech high value products. They provide space for developing good ideas and talent, both of which are abundant in the Czech Republic. They provide the Czech workforce with jobs, they pay taxes. If they succeed and the company is sold successfully, the capital can be used to support other local projects which, at the end of the day, is beneficial for the entire economy. And last but not least, they contribute to the economic diversity, which is in the Czech Republic essential. The problem of labeling this country with an "assembly plant" label has once again proved its existence - the automotive industry happens to be in trouble and the alarm goes immediately off.

The sadder it is to see how the government approaches startups in the light of the pandemic and possible help. Many startups and young companies are struggling to survive but help is not on the way. Almost no one has been able to reach the Covid programs or promised guarantees. I am not talking about the government directly providing funding for the companies yet getting inspired abroad would be enough.

In Germany and the United Kingdom, for example, the government matches investments made by independent investor with government-guaranteed loans. As a result, finding an investor is way easier since companies do not have to look for large investments. And speaking of investors - even they can get motivated.

As I mentioned in previous posts, angel investors, for example, are not always the ones with hundreds of millions of dollars in their pockets. Often, they are also entrepreneurs whose companies have got in trouble and at this moment they do not feel like putting their money in risky investments. So how to get them motivated, or at least reduce the risk? In the UK, for instance, it is possible for angel investors to write off investment losses on their tax basis. That could also serve as an example for the Czech government.

It is obvious that rather than figuring out how to lend a helping hand, the government approaches startups and small companies suspiciously. That can also result in every talented potential entrepreneur thinking twice about starting a business or getting a job. If the government does not change its attitude, an entrepreneurial individual will rather get hired by one of the multinational companies whose profit eventually disappears abroad. And just for the record, small and medium-sized enterprises in the Czech Republic make up for about 40% of GDP and employ about 60% of workers. And every new company has the potential to further increase this number, which is, clearly, desirable - after all, 58% of GDP of the entire European Union is made up by small and medium-sized enterprises.

However, as an endless optimist, I still hope that people with great ideas, which the Czech Republic is full of, will not be discouraged by this situation. Though they will be at a disadvantage in comparison to entrepreneurs in foreign markets who have received support. I am keen to see how they are going to fight it.