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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: 067 - (28/11/02)

The Czechs are the luckiest of the Central European nations. They are the truly central people in the region. Indeed, a little known fact is that Prague is further west than Vienna.

Coming in from the cold
It is an astonishing and shameful memory that the UK Premier Neville Chamberlain could say in September 1938, just as he and the French premier Daladier were about to sell out Czechoslovakia to Nazi Germany, that it "is a faraway country about which we know nothing." That was, indeed, true of himself; but then he knew next to nothing about the rest of Europe or the world either.
Czechoslovakia was at the time the only democracy in Central Europe, with, at the time , the highest standard of living on the continent. It had the best arms industry in Europe in the Skoda Works. All this was handed over to Germany in the infamous Munich Pact. The Europeans might, but the Czech have never forgotten this terrible tragedy.

Now the Czechs are NATO members
It is an extraordinary fact: but the Czechs shorn of the Slovaks since 1993, are now bone fide Westerners. They joined NATO in 1999 and are poised to join the EU in May 2004. The obvious truth is generally recognised; this is potentially a great people and a great nation once again.
The leaders of the 19 NATO countries gathered on 21st-22nd November in Prague. The Czech military's Nuclear, Biological and Chemical (NBC) defence capabilities, rather than its struggling air force, was the focus of a display for the media and the assembled leaders.
Czech officers, defence planning officials and diplomats said the Czech example offers lessons to the seven East European countries that, during the summit, were formally invited to join NATO. Like the Czech Republic, they are former communist states, most with small populations and struggling with limited budgets to replace and upgrade Soviet-era equipment and inefficient military command structures.
As part of their contribution to NATO's military might, countries can compensate for a lack of manpower and high-tech weaponry by adopting specialised "niche" expertise, military officers told them in Prague. "I believe after three and a half years in NATO, we are finding our position as a small country which is able to contribute something meaningful," said Jan Vana, director-general of the Czech defence department's strategic planning division. "This is something the new members may want to consider."

A powerful symbolism
The addition of seven new members (the Baltic states, Slovakia, Bulgaria, Romania and Slovenia) may not contribute much to the military clout of NATO, even if it puts 44 million more people under NATO's nuclear umbrella. But its historical significance is enormous.
The selection of Prague for the summit was immensely symbolic. It was here that the Warsaw Pact met to dissolve itself in 1991 shortly before the USSR itself was disbanded.
Few of those attending can have failed to appreciate the import of choosing the Czech Republic as the host country. Never again will the West engage in appeasement. Just as Churchill is the icon of the Republican right and the enthusiasts for a new 'pre-emptive' US foreign stance, intervening to remove dictators before they can do further mischief, so the sell-out of Czechoslovakia in the Munich Pact of 1938 was the ultimate blunder and betrayal, never to be repeated. Prague is back where it always belonged, centre stage once more.

Presidency for grabs
Vaclav Havel, the distinguished playwright and former dissident, is bowing out as president in the new year. The post is a largely ceremonial one, but its occupant, if an accomplished figure, as Havel undoubtedly is, can have clout in the political process in the Czech Republic. The perks that go with the job, including the glittering baroque palace in Prague's central Hradcany Square, are considerable.
For these reasons Vaclav Klaus, the erstwhile leader of the conservatives, covets the job. But the ruling social democrats also want the post filled by one of their own. Milos Zeman, the former premier, is likely to stand on their behalf. The contest between these two old rivals has dominated Czech politics for a decade and a run-off between them for the presidency would be a fitting denouement.

New man at the helm
The job that really matters is of course the premiership and Vladimir Spidla is the key figure at the helm of the state. He is steering a median course, avoiding the Thatcherite excesses, as he sees them, of Klaus, while promoting reform. 
The country had a nasty jar in August when torrential flooding brought disruption to Prague's medieval quarter and to many rural regions. Up to 150,000 people had to be evacuated.
The reconstruction bill will amount to 90 billion crowns or more. This should give a fillip to the economy. But a lot depends on how it is financed.

Economic strategy still uncertain
The government is not yet committed to one course of action to finance reconstruction. Returning to its radical populist instincts is one option, soaking the rich or better-off by a tax hike. 
This has been widely criticised. For it could lead to a brain drain abroad. No longer are Czechs restrained from foreign travel, while their language skills are generally high, especially among the upper strata, who speak German as a matter of course and usually excellent English too.
Another way of funding the reconstruction would be 'flood bonds,' issuing bonds for reconstruction. The same people would be likely to be involved, but as investors not tax-payers, with foreigners chipping in too. Such is the course being urged on the government by orthodox financiers. It should be evident which way it will jump before the end of the year. 

