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czech republic

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  CZECH REPUBLIC

REPUBLICAN REFERENCE

Area (sq.km)
78,600

Population
10,264,212

Density
(per sq.km)

132.2

Capital
Prague

Currency
Koruna

President
Vaclav Havel

Private sector
% of GDP

80%

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Background:
After World War II, Czechoslovakia fell within the Soviet sphere of influence. In 1968, an invasion by Warsaw Pact troops ended the efforts of the country's leaders to liberalize party rule and create "socialism with a human face." Anti-Soviet demonstrations the following year ushered in a period of harsh repression. With the collapse of Soviet authority in 1989, Czechoslovakia regained its freedom through a peaceful "Velvet Revolution." On 1 January 1993, the country underwent a "velvet divorce" into its two national components, the Czech Republic and Slovakia. Now a member of NATO, the Czech Republic has moved toward integration in world markets, a development that poses both opportunities and risks.

Update No: 059

The Czech premier, Milos Zeman, made a striking contribution to world affairs in late February, going to Israel, where he emphatically endorsed Sharon's policies towards the West Bank and Gaza, while loudly denouncing Arafat and the PLO. The Israeli connection has long been important to the Czechs, who sent Israel arms in 1947-8 as the state was founded, in agreement with Stalin, a service that has never been forgotten.
The Czechs were partly just paying out the British, who had sold them down the river at Munich in 1938. But there is a genuine sympathy for the Jews in the Czech Republic, which, unlike Slovakia or Poland, had a record of protecting them in the Second World War. Bohemia was the most advanced region economically in the Austro-Hungarian empire and a cosmopolitan place, where tolerance came naturally, except towards the Roma that is. Gypsies are still having a hard time in the Czech Republic and constitute its one grave ethnic problem. They live in ghettoes, which in Czech eyes are largely unkempt and sources of crime and disease. 
The government is well aware that EU entry requires a tolerant attitude towards minorities and is doing its utmost to moderate anti-Roma sentiment. But prejudices are the most difficult thing for a government to change. They can be stoked up from above, but not put out. Nevertheless, laws to lessen discrimination are in place and should satisfy Brussels.
Other aspects of history are haunting the Czechs right now, namely the long occupation by the Soviets. After the suppression of the Prague Spring in August 1968, the Czechs had to endure the harsh, repressive regime of Gustav Husak, a grim, if able, figure. Two high-profile trials are taking place involving former secret police (StB) officials. The files of the StB may be thrown open to the public, allowing people to know who was snooping on whom. The lower house of parliament has just passed a bill to this effect. At present people may consult StB files, but with the names of collaborators informing on them blackened out. If passed by the upper house and signed by the president, the bill will enable people to see those names, a truly explosive development, in any country.
The problem is that it will release vendettas between whole families that would be highly divisive. Those guilty were not the main perpetrators of crimes under communism, even if obviously nasty bits of work. The chief culprits are under investigation of Crimes under Communism set up seven years ago. It has launched legal proceedings against 170 suspects linked to 82 cases. Most of the suspects are former StB officials, communist police investigators or border guards. Seventy-three people have been indicted and only nine convicted. 
They were usually harassing signatories of the dissident Charter 77, a declaration calling on the regime to respect human rights, whose 25th anniversary of publication came in January.
The authorities at the time instigated an Anti-Charter, which many were forced to sign under threat of losing their jobs. The whole murky story is obviously unsavoury in the extreme. To tell it all now could be cathartic for some, but have a debilitating effect on public morale. After all, most of the real culprits will escape, top henchman and functionaries of the regime. There are many ex-dissidents who are against the idea of the bill passing into law for that reason. 'Let by-gones by by-gones' is their motto.
The Czechs have other things on their minds too. The coming entry into the EU preoccupies them fully. They need to re-align their laws with the acqui communitaire. They have closed 19 of the 29 chapters, but need to do more so soon. But this is highly likely.

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AUTOMOBILES

CzechInvest looks to set up 3rd carmaker

The Government agency, CzechInvest, has been developing a project that looks forward to the construction of the Czech Republic's third car producing plant, besides Skoda Auto and the new joint venture of Toyota and PSA. CzechInvest CEO, Martin Jahn, told CTK News Agency that the Czech market was big enough for three passenger carmakers with annual output of 200,000 to 600,000 vehicles. 
The agency is currently looking for suitable sites for foreign investors. Czech Invest was recently reported to have approached Korean car producer, Hyundai, which however denied that it would build a plant in Europe. The Czech Republic had also earlier sought two major investments from carmakers BMW and PSA Peugeot Citroen-Toyota. The first project, worth DEM 1 billion, was awarded to Leipzig, Germany, beating Kolin in Central Bohemia.
However, PSA selected the Czech town for its plant project worth 1.5bn Euros. A total of 456,927 passenger cars were produced in the Czech Republic in 2001, with a majority of the output coming from Skoda Auto. Of that total, 375,862 cars were exported and 152,141 vehicles were sold on the domestic market.

