Government´s National Development Fund will enable investments of tens of billions of crowns
1. 7. 2019 | Source: Ministry of Industry and Trade of The Czech Republic
The preparation of the National Development Fund is continuing rapidly. There is a consensus on where the Fund will invest, on what principles its business model will be built and how it will be managed. The Fund will have the potential to mobilize at least five times its capital in favour of investment projects, i.e. a total of around CZK 35 billion.
Currently, 4 banks - Česká spořitelna, ČSOB, Komerční banka and UniCredit bank - have confirmed their willingness to invest up to CZK 7 billion in voluntary investment, possibly together with other investors, as soon as the Fund acquires the necessary license from the CNB and suitable investment projects are selected and prepared.
As regards the intention to create the National Development Fund, Prime Minister Andrej Babiš, Deputy Prime Minister Karel Havlíček and representatives of major banks agreed upon at the meeting that their joint efforts direct to creating this Fund as soon as possible. In recent weeks, agreement has been reached on the Fundamental aspects of the Fund and negotiations will continue.
Fund Focus and Investment Strategy
The Fund's role will be to invest in projects that society needs for its social and economic development. In particular, it will focus on public infrastructure.
“Projects to be funded through the National Development Fund should in the first phase concern the infrastructure, such as motorways or traffic circuits, hospitals or university campuses,” says Prime Minister Andrej Babiš, adding: “Of course, we will also think of other areas of public interest, such as energy and culture. In short, the Fund will be used where it will help increase the socio-economic impact and create a competitive advantage for the Czech Republic.”
The Fund will be based on a sustainable financial model and will be linked to the preparation of the National Economic Strategy of the State, which will include the National Investment Plan, the National Innovation Strategy of the Czech Republic, the Strategy for the Digital Czech Republic and more. The Fund's investment strategy will be based on the principle of return on Funds invested in supported projects and on the principle of voluntary multi-source Funding, enabling the involvement of a wide range of investors.
In addition to the banks, other large corporations, which are doing well in the Czech Republic and intend to invest in the long term, should join the Fund. “Major corporations have a considerable share in the social responsibility. They want to do business with us and, in our opinion, they should contribute to the Fund. It will be a Fund of Funds, which will be based on a purely voluntary basis” says Deputy Prime Minister and Minister of Industry and Trade Karel Havlíček and adds: “Investments by banks and other companies in the Fund that should be used in areas identified as strategic priorities will contribute to the development of the Czech Republic for future generations.”
Principles of Fund Operation
The Fund is designed as a long-term investment with returns that can be calculated in decades, and the Fund's resources will be reinvested. The Fund's countercyclical nature is important - it will invest even if other private investors´ appetite to invest is weakened due to the unfavourable development of the business cycle. The Fund will significantly increase the Czech economy's investment capacity by tens of billions of crowns, thanks to the use of the leverage principle and the involvement of resources, including those from the European Investment Bank or from the Invest EU program. “We have a great opportunity to use the historically first dialogue between the government and the private sector to ensure the future prosperity of the Czech Republic. The prosperity of the country and the private sector are mutually conditional. We want to do business in a society that invests in its future, digitization and infrastructure and has a modern and functioning education system” said Tomáš Salomon, Chairman of the Board of Directors of Česká spořitelna.
Foundation and management of the Fund
The founder of the Fund will be the Czech-Moravian Guarantee and Development Bank. Investors will receive investment shares. The Fund will have a professional management that will respect the principles of a sound manager. Next to this, the National Investment Council, jointly occupied by representatives of investors and governments, will be set up with the participation of independent experts, whose function will be, in particular, to approve the Fund's investment strategy. “We are ready to take part in the long-term development of the Czech Republic in this new way and we appreciate that the negotiations are in the spirit of cooperation. With independent, professional and experienced management, the Fund could also attract other entities willing to finance projects from the private sector and from abroad” commented John Hollows, the CEO of ČSOB.
Memorandum is next
The Prime Minister further agreed with the banks that a Memorandum of Understanding between the Government of the Czech Republic and responsible investors, who will show interest in participating in the Fund's activities, will be prepared by the end of September 2019. The Memorandum, which will form the basis for processing a license application from the CNB, will anchor the Fund's mission, its governance and functioning mechanisms, the business model and the ways in which its mission will take into account the measurable social benefits of its supported investments and the position of responsible investor. “On a similar principle, Funds operate in Germany, Ireland, France or Slovakia, for example, and some of them have been in existence for more than 100 years. In this context, it is actually surprising that his Czech alternative began to emerge now. It is indisputable that in a responsible approach to Fund management, its investment activities will lead to a further increase in the standard of living of the Czech population” said Jan Juchelka, the CEO of Komerční banka.
The Memorandum will also include a conditional financial liability of investors of a total of CZK 7 billion linked to the fulfilment of the conditions for licensing the Fund under the Czech legislation.
The Fund is designed to be attractive to a wider range of investors, not only banks involved in its preparation, but also other banks, as well as investors from the non-banking sector. “An important condition for the future success of the National Development Fund is building it in professional terms according to the best corporate management patterns and with the long-term financial sustainability element associated with its investment strategy” concludes Pavel Štěpánek, Executive Director of the Czech Banking Association.