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Ambassador´s interview for Jargal Defacto

Ambassador of the Czech Republic to Mongolia, Jiri Brodsky's interview to Jargal Defacto on June 11 2020 on Czechoslovakian aid to Mongolia, economic changes of Czech since 1990, the current Czech-Mongolian economic relations and possible areas for further cooperation

JARGAL DEFACTO: Good evening, Sir

Ambassador: Good evening and thank you for inviting me. I was looking forward to this occasion.

JARGAL DEFACTO: Very much welcome. I’m very happy to invite you to the show. You are representing a country that is very close to Mongolia and also to my family. I lived there for five years. My daughter’s first language is Czech and my wife speaks Czech. Tens of thousands of Mongolians have been to former Czechoslovakia with which we had established diplomatic relations seventy years ago. So we are celebrating this big event this year. Let’s talk about what has been done and what is being done today and what we can do better next time. So please welcome and let’s start. If you brief us a bit about what was happening during the diplomatic relations establishment.

Ambassador: Thank you once again for your kind words. Of course, I’m aware of your personal relationship to my country. It’s really an honor for me to carry the Czech flag in your beautiful country. You say it right. It was seventy years on the 25th of April, when we were celebrating the establishment of diplomatic relations between our two countries. It was Czechoslovakia at that time. Given the fact that the Czech Republic and Slovakia are successor states to Czechoslovakia, we do celebrate this event. We think that it should be celebrated and there are many reasons to celebrate.

JARGAL DEFACTO: It is a double celebration.

Ambassador:          It’s a double celebration. Slovakia is celebrating it as well, but they are covering Mongolia from Beijing. So the circumstances are quite different. Since 1950, our relations have been very intensive. You know that the Czech geologists got very involved in Mongolia soon after the establishment of the diplomatic relations. They contributed to the fact that the Erdenet Mine, the depository of copper and molybdenum was discovered in Erdenet. They also were involved in mapping of your deposits across the country.

JARGAL DEFACTO: That’s something not everybody knows. Current Erdenet copper which is making substantial contribution to the economy was first discovered as molybdenum and copper deposit by the Czech scientists in late 60s, right?

Ambassador:          That’s correct. Yes.

Ambassador:          There were hundreds of Czechs present in Mongolia at the time. They were also involved in constructing important public buildings, for example, the first hospital in Ulaanbaatar, the building in which the Civil Service Council is located, and the cement factory in Darkhan. Generally, they were involved in the development and establishment of Darkhan city. They also built the post office building in Bayan-Ulgii. So we were involved in the construction sector too.

JARGAL DEFACTO: Because it is my town, and I have grown up here, I want to also specifically highlight, that at that time we called it black hospital, or black building. Hospital number one was a new standard of buildings, and had kind of new design. When you go inside and it was a different culture than the Soviet Union design. So we were always talking about this hospital system. I was really surprised, when I was in Prague, to see the similar approach to all the hospital. So the concept is different. Because, in mid-40s, Czechoslovakia was  number seven industrialized nation in the world at that time. It was one of the industrial centers of Europe, right? So that’s why this replicated later on, somehow on those projects you’re describing in Mongolia.

Ambassador:          Yes, you’re right. We were very involved in creating a solid base of the Mongolian shoe manufacturing and leather processing industries. Of course, because we were both Soviet satellites at that time, we were tasked to be friending with each other.

JARGAL DEFACTO: Union of Economic Integration. That was a different ideological set. However, Mongolia was happy to get your designs and factories. The then shoe factory is no longer a shoe factory building anymore. If you remember, what was the capacity of the shoe factory? I think it was three or four times more than the population. So I was thinking maybe they were exporting the shoes?

