Investors target Middle East ventures

In Egypt, the name for the Czech Republic's second-largest city means something quite different. There, "Brno" is something that comes with either a long or short barrel, a trigger and got its name from the city where many of the guns in Egypt were manufactured. And, in Iraq, a Zetor can mean any type of large industrial tractor, regardless of its brand.

For around 80 years, Czech products and companies have been mainstays in countries throughout the Middle East and parts of Africa, and now, following some disruptions, numerous Czech companies, new and veterans alike, are looking to either reinvigorate their presence in those countries or enter similar markets despite the instability that continues to scare away most foreign investment.

"In Egypt and Iraq, Czechoslovakia is a good reference from the past. The thing that is most important is to have reliable partners, and Czech products have a good name," said Petr Pokorný, managing director of Sigmainvest, a water-systems company with more than 50 years of experience in the Middle East and Africa. "In both countries, they remember Baťa shoes. They know products of Czech origin and associate them with high technology."

One of the main drivers behind the country's expanding presence in riskier markets has been continued strong state support of those trade relations established by the former Czechoslovakia, which the government reaffirmed most recently with a high-profile trade delegation to Iraq, which included both Prime Minister Petr Nečas and former Prime Minister Mirek Topolánek.

"You cannot ask for a better position on the market, and they could get that back," said Karel Pleva, CEO of the state export insurance company, EGAP, about Czech trade in Iraq. Though the country's major export destinations outside the European Union continue to be Russia and Central Asian countries, Czech companies have recently been looking more to North Africa and the Middle East, he said, and are benefiting from strong government support like EGAP's loan insurance for companies conducting business in countries that would otherwise prove too risky for regular bank loans. EGAP also issues loans abroad to customers of Czech exporters. (See story, A9)

Sigmainvest has been present for more than 50 years in both Iraq and Egypt, where they created custom water systems for both markets, including water-pumping stations, irrigation systems and water-treatment systems.

Now, after the fall of Saddam Hussein in Iraq in 2003 and as the turmoil in North Africa slowly settles, Sigmainvest is busily going back to fixing their old pumps and installing new ones, and looking at new opportunities elsewhere in those regions.

"We have a definite interest in Libya. We expect to have a good chance in Libya after everything there is [more settled]," Pokorný said. His company has chosen not to enter the markets in Tunisia and Jordan because of their small size, he said, but is still "open to any possibility" in Africa and the Middle East.

"Whenever there is a sign of new space, everyone tries to get in," Pokorný said. "But the situation is difficult. So, as in the case of Iraq, many people turned back. I think the same thing will happen now, but we have strong references from our past work in these regions."

Sigmainvest currently has around six major contracts in Iraq for new construction or reconstruction of its old water-pumping stations necessary for agricultural irrigation and water supply and is also working on water systems for oil refineries.

In Egypt, Sigmainvest built its first pumping station in 1958, and has since built enough cumulative pumps to supply 20 million people with water. Though contracts have slowed in the past five or six years because of government policies that emphasized more local contracts, Pokorný said his company continues to be one of the major water-systems providers there.

"[Egypt] will be a bit uncertain for some time because of the democratization. ... There are two sides to every coin: The totalitarian regime kept control of the economy and the exchange rates, but only artificially, because it was not an open economy," Pokorný said. "But on the other side it was more certain, which is better for long term predictability."

Sigmainvest is just one of dozens of Czech companies that are showing interest in new or expanded cooperation in the Middle East and Africa. Zetor, a tractor manufacturer, has long exported to Iraq and is currently in negotiations with the Iraqi government to build a factory, expected to produce 1,000 tractors per year.

The Czech arms company Česká zbrojovka Uherský Brod (ČZUB), which used to also manufacture Zbrojovka Brno-brand guns (hence the gun's nickname) is also looking to secure deals in Iraq to provide the military and police with small arms.

"ČZUB supplies products in 80 countries, making the Czech Republic one of the most important exporters," said Ladislav Britaňák, commercial director of ČZUB. "Any country that meets the conditions for the exports of small arms is at the center of our interest."

Tradition aside, Czech interest in those less stable countries is not misplaced, according to investment analysts who are increasingly lauding the Middle East and North Africa as potential sites for profitable investments despite their perceived risk.

"There have been very little growth opportunities up until now, but coming out of the war and as reconstruction begins, there are opportunities that are beginning to blossom a bit more even with the political and security concerns in the region and country," said Bryan Plamondon, senior manager for Middle East and North Africa Economics for IHS Global Insight. Plamondon pointed out the need to build infrastructure, as well as maintenance on oil facilities.

In North Africa, though the situation remains more tumultuous, there are also infrastructure opportunities, as well as longer-term projects of filling previously neglected niches that contributed to the initial unrest in those countries, such as affordable housing.

"There's an inclination that the government in Egypt will not move too far from past policies and will choose to just restart the economy and take measures to attract investment again and bring in tourists, and that makes companies look at it as a good place to be when that does start," Plamondon said.

Companies that choose to enter less stable markets often enjoy generous tax breaks and incentives, as those countries receive financial contributions from international bodies like the G-8 and the World Bank to boost trade and foreign investment.

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com