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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: 061 - (23/05/02)

Peripatetic premier
The Czech prime minister, Milos Zeman, is an inveterate traveller. He went to Israel recently where he praised Sharon's policies to the skies, much to the pleasure of his host. Sharon is the great 'peacemaker' and Arafat the villain of the piece. The Czechs have been selling arms to the Israelis in large quantities since 1948 (when it was under Stalin's orders) to 'keep the peace.'
In mid-April Zeman went with a government delegation to Russia, accompanied by more than 60 businessmen. An agreement was reached on the repayment of Russian debt, which is being settled partly by the delivery of US$300-400m of military hardware and spare parts. But Russian nuclear fuel will also be forthcoming, worth US$200m. The Czechs are considering investments in several major Russian plants in an array of industries, mostly machine tools and energy.

Encouraging more FDI
But the Czechs are of course still primarily interested in attracting foreign direct investment (FDI) into their own republic. They have already become the site of over US$20bn, almost as much as Hungary, the front-runner in this line since 1989 in per capita terms in the former communist world, putting the Czech Republic at number two.
The Czechs have offered greenfield sites for FDI, with tax breaks and the like, including government subsidies in depressed regions or areas. The process has been accompanied by privatisation, which was particularly successful in the banking sector vital for financing complementary activities to FDI. The Zeman-led Social Democrats have been more active in this than were the conservatives in power under Vaclav Klaus, now the leader of the opposition. The duel between Zeman and Klaus dominates Czech political life.

Problematic privatisation
The Zeman government also oversaw the sale of the remaining stake of Skoda, the former arms works coveted by Hitler in 1938 and now an auto-maker for Volkswagen. But the record otherwise has been more suspect. The sale of state-owned utilities has been opposed on the grounds that they are natural monopolies. But in mid-term they kicked off a privatisation spectacular which, however, in the words of Jan Machacek, the columnist for the weekly Prague Business Journal, "is unbelievably disorganised, unprofessional, confusing and totally mismanaged." He attributes the change of policy to a desire of certain politicians and bureaucrats "to enjoy their power on the boards of partly state-owned companies" and "to scare off investors who already owned partially privatised companies like Czech Telecom." Machacek, recounts a host of problems with the privatisation programme, which has been one of the more corrupt in the advanced countries of Central Europe (Czechoslovakia had the highest living standards on the European continent in 1938 when it was delivered into Hitler's hands).
One capula maxima (giant hangover) of the Second World War is the issue of the Benes decrees at its conclusion, expelling three million Germans and Hungarians from the Sudetanland. The transfer of the Sudetanland to Germany in 1938 at the Munich conference led straight to annexation of the rest of Czechoslovakia in March 1939 and to the world conflict.
Edmund Stoiber, the Bavarian premier, who is the conservative candidate to be Germany's next chancellor, after elections in September, has taken up the cause of those Germans and Hungarians dispossessed in 1945 as Czechoslovakia reclaimed the Sudetanland. His wife is from one of the dispossessed families.
He is not committed to invoking the issue as a reason for blocking Czech entry into the EU, but has said that he will pursue it if he becomes chancellor. The European Parliament has asked a panel of experts to assess the compatibility of the decrees with European laws. Considering the number of member states that were victims of German aggression in 1938-45 it is unlikely that the panel would ask for drastic restitution of property.
Growth of GDP has recovered from a recession in the late 1990s and, if not spectacular at 2.5-4% per annum, is solid. The Czech Republic has excellent prospects ahead. 

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BANKING

EBRD to sell stake in Ceska Sporitelna

The European Bank for Reconstruction and Development (EBRD) has agreed to sell its full equity stake of 5.92 per cent in Ceska Sporitelna, the second-largest bank in the Czech Republic, to DIE ERSTE osterreichische Sparkasse Anteilsverwaltungssparkasse (AVS), an Austrian savings bank holding company. The sale follows an offer by AVS to all shareholders to buy their shares at CZK 375 per share. 
The investment was a good example of the Bank operating under its core mandate - promoting transition to a market economy through private-sector investment, said Noreen Doyle, First Vice President at the EBRD. "Ceska Sporitelna, having performed well in recent years following the purchase of a majority stake by Erste Bank, is now in a strong position to move forward without EBRD involvement and to provide a top quality universal banking service to its clients in the Czech Republic," Ms Doyle added.
The EBRD paid €67m for its stake in Ceska Poritelna in June 1998, prior to the bank's privatisation.
For further information contact Jazz Singh, EBRD tel: +44 207 338 7931 or e-mail singhja@ebrd.com.