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AUTOMOBILES

Czechs lose to Poland on Kolin car engines

The Czech Republic received the official world recently that it had lost out on the opportunity to build the diesel engine that will be fitted into the cars that roll out of the joint venture PTCA (Toyota-Peugeot Citroen Automobile Czech) a factory at Kolin, the Prague Business Journal.
Toyota Motor Corporation announced that it had selected a site in southwest Poland to build the Kc5.1bn engine plant although government foreign investment promotion agency, CzechInvest had tried to tempt the company to choose the Czech Republic. The engine plant will employ 350.
"We offered a number of sites in the Czech Republic," said CzechInfest director, Martin Jahn. The Czech chances of being selected were always slim because Toyota already had a gearbox and engine facility in Poland, Jahn said. "We would have liked to have it here, but the synergies with the existing plant were obvious and the chances of us winning this were always low," he added.
Engines from the new Polish plant near Wroclaw will supply Toyota production lines in Turkey and the UK as well as the TPCA joint venture in the Czech republic.
The existing gearbox and gasoline engine plant in Walbrzych, southern Poland, which started operations in April, will also supply Kolin once it starts production in 2005.
Meanwhile, the general manage of Skoda Auto, Vratislav Kulhanek, harshly criticized CzechInvest's incentives to attract TPCA to Kolin, in particular the alleged 10-year tax holiday that would benefit the French-Japanese producer.
"I like the way CzechInvest operates, but recently it has been over the top. Skoda was freed from paying taxes for five years when we were investing and not earning. Every plant needs five years, but 10 years, that is too strong to swallow," Kulhanel told Mlada Fronta Dnes.
But CzechInvest's Jahn said Kulhanek miscalculates the amount of aid that TPCA stands to benefit from. The Kc200bn to develop the Kolin site was for the whole 2200-hectare site, and TPCA will only be occupying 130 hectares of it, he said. The rest of the site would be occupied by suppliers.
The total aid package for TPCA is unlikely to exceed 15 per cent of its investment because of strict European Union rules on incentives for car production, which will come into force next year and apply to the Kolin site, Jahn added. The exact percentage has not yet been settled, he said. One result of this will probably e that TPSA will not be able to claim the full 10-year tax holiday but will be restricted to a much shorter tax vacation. "It will be much shorter than 10 years," Jahn said.
Poland and Hungary are still offering higher investment incentives than the Czech Republic although the Czechs started relatively late with their inducements to foreign investors, Jahn said.

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ELECTRONICS

Flextronics may have lined up successor

Multination electronics company, Flextronics International, which is to wind down in Brno plant and lay off over 1,000 employees by December, says it may have found replacement investors. 
Flextronics says it has lined up three potential investors from the electronics sector that could take its place in the technology park on the outskirts of the city. "But we have problems because interested firms aren't sure of investment conditions in the region," CEO Hugh Kelly said. He wouldn't reveal the names of the interested firms.
But CzechInvest spokeswoman Pavlina Bolfava and Brno deputy chief magistrate Pavel Kuba said Kelly's reference to "problems" is merely a cover for the company seeking to protects its own interests. "Flextronics doesn't want to encourage a direct competitor here, and that makes dealings more difficult," Kuba said.
Since its arrival in the Czech Republic in 1999, Flextronics has obtained around Kc100m in various state incentives and tax breaks. The biggest part of the incentives was an exemption from customs charges on imported goods and income tax. The state also provided a grant of Kc 1.5m for staff training.
It originally pledged to employ 3,000 people by 2005 in Brno but this summer announced that it was virtually closing the plant, leaving a skeleton staff and concentrating its regional activities in Hungary.
Some ex-Flextronics workers could find jobs in the new plant of the company, Norgren, a unit of the multinational IMI Group. The company plans to employ up to 400 people by the end of 2003 in a Brno plant, which opened in late October. The company produces pneumatic cylinders and valves and currently has around 40 employees. That number is expected to grow to some 160.

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FOREIGN INVESTMENT

US firm wins exclusive rights in Skoda tender

Vladimir Dolezal, supervisory board chair at bailout agency CKA, US investment firm Appian Group has been chosen as a potential investor in Skoda Holding, and has thus been granted exclusive negotiation rights for additional talks on the purchase of 48% of Skoda Holding. Appian is required to submit a binding bid by November 14, with the purchase contract expected to be ready for signing by year's end, Bluebull reported. The American company was the only bidder fulfilling all CKA-set criteria, Dolezal noted, as the other two suitors - Prague based Inekon Group and Atlantik FT of entrepreneur Karel Komarek - reportedly did not submit documents on secured financial sources for the transaction. Appian Executive Director, Antonin Kolacek, had earlier said his group, which already owns MUS mine and three heating plants in the Czech Republic, had over 1.5bn Czech crowns available for the purchase of Skoda Holding. Appian is also in talks with Skoda Energo regarding the construction of a local thermal power plant with an output of 2 X 300 MW, valued at around 30bn crowns.

LG Philips mulls production move to Czech Republic

Electronics giant, LG Philips, is looking into a possible switch of production to the Czech Republic. According to The Western Mail, the plant considering the move is Newport, Wales-based LG Philips - a joint venture of South Korean LG Electronics and Dutch concern Philips. Transferring production from the Black & Decker firm to the Czech Republic at this time would deal a second major blow to the UK job market in favour of the Czech Republic, Bluebull Reported.

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MINERALS & METALS

LNM tenders 1bn crown bid for Vitkovice Steel

Following a purchase by Osinek, the subsidiary of the National Property Fund (FNM), in May this year of Vitkovice Steel for 3.31bn Czech crowns from the Vitkovice parent company, LNM Holdings of the Netherlands is now offering one billion crowns for the concern, New Europe reported. 
Osinek has a bank loan totalling 1.8bn crowns for the firm's financing. Sources close to the talks told CTK recently that LNM wants to pay an additional 500m crowns for financing the steel maker's operations. In June, the Czech government granted LNM a six-month exclusivity to submit bids for the purchase of 98.96% of Vitkovice Steel and a 46% stake at the OKD mining company. In line with the June purchase contract with the FNM, the Dutch firm will acquire 67.25% of Nova hut's shares, and acquire Nova hut for US$9m after fulfilling all conditions. While LNM Holdings representatives successfully completed a three-week due diligence at Vitkovice Steel at the end of September, OKD-owner Karbon Invest did not make it possible for them to conduct due diligence at the firm. Industry and Trade Minister, Jiri Rusnok, had earlier stated: "I warned LNM that it will be very difficult and tried to persuade them not to launch the talks."

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