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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: 060 - (18/04/02)

The Rivals
Two figures have dominated Czech politics since independence in 1989 and the constitution of a separate Czech Republic in 1993.One is Vaclav Klaus, the head at present of the opposition, but premier for most of the 1990's. The other is his long-time adversary and foil, Milos Zeman, who has since become premier in his place.
The president throughout this time has been Vaclav Havel, who is certainly stepping down this year. A new era for Czech politics is dawning. 
The Social Democrats (CSSD) in office are unpopular; but so are the Conservatives (ODS) of former premier Vaclav Klaus. The country might be about to see a political re-alignment at forthcoming elections to parliament, due in mid-2002.
The beneficiary of disaffection with CSSD may not be Klaus, who is widely distrusted, but the leader of the 'real opposition,' the newly-elected head of KDU-CSL, Cyril Svoboda, part of the Four Party coalition of small parties and the communists, who are all keen to see an end to the alternation of the CSSD and the ODS, that has dominated Czech politics for years.

Economy recovers
The Czechs have a coalition government with seven members, who are often at loggerheads with each other and, as it so happens, 2002 is an election year. 
The economy is not doing badly, growing at 3.2% on an annual basis, while inflation is at just over 4% in 2002. This is a big improvement on the 1990s when growth was sluggish, although that acted as a restraint on inflation.
The economy is attracting extensive foreign investment, which is almost US$20bn in all. The government is persisting with privatisation, putting up the state's 62.99% stake in Unipetrol in September. Gazprom and LUKoil of Russia showed interest in some of Unipetrol's assets. So did Western majors, Shell, Conoco and Agip, which in a three-way consortium already held 49% of Ceska Rafinerska, with Unipetrol holding the remaining 51%. Czech breweries and light industry are also attracting interest.
The main problem is that unemployment is still high at 8.5% nationally, but at 18-20% in certain districts, such as Karniva in North Moravia and Most. The government has opened an industrial park in Karniva, which notched up its second major investment recently, a Swedish health care firm, Moelnlycke Health Care. The first is by Japanese firm, Shimano, which is due to make bicycle parts there.

EU negotiations
The EU is reprimanding the Czechs for giving public contracts without tenders under their Article 50, which the government has regularly evoked. Public procurement law allows the government to award contracts without tenders in an emergency. This it has done several times this year because time is running out before next June's elections. But potential bidders have been angered and suspicion of corruption raised, which was widely thought to be an endemic problem in the administration in the 1990s. 
Pavel Telicha, the Czech chief negotiator with Brussels, expects the matter to be raised in future negotiations. "We should be more and more limited in the use of the article," he said. 
There are other issues on which the EU has reservations, notably using state aid to restructure the insolvent steel industry, the widening of the government deficit and the delay in passing legislation to establish a professional civil service.
Nevertheless the Czech Republic is likely to be able to close one or two more chapters to the 19 it has provisionally closed already with Brussels. It is probable it will remain a frontrunner to be invited to join the EU by the end of next year.
The big issue before the country is adhesion to the EU. There is a problem holding it up, namely Austrian opposition to the Temelin nuclear plant, whose closure they are demanding. The main figure agitating for this on the Austrian side is the governor of Carinthia, Joerg Haider, the leading populist politician in the country and the bugbear of the bien piensants of Europe. But he has just resigned. It is unlikely, therefore, that the controversy will impact on the country's chances of joining the EU shortly. 