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ENERGY

Unipetrol raises its stake in Benzina to 95.79 per cent 

Unipetrol has raised its stake in Benzina to 95.79 per cent from the original 82.44 per cent, having bought 13.35 per cent from its 100 per cent subsidiary Chemopetrol, Unipetrol spokesman Tomas Zikmund said without disclosing the price of the stake, CTK News Agency has reported. 
At the moment, Unipetrol is seeking to buy the remaining 4.21 pct in Benzina from Unipetrol's other subsidiary Paramo. Unipetrol will thus directly own 100 pct of Benzina. "It is better from the managerial point of view," Zikmund explained. The state-owned 63 per cent stake in Unipetrol should be sold to Agrofert Holding for EUR361m (Kc11bn) in line with December's decision of the government. The merger must still be approved by the Czech anti-monopoly office. 
US Conoco has shown interest in the stakes Unipetrol holds in Benzina and its subsidiary Ceska rafinerska. The talks have not been closed yet. The press has reported that the stakes are subject to appraisal at the moment but Zikmund said no information on the appraisal would be disclosed. 
Benzina owns 329 filling stations in the Czech Republic out of the total 1,965, ranking first in the fuel market. 

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ENVIRONMENTAL SERVICES

International Water makes a splash with Czech contract


After three years of trying, International Water has broken into the Czech Republic market by landing its first water services contract, the Prague Business Journal has reported.
The company, which counts US construction giant, Bechtel, among its major shareholders, has signed a 25-year lease to provide water services to Vodovody a Kanalizace Breclav (VaK).
International Water hopes the contract, which has been cleared by a general meeting of VaK Breclav shareholders, will serve as a launch pad to take on the French utility companies that have won most of the water services contracts put up for grabs so far by local water companies. 
"I thing it is good for the Czech Republic to see a new entrant," said International Water's regional manager, Alex Hewitt. "French water companies Vivendi and Ondea (former Lyonnaise Des Eaux) and their allies, already provide about two-third of the water services in the country."

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INDUSTRY

HTC Holding to pay 310m crowns for tractor-producer Zetor


Slovak firm HTC Holding will acquire the Brno-based tractor producer, Zetor, for 310m Czech crowns, the government decided on the recommendation of the bail-out agency, Czech Consolidation Agency (CKA), which owns 97.7 per cent of Zetor shares. Uzel Makina Sanayi of Turkey was another bidder for Zetor.
HTC Holding will undertake all Zetor obligations. The Czech firm has been battling financial difficulties for several years now, leading to a 19-month suspension of production, CTK reported.
Marta Tkacova, head of the office of HTC Holding's board, said that in the short run the company plans to avoid the threat of bankruptcy and continue with the present level of production and sales. HTC Holding will transfer the last of three instalments to CKA's account by June 20th, 2003.

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INSURANCE

KP's industrial insurance for sale


Komercni Banka (KB) has announced it intends to sell off the industrial insurance portfolio of subsidiary Komercni Pojistovna (KP) in a move which analysts have greeted as a sensible concentration on core activities, The Prague Business Journal has reported.
Pointing to the fact that KP's industrial insurance business accounts for just 8 per cent of its overall premiums and is only worth some Kc 200m (US$5.9m) analysts say the move makes sense as KB's new owner, French Bank Société Générale, does not usually deal with this type of insurance.
"This does not really fit in with Société Générale's core business," said Roger Gascoigne, a partner at KPMG. "Industrial and commercial risks are not really its speciality."
"They would need to invest heavily in developing it. It's not that big, so they're probably just concentrating on the products they have experience with," he added.
The news came less than two weeks after KB reported losses of Kc 700m for its insurance business for 2001. KB CEO, Alexis Juan, also announced a fresh capital injection of Kc 800m into KP and stressed that the bank will continue to supports its operations.
"I think that this move is a further step in the restructuring and stabilising of KP's business," said Jan Hajek, an analyst at Patria finance.
KB spokeswoman, Maries Ruzickova, said clients had been informed of the sale and negotiations were under way with other insurance companies. The sale of KP's industrial insurance portfolio should be completed by the end of June.
The insurance companies who could take over the business are not yet known, but two companies, Allianz Pojistovna and Ceska Pojistovna, said they had been contacted. Mirchal Urban, spokesman for CP, said that the offer was being reviewed, but could make not further comment. Allianz spokeswoman, Katerina Pira, said that the company will not put in a bid for the portfolio.