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AVIATION

Cabinet to borrow money from Czech Export Bank for purchase of fighters

The government decided to get a bridging loan from the Czech Export Bank (CEB) for the funding of the purchase of 24 Jas-39 Gripen fighters, produced by the British-Swedish consortium BAE-Systems/SAAB, Defence Minister Jaroslav Tvrdik told journalists, CTK News Agency has reported.
Although the cabinet will ask the Chamber of Deputies [lower house of parliament] to arrange for a loan amounting to the total of 58bn Czech korunas, it assumes that it will only spend one-third of the sum, Tvrdik said. Tvrdik said that the government wanted to use privatisation proceeds for the repayment of the loan. "The funding costs are cheaper by about 20bn korunas compared to the current state. This reduces the need for getting a loan just to the three-year bridging loan," he said.
The total costs of the purchase of the 24 jets along with equipment and their thirty-year operation will not exceed 100bn korunas, Tvrdik said. The aircraft alone will cost 50-52bn korunas, while the armament for the fighters and L-159 aircraft will cost 7bn korunas and operating costs about 1bn korunas annually, he added.
The government wants to only use the loan from CEB for the payment for the fighters which would have to be made by the end of 2004. It is assumed that the sum will amount to about one-third of the 58bn korunas, which is the planned price of the aircraft and its armament. The cabinet wants to return the sum to the bank with privatisation proceeds with a single payment or gradually by the end of March 2005, Tvrdik said. "It is still being negotiated on what will be paid in the individual stages of the contract," Tvrdik said, adding that the final sums would be disclosed after the contract is signed...

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CONSTRUCTION

Deal signed on reconstruction of Stvanice


A piece of Prague and the Czech Republic's sporting heritage is destined to disappear and be replaced by a swimming pool and leisure centre.
Stvanice Island's most famous landmark - the ice-hockey stadium on the island in the Vltava is showing signs of its age. Even worse, the 70-year-old building represents a safety and environmental hazard according to Prague City Council, the Prague Business Journal has reported.
The city formalised its decision to demolish the stadium when it signed an agreement in February with German company MerdianSpa, which will begin work in 2003 on a Kc 1bn swimming pool and leisure centre complex. MeridianSpa won the council tender in 2000 for developing Stvanice Island.
The current Stvanice is a ghost of its recent past when it was the site of World championship ice hockey games and top tennis matches, sometimes featuring former 50s Wimbledon champion, Jaroslav Drobny.
The Czech Republic's first lawn tennis club was founded there in 1893. In 1931 an extra attraction, the sport of ice-hockey, was added.
HP Apex, the hockey club that signed a deal with the stadium owner, Prague City council, in 1998 to rent the stadium of Kc 1,000 a year, would have liked to see a different outcome for the leisure development. "We would like to reconstruct it, but we have no money," said PetrDolezal, the director of HC Apex. "When we rented the stadium in 1998 it was almost destroyed. We know that the City of Prague has no money to help us, but the question is - why was it so destroyed before 1998? When we came here the stadium was a hostel for homeless people." Before Apex took charge of the stadium, the owner was sports club TJ Bohemians, and before that, the state.
No exact date has been set for the stadium's demolition. The new plans for the island include a relaxation area and places for sport, cycling and skateboarding. In the eastern part of the island an ice-skating rink is planned - so at least one link with the past will be retained.

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ENERGY

Problems in store for CEZ privatisation

Electricite de France (EdF) announced it will not offer a better bid to obtain a stake in the Czech group CEZ, according to New Europe. As a result, it is highly unlikely that the privatisation of CEZ will be carried out before the upcoming general elections, slated for June. The Czech government has been in talks with several investors seeking to buy the near 68% share package in the Czech group. The initial tender did not succeed in drawing bids of at least 200bn Czech crowns (US$5.5bn). The French utility group submitted the highest bid in the tender. However, its decision to withdraw from the tender clearly hints at a failed tender unless the government backs down and cuts the sale price or conditions. Both Italian energy group Enel and Spanish utility Iberdrola submitted bids in the tenders second round. 
They too have stopped discussions with CEZ. The Czech government has spoken with German E.ON and British International Power, which jointly submitted a non-compliant bid in the tender's first round. The Czech Finance and Industry Ministries have been given a time limit to decide on a buyer. An agreement has not yet been reached because the ministry is not budging on the sales price, nor is it willing to ease up on the tough conditions. Another factor is that it has failed to provide secure guarantees about the operability of CEZ's two nuclear power stations. The ministry is mulling over plans to consolidate the power industry, which will force any future government to offer it again as one package, the reports said.