Ambassador:          Indeed. That was the intention. But given the fact that we were both Soviet satellites, and therefore, we were friending with each other more closely, Czechoslovakia was the second biggest trade partner for Mongolia after Soviet Union, constituting 6 percent of your foreign trade at that time. As a result, many Czech and Czechoslovak products known in the world became synonymous for particular products in Mongolia. Be it Jawa, synonymous with motorcycles, Tatra trucks, Bata shoes, Skoda buses, Karosa buses – Ulaan buses, and Skoda cars – very much known in Mongolia. Even the turbines for your power plants came from Czechoslovakia. I should like to mention one of the most important aspects of our relations and these are people to people contacts. Before 1990, more than 20,000 Mongolians studied at Czechoslovak universities. That, of course, is a tremendous asset in the bilateral relations because those people are still here. I also call them our Ambassadors to Mongolia. They speak or have some knowledge of Czech and Slovak language. They make a great difference to the bilateral relations until this day. There are many. I would not name them all.

JARGAL DEFACTO: People’s relations continue very successfully. Do you know how many thousands of Mongolians live in the Czech Republic today?

Ambassador:          Yes. It’s ten thousand Mongolian citizens living in the Czech Republic. It’s the biggest Mongolian community in Europe. It is also given by the fact that Czech economy was doing very well before the COVID pandemic. It had the lowest unemployment rate in Europe. The other side of the same coin is the fact that Czech companies, within a textbook case of open market economy, export oriented and export dependent country, are crying for labour force. That’s why the Czech Government decided to create a special regime, hiring labour force from countries that are close to us, not necessarily geographically, but in terms of history or civilizational space, language or simply knowing and having relationship to our country, and also assimilating very well in the country.

In this respect, Mongolia is a great success story. We are very pleased to have Mongolians living in the Czech Republic and making a great difference in more than fifty Czech companies as we speak, in food processing sector, in automotive and also in machinery production. Meat processing is also your comparative advantage wherever you go. So we take advantage of that. 1,200 Mongolian citizens are hired by the Czech government each year. This, of course, increases the Mongolian community in the Czech Republic.

JARGAL DEFACTO: Officially, 1,200 or so labour are exported from Mongolia to the Czech Republic every year?

Ambassador:          Yes and the Czech Embassy is processing the work permits, so it’s a big agenda for us.

JARGAL DEFACTO: Are there any particular qualifications for that?

Ambassador:          We are of course seeking qualified labour, but not only that. We are grateful to have Mongolian labour which is qualified in sewing, leather processing, meat processing and keen on working in the Czech Republic and getting some knowledge and specific expertise. Because one day they will be coming back to Mongolia.

JARGAL DEFACTO: Do they have particular terms?

Ambassador:          They work for two years and it can be prolonged.

JARGAL DEFACTO: Can it be prolonged again and again? Or just once?

Ambassador:          Yes, it can be prolonged again. It remains to be seen, how many times, but so far even the COVID crisis has increased the demand of Czech companies for labour force.

JARGAL DEFACTO: In that way, you can have also a lot of Mongolians, in particular, if Mongolians look for better jobs and salaries. Your country is one of the few European member countries that have their own currency. The most wondering point for me is that in the late 80s, when I was living in your country, 1 USD was 23 or so CZK. Today, it is almost at the same level. What is happening? What is the secret of you people having that strong currency all the time?

Ambassador: I think it is the tradition of a relatively conservative monetary policy in my country, dating back to the First Republic of Alois Rašín. I think that in economic terms, the flexible exchange rate is one of the most important economic variables. The fact that we have our own monetary policy and we can maneuver the exchange rate, should it be necessary, is a tremendous asset in the economy.

JARGAL DEFACTO: Does it harm somehow substantially the currency reserve of your central bank in that way?

Ambassador:          Not really. In the 1990s we had balanced budgets. This tradition was established by the then-Minister of Finance, and Prime Minister Vaclav Klaus. It was a very responsible monetary and public finance policy. I think this base is one of the main answers to your question. The Central Bank wasn’t pushed into printing out money or be flirting with devaluation. Of course, there’s one exception and that was the central bank´s intervention in 2013.

JARGAL DEFACTO: What happened?

Ambassador:          The bank worked with inflation targeting and it felt the need to intervene into the exchange rate.

JARGAL DEFACTO: What was the inflation rate at that time?

Ambassador:          It was around 2 percent, if I’m not mistaken.

JARGAL DEFACTO: Two percent? And you say it’s your problem. Here we are lucky we have one digit, which means nine. Which year did you become a member of European Union?