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MINERALS & METALS

LNM tenders offer for government stake in steel giant


Dutch company, LNM Holdings, recently tendered an offer for Nova Hut. This move now places one of the Czech Republic's largest steel makers on the path towards private ownership, New Europe has reported.
"We made an offer for the government's entire share," LNM Holding spokeswoman, Annanya Sarin said in London.
The National Property Fund (FNM), a government holding company, owns a 49 per cent shareholding in Nova Hut, while another 18.25 per cent block of shares are held by investment bank, Credit Suisse First Boston. An FNM spokeswoman informed that the two blocks are being offered as a single package.
The privatisation committee overseeing the Nova Hut sale was scheduled to discuss the offer in late April. Apart from the price, speculation surrounding the offer from LNM Holdings has concentrated on the conditions that have been, or will be, figured out between the company and the government. In particular, this concerns future steel production and jobs at the giant Ostrava steel company.
Deputy Industry Minister, Frantisek Kubelka, said the government prefers to see Nova Hut and fellow state-owned steel maker, Vitkovice Steel, owned by the same company. This is still a possibility following the government decision to sell the state's majority share in Vitkovice Steel to Osinek, an FNM unit.
However, Sarin hinted that government conditions over the Nova Hut privatisation will be looked at sympathetically.

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RETAIL INDUSTRY

Tesco looks for a lift with private label


Tesco the fourth-largest retail chain in the country has launched a campaign to introduce its new private label brand and has reduced the prices of its most popular products in an effort to move up the retail ranks. The UK-based retail giant unveiled its new private retail brand in the Czech Republic at the beginning of April. Fresh and non-perishable foods, textiles, pharmaceutical and consumer goods will be marketed under the Tesco brand. The company plans to add more goods to the brand in the future, the Prague Business Journal has reported.
The Czech retailer's turnover was Kc18.5bn in 2001, compared to Kc15.8bn in 2000, and while analysts regard the company's recent steps as logical, they do not expect changes in the retail chain's ranking.
"At present, Tesco has a very good and sophisticated strategy to represent its brand, but I do not expect major changes in the top retails group ranking," said Tomas Krasny, an analyst with Prague-based INCOMA Consult. Demand for the private label might increase sales of selected goods like pasta but only in the long run, said Jana Myskova, retail analyst with market research institute, GFK Praha.
According to an INCOMA Research survey, the ranking of the retail chains in the first eight positions has not changed since 2000 and no new company entered the top 10 list, which includes Makro Cash & Carry in the No.1 spot with turnover last year of more than Kc32bn; Ahold Czech Republic at No.2 with Kc 29.6bn; and REWE, which operates Penny Market and Billa, at No.3 with a total turnover of Kc 21.3bn.
"The number of customers buying private label brands has increased from 52 per cent in 2000 to 64 per cent in 2001," said Tomas Drtina, managing partner with INCOMA Research.
In an earlier move last February, Tesco Stores CR lowered the price of 1,000 of the top-selling products in its nine hypermarkets and six departments stores.
The challenge for the retail chain in introducing the new label is differentiating the group's own brands from that of its competitors and making them profitable, said Rob Clark, ACNielsen manager for retail serves and category management for Central and Eastern European countries.
But the more important issue might be the quality of the label. "The brands are of different levels, and there has been no analysis comparing quality and price of these labels," Drtina said.
To boost the marketing of the new brands, Tesco Stores CR/SR hired a new PR agency, Mozaic Strategic Communications, said the head of Tesco's corporate affairs, Martina Mermakova. Tesco's advertising agency is Low Lintas GGK.
This fall Tesco, with more than 6,500 staff in the Czech Republic already, is scheduled to complete its biggest project, Tesco Letnany Obchodni Dum, a hypermarket complex covering a total area of approximately 52,000 sq.m, which will be located on the outskirts of Prague.
Tesco posted a pre-tax group profit of £1.2bn, up 14.1 per cent for the last financial year (ending February 23rd) according to a news release. With group sales of £25.7bn, up 12.7 per cent, the company says it will create another 21,000 jobs worldwide this year.

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TOURISM

Brno working hard to lure visitors to city centre


Despite the some 400,000 tourists visiting Brno each year, making the city the Czech Repulic's third most-visited destination after Prague and the Krkonose mountains, the south Moravian capital is intent on improving its ability to attract, New Europe has reported.
City councillors are now studying an Avedon report pointing out the city's selling points, such as above-average accommodation in all price categories, good transport links and historic attractions.
However, the city is battling to attract high tourist numbers from Austria and Slovakia, as foreign visitors are lured to the large shopping centres on the outskirts of the city but never actually get to the centre.

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