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FOREIGN ECONOMIC RELATIONS

Czech company expects order from British Royal Navy

Submarines for the British Royal Navy will be probably produced in Silesia [which is northern part of the Czech Republic], with the production starting once the Czech Army buys 24 Gripen fighters from the British-Swedish consortium BAe Systems - Saab, Czech Radio1 has reported.
The British Royal Navy has shown interest in metal sheets for submarines and cruisers produced by the Vitkovice Steel company. The Vitkovice Steel spokeswoman, Lenka Hatlapatkova, has confirmed for the Radiozurnal programme that a contract is very shortly to be signed on supplying some 14,000 tonnes of material for British submarines.
Hatlapatkova said: "We have recently held intensive talks with the Bae Systems on supplying ship metal sheets to Great Britain and we expect to conclude a contract with this company in March." 
However, the BAe Systems have been unwilling to comment on the contract. 
On the other hand, before leaving for Great Britain, Czech Defence Minister Jaroslav Tvrdik confirmed that he would hold talks on specific ways of fulfilling offset programmes, linked to the purchase of Gripen fighters. 
Tvrdik said: "The important thing for us is to be sure that this does not concern merely one commercial supplier or a consortium of several suppliers - but that this guarantee is really provided by the British government."
Asked whether the Vitkovice contract for British submarines is really to be signed soon, he reacted very carefully, as the entire matter has been expected to be kept confidential.

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FOREIGN INVESTMENT

CzechInvest heads east for Japanese investment

Finance Minister Jiri Rusnok and CzechInvest director, Martin Jahn, travelled to Asia recently to drum up interest in the Czech Republic among potential investors there, a move welcomed by investment analysts who say it will help spur further foreign director investment (FDI), the Prague Business Journal has reported.
The trip took place amid reports that the Japanese firm, Mitsubishi Aluminium, a sheet metal producer for the automotive industry, is looking to invest in a production facility in Eastern Europe. A part of Japan's huge Mitsubishi group of companies, Mitsubishi Aluminium wants to invest in either Hungary, Poland or the Czech Republic, according to a company spokesman. A decision to invest in the Czech Republic would mark the fourth in a succession of recent investments by Japanese car parts manufacturers following the December decision by PSA/Toyota to invest L1.5bn (Kr47.73bn) in an automobile plant in the Central Bohemia city of Kolin.
Jahn of CzechInvest, the state-funded investment promotion agency declined to name any of the companies he and Rusnok will hold talks with, but automotive parts suppliers will take top priority.
The tour will take Rusnok and Jahn to Japan, South Korea and Hong Kong, where CzechInvest will open its eight international office. Hong Kong, said Jahn was chosen for its political neutrality in the region, but the main focus of CzechInvest's promotional pitch will be Japan, South Korea and Taiwan.
In addition to car parts makers, John said another key area on CzechInvest's list is the electronics industry. "We see a great potential for this sector, and we will be meeting with as many companies as possible," he said.
"But this trip is not about concluding any specific deals," Jahn went on to say. "It's about making contacts and increasing our visibility. There will be no immediate results, but it will pay off in the long-term."

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INDUSTRY

Czechs industrial output up as other unhealthy trends appear

Industrial firms in all neighbouring countries are experiencing problems. Only the Czech industry continues churning out ever more goods. There is one snag, however: The goods are not being forwarded to customers but stay in warehouses, 'Mlada fronta dnes' has reported. 
In December 2001, industrial firms managed to produce 9.6 per cent more than in the same month a year earlier. They earned 4.5 per cent less, however. Since [the collapse of communism in] 1989, Czech firms' warehouses have never been as full as they are now. "The gap between output and proceeds is without precedent in the Czech industry's history and indicates that inventories of unsold products must have gone up by about 12bn korunas, says HVB Bank's economist Pavel Sobisek. 
This is not the only sign that the development of the Czech industry is unhealthy. Labour productivity declined by 2.9 per cent in December, even though Czech industrial firms have shed 19,000 people over the past year. January 2002 saw the steepest month-on-month rise in unemployment in the country since 1989. Its rate went up from 8.9 per cent in December 2001 to 9.4 per cent. Wages in industrial companies increased by 4.8 per cent and wage growth was thus 0.7 per cent more than the growth of prices. 
Unless demand recovers very quickly, the full warehouses and the gap between labour productivity in decline and wages growth could spell future financial problems for firms. 
In the year 2001 as a whole, Czech industrial firms' output was 6.8 per cent higher than in the year 2000. Labour productivity went up by 5 per cent and average wages by 6.2 per cent. Real wages rose by 1.4 per cent.

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TELECOMMUNICATIONS

Czech investors interested in Romanian telecommunications

The Romanian telecommunications market has become attractive to Czech investors, the daily 'Ziarul Financiar' wrote on 5th March, reporting the intention of the board of the Czech Optokon Co Ltd optical fibre maker to open an office in Romania. 
Optokon is planning to realise a business turnover of US$500,000 in the first year of activity in Romania from direct sales of technical assistance and the output of its laboratory for passive optical interconnection elements, to be opened in the last quarter of this year, Rompres News Agency reported. 
"Optokon Romania's market strategy is bi-directional. The first direction is towards the distribution of optical fibre interconnection elements for system integrators, as well as the supply of technical support and assistance to these operators for the creation and implementation of optical communication systems. The second direction is towards the Internet Service Providers, CA-TV companies and owners of large optical fibre networks. 
"Optokon is aiming to become a partner to the development and maintenance of the optical communications system, by providing interconnection solutions, equipment for installation, testing and maintenance of optical fibres," says Optokon Romania country manager Cristian Gheorghe.

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