Ambassador:          In 2004.

JARGAL DEFACTO: Because you are a member of the EU, you’re obliged to have budget deficit less than three percent of your GDP, right? And you did not exceed it?

Ambassador:          Not so far. We have a very responsible policy in this respect as well. Legally speaking, we are obliged to adopt Euro as our currency. But in real terms, we are not in a hurry. This government is not going to do it. Despite the fact that we meet the given criteria, as you rightfully mentioned.

JARGAL DEFACTO: You are one of the few countries of Eastern block at that time which had access to the EU, but not to the euro. It somehow makes a different picture in reality and stability in the economy. What is the composition of your export, in the economy at large, to keep that balance and strong currency?

Ambassador:              I would start with the very industrial base, which you described, and is still there in the country. It dates further back than the 40s you mentioned. It’s the First Republic or before the First Republic, when we were part of Austro-Hungarian Empire. The Czech lands constituted two thirds of the industrial base of the Empire. That tradition is still in the country and very much present in our export, and also in our Czech-Mongolian relations. The Mongolian companies know too well that the Czechs can make a great difference in bringing in Eurostandard technologies, machinery and smart tech-solutions. That is the vital part of our export.

JARGAL DEFACTO: That impacted on our economy as well. We used to receive all these cars, equipment, Tatras, and buses. You talked about the industrial base that helped you to keep your currency strong up to now. The other reason is also often foreign direct investment. You allowed Germans to be with Skoda which became Volkswagen, retaining the Skoda name. Tell us about this kind of businesses attracting direct investment.

Ambassador: Yes, Skoda became a member of the Volkswagen family. Again, it was a success story. It was a very good decision, as I see it. Skoda Auto is a successful company being present in the world, surviving the current COVID era.

JARGAL DEFACTO: At that time Skoda was already a better car in Eastern Europe. Now with Volkswagen, it’s still competitive with Golf and other brands.

Ambassador:          What matters there is that it’s the Czech design, Czech expertise, Czech labour and even Mongolian labour in that company. Skoda Auto respectfully is looking at Mongolia. It wants to come back. It has found a competent local partner. We hope to see it soon.

JARGAL DEFACTO: It’s time we want to see. If you can mention any other success stories of foreign direct investment, could you please?

Ambassador:          You mean in the Czech Republic?

JARGAL DEFACTO: Yes

Ambassador:          Well, there are many Korean success stories. Again in automotive. We have Hyundai being produced in the Czech Republic. We are the biggest producer of cars and car equipment in Central Europe. We are the hub of automotive in Europe.

JARGAL DEFACTO: Do you have foreign banks?

Ambassador:          Yes, we do have foreign banks or respectively owners of Czech banks are abroad. When there was this crisis in 2008 and 2009, it proved that Czech daughters to foreign mothers in banking sector were healthier. There were many reasons for that.

JARGAL DEFACTO: If you can say, what was the total asset share of foreign banks in the country?

Ambassador:          This is an estimate. I think over eighty percent is foreigner.

JARGAL DEFACTO: So eighty percent of your bank owners are foreigners. You have sold your brand name Skoda. Although it is Skoda, it’s owned by Germans. Koreans do Koreans.

Ambassador:          By the way, Karosa bus is owned by Iveco, Italian company.

JARGAL DEFACTO: For example, Mongolians say that you are selling the country and foreigners are coming and buying the names. What is the mood of ordinary Czech citizens, not necessarily all around the country, about the fact that banks and car companies are owned by foreigners?

Ambassador:          Well, our ambition with the transition to democracy and market economy was to open up, liberalize, deregulate, and de-subsidize the economy. It was also connected with the fact that we were open to foreign investment. It was a success story for our country. It brought in foreign capital. It gave employment to Czech people. It brought fresh ideas, when it comes to doing things. So we are not in the complaining or crying mode in this respect.

JARGAL DEFACTO: That’s one of the differences between us.

Ambassador:          I should like to add that it’s also given by our geographical location. Simply, we are in the very heart of Europe.

JARGAL DEFACTO: Very central. Physically central.

Ambassador:          Yes, very central. It wasn’t possible for us to be an island which would protect itself from everything foreign or would close its borders and wouldn’t wish to become a member of European Union. This was out of question.

JARGAL DEFACTO: Brno is still part of the Czech Republic, right?

Ambassador:          Yes, that’s correct. It’s a very important part.

JARGAL DEFACTO: Why is it important?

Ambassador:          It’s the second biggest town and it’s very cozy and intimate. There’s a big university. The city is very lively with business and research. It’s worth visiting.

JARGAL DEFACTO: Let’s talk about the current trade situation and business between the two countries, which is not that much rosy as it was before. So please describe what it is now.

Ambassador:          Thank you for mentioning this topic. It is priority number one for the Embassy I have the honour to lead. If you consider the fact that we constituted six percent of your foreign trade before 1990, currently the annual trade volume is nineteen million USD only. So it’s certainly not something about which I’m dancing in the streets of Ulaanbaatar. On the contrary, we must re-double our efforts. We are now focusing on developing trade relations.

We are making an important transition from the period between 1996 and 2017, when we had Mongolia as a priority country for our development cooperation. We’ve realized important development projects in the country, worth more than 50 million USD – 59 important projects in agriculture, forestry, water treatment, energy, infrastructure development etc. We are now making a transition from “donor-recipient” headline of the relations, to “two sovereign business partners”, becuase we see it as a more long term relationship.

If you look at the trade balance between our two countries from 2006 and 2019, we are getting back to the good peak of 2012. What matters for the Embassy now is to bring these two lines together and that means also to inspire Mongolian import to the Czech Republic. Because the Czech Republic is your good friend in the European Union, you can use it as a gateway for your products into the Single market taking advantage of the GSP+ regime that allows importing 6,200 products customs free. The other task for the Embassy is to make this increase a trend of trade relations between our two countries. You mentioned hiring labour force. Yes, it is important, but it’s equally important to attract Czech investment to Mongolia and employ Mongolian people locally.

JARGAL DEFACTO: What kind of investment do we have so far?

Ambassador:          So far, the biggest investment is the real estate developer Finep building blocks of flats in Erdenet. It’s investment worth of more than 150 billion MNT. They are going to build 1,650 flats in Erdenet. As we speak, they are already building 20 houses altogether, out of which nine are finished. Fifty five new flats will be handed over this July. It’s a very good shopping window for Czech investment in the country.

JARGAL DEFACTO: It’s kind of complex where the shopping malls and others are all together.

Ambassador:          Exactly. It’s called Euro-Eco Tugul. I should also like to add that this company is making a good difference in Erdenet itself. It’s has reconstructed the main road. It is developing engineering network in the city. It’s a good story to tell.

JARGAL DEFACTO: It’s good and interesting. They may have also made the same road standard that is in the Czech Republic, which is fantastic. So that’s good standard for other road companies there. What else?

Ambassador:          We are now discussing a big investment in energy sector. That’s a complex solution of modernizing and bringing smart solutions to your energy grid. It relates to smart metering and we’re talking about an investment worth 70 million USD. So basically, three times of the current annual trade volume between our two countries.

JARGAL DEFACTO: What’s the total volume of this investment in USD terms?

Ambassador:          70 million USD.

JARGAL DEFACTO: What’s that about?

Ambassador:          It’s about bringing smart meters to Mongolia, not bringing them per se, but it’s about establishing a joint venture company here locally.

JARGAL DEFACTO: Bringing where? The point of this supply chain is?

Ambassador:          It would be both central measurement and end measurement. That means you would have smart meters on every radiator, basically if I speak about the entire project.

JARGAL DEFACTO: It’s in heating?

Ambassador:          Yes. But also in electricity. It starts with electricity.

JARGAL DEFACTO: Well, then it will help the system to be more efficient. Because we are losing so much. Very interesting. What else can we do? What stops us from doing that?

Ambassador:          An another important flagship of our relations in trade is in water treatment area. We have a very good Czech company, Khaanzaa, registered in Mongolia which has already realized tens of waste water treatment plants across Mongolia. The most recent example is a waste water treatment plant for the international airport in Ulaanbaatar. Another one and also the most modern one is the waste water treatment plant based on membrane system for Oyu Tolgoi. So these are very good references. You know that Czech companies contributed to the fact that one third of Ulaanbaatar has drinkable water. So we want to follow up on those development cooperation projects we’ve realized and see a commercial follow-up to them.

JARGAL DEFACTO: There’s a new Millennium Challenge project happening in Mongolia. Is there any hook or connection to that?

Ambassador:          Well, I will be talking to my American colleague in this respect. Certainly, we can take  advantage of what Czech companies have done and how they could be involved in this big project.

JARGAL DEFACTO: One thing was striking in Socialist system time. The Czech system of irrigation, water purification, and waste water management were always very efficient. It was causing every Mongolian delegation to raise their eyebrows, and say how can they do that at that time. So it was very efficient. Is there any other aspect that you think potentially we can develop further?

Ambassador:          We have something what we call “map of sectoral opportunities in the world.” It is so volumnous that we already carry it on such USB. It’s sector opportunities for Czech companies in every country of the world.

JARGAL DEFACTO: Well, it’s a very good thing for our promotion of foreign direct investment. I was in charge of that organization before 2000. This one is by each country where the Czech state has found a potentially good future.

Ambassador:          That’s correct. When you look at Mongolia, the sectoral palette of opportunities is very wide and very convenient for the Czech competitive advantages. That’s agriculture, mining, energy, water treatment, infrastructure development including general aviation, construction and defense industry. You know that the CZ weapons are well known in Mongolian police, border protection and other units of your defense industry. Healthcare is a very important sector we’ve been involved since the establishment of the First hospital and since its reconstruction. Seven hundred modern hospital beds have been delivered from a very important Czech company called Linet to Mongolia and we want to continue in that.

JARGAL DEFACTO: Out of these very interesting sectors, may I ask about the general aviation? What do you mean?

Ambassador:          It’s an excellent sector, where the Czech Republic is really a super power. We’ve been producing aircrafts for more than 100 years. We have a very competent Czech company building airports in the world, anything from the biggest airport to a modular airport and a regional airport. The company is very interested in developing your regional airports and transforming them into international airports.

JARGAL DEFACTO: When you said modular airport, that means they can be extended by the increase of our traffic, right?

Ambassador:          Exactly. And runway can be rolled out within a day, for example. They do offer very flexible key-turn solutions.

JARGAL DEFACTO: It can be extended depending on flights?

Ambassador:          Yes.

JARGAL DEFACTO: Okay. The last question about the planes. Do we have any commercially viable projects? Mongolia is a vast country. I cannot imagine the future of Mongolia without the general aviation. There are planes used for multi-purpose things. Particular emergency planes, for example. Any thoughts, any starts there?

Ambassador:          Yes. We already did a project together with the Civil Aviation Authority of Mongolia focusing on the system of pilot licensing, developing regional civil aviation and also focusing on how to use efficiently the current international airport, which will soon not be an international airport, but could be used for training etc.

JARGAL DEFACTO: There are so many things we could discuss. However, the time is very short. Actually, we’ve covered some of the bigger pictures. Now it’s the 70th anniversary. Probably after 30 years, on the 100th anniversary, someone will be sitting here and talk about a quite different level of cooperation. Ambassador, you’ve been doing a great job. I know that you also made an extension of your Embassy – comfortable for Mongolians, not standing outside in the cold streets, now more comfortable for them to come to the Embassy and wait for submitting their visa application. Your Embassy building is a different story. You built it, sold it and now you’re renting it. That’s one of the very interesting, short-sighted steps a country can do. Ambassador, it was very interesting to talk with you. I see this energy and enthusiasm. Thank you very much for bringing our two nations closer and making our Mongolians living in your country feeling more comfortable. Thank you, Sir.

Ambassador:          Thank you very much. You say it right. If I had been the Ambassador, when they were flirting with selling of the building, it wouldn’t have been be sold.

JARGAL DEFACTO: You wouldn’t not sell it. Thank you very much.

Ambassador:          Thank you.

 

You can watch the full interview from here.