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AUTOMOBILES

Local car parts makers say there's room for foreign competition

While foreign car parts makers continue to pour into the country - in hopes of grabbing a piece of the business generated by the Kolín-based Toyota/PSA plant when it launches production in 2005 - local companies say they don't fear the competition because there's still plenty of room, the Prague Business Journal has reported.
"We can't talk about market saturation now," said Tetsuo Shibata, president of the Kladno-based Showa Aluminium Czech. The company, fully owned by the Japanese Showa Denko K.K., produces condensers for air conditioners. "There are enough opportunities for more expansion. The Czech Republic is a very competitive market."
After landing the Toyota/PSA deal, CzechInvest, the government agency promoting foreign direct investment, succeeded in bringing in a total US$1.3bn (Kc 46bn) in Japanese investment. The auto components industry accounts for much of this, according to the agency.
Anticipating increased orders from the Toyota/PSA factory, many local car parts makers have already begun to expand their production capacities. The largest Czech maker of plastic car components, Liberec-based Peguform Bohemia, has already begun building a new plant in Nymburk, Central Bohemia.
Shock absorber producer, Monroe, fully owned by the US company, Tenneco Automotive, is planning to more than triple production by the end of 2003. "More production is moving to the East, and this can only make us happy," said Marcela Randáková, Monroe's human resources manager. "Now we produce 8,000 components a day, but our plans are to make 26,000 components a day by the end of next year."
According to a study carried out last year by the research agency, Opinion Window, 59 per cent of foreign investors in the Czech Republic transferred part of their production here from abroad as well as launched new production in the country. They say that the Czech market is attractive because of lower costs of production and the potential for new markets.
Many local producers have already begun negotiating with potential new customers. "This expansion in the local car industry means new opportunities for us," said Mirslav Dubec, sales manager with the US-owned wheel producer, Hayes Lemmerz Autokola, based in Ostrava-Kuncice. "We are already negotiating with Peugeot for future supplies. I'm sure that our company will expand pretty soon."
Showa's Shibata said his firm is in the midst of expansion. "I predict that by the end of this year, our production is going to double here," he said.
The producer of metal press-parts, Wagon Automotive, based in Belá pod Bezdezem, also expects its volume of production to increase significantly this year. "I can't predict exactly how big the increase will be," said Miloslav Masopust, the company's HR-PR manager. "But I can say that we have already begun some dealings with new customers."
Nearly 90 per cent of the car components industry here is foreign, mainly coming from Germany and the US.
Takada Industry, a Japanese producer of plastic car components, announced that it would pump some Kc 200m into a production facility in Louny, North Bohemia, which is planned to start production next year. Louny is the destination of other Japanese businesses as well. 
The car components maker, Aisan, has already purchased land in this region where it plans to build a plant producing pumps for diesel engines. Another company interested in investing in the Louny industrial zone is the headlights maker, Koito Manufacturing, which is to spend Kc 1bn on its plant.
Japanese cash is also coming to the Borská Pole industrial zone in West Bohemia. Two car parts makers, Koyo Seiko and Fuji Kiko plan to pump roughly Kc 1bn into a joint production facility which is to launch production at the end of 2003 and beginning of 2004.
Aoyama Seisakusho plans to invest nearly Kc 875m in the construction of a plant to produce car components in Lovosice, North Bohemia. The carbon brushes producer, Tris Czech, fully owned by the Japanese Tris Inc., is to start building its Kc 145m plant in April. Toyoda Gosei has decided to expand its investment in a plant in Klášterec nad Ohrí, where it will produce airbags and rubber sealers.
And the flood continues. CzechInvest is negotiating with at least 30 other car parts makers interested here, according to a spokeswoman.

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ENVIRONMENT

Czechs outline environment protection costs to meet EU criteria 

The Czech Republic will have to invest 320bn Czech korunas in the environment over the next eight years in order to meet EU criteria, it ensues from an environment investment funding strategy which Environment Minister Milos Kuzvart submitted to the government on 3rd April, CTK News Agency has reported.
Of the total about 186bn korunas will be covered by the private sector, another 128bn korunas will be provided by municipalities...
The biggest sum will be received by waste water treatments plants in small municipalities, the construction of which is estimated to cost a total of 100bn korunas. The Czech Republic has negotiated a transitional period until 2010 in this area due to the high costs involved...

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FOREIGN INVESTMENT

Foreign investors brought US$5bn into Czech Republic in 2001

Foreign companies brought almost US$5bn (187bn korunas) into the Czech Republic last year, Mlada fronta Dnes has reported. The largest portion went into investments on green-field sites, such as Philips and Matsushita, but the expansion of companies already operating here is playing an ever greater role. 
The state got one-third of the US$5bn that came in last year from the privatisation of the Komercni banka [Commercial Bank], Ceske radiokomunikace [Czech Radiocommunications], and the Prague Water Supply companies in particular. The remainder was split among investors with government incentives. "The most important were the green-field projects from Philips and Matsushita and also the expansion of companies in the automobile, electronic and chemical industries," said Martin Jahn, the head of the CzechInvest agency. According to him, capital will come in more and more from foreign companies that have already become settled here and want to expand their production or reinvest their profits...
The league table of main investors was headed by the Germans, closely followed by the French and Dutch. But, the Japanese are promoting themselves more and more in the Czech Republic both in automobiles and in other spheres. The construction of the Toyota automobile plant near Kolin worth US$850m - which will place it in the leading position of investments commenced this year - should begin this fall. Other small projects will come after this major one, such as the plant of the Japanese
Tokai Rika company to produce electronic switches for cars. Namely, the Japanese pay far greater heed to the recommendations of their compatriots than the Europeans...

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FOREIGN LOANS

EBRD invests €14m in Czech malting industry

As part of the US$50m EBRD facility to promote malting and milling industries in Central and Eastern Europe, the EBRD has agreed to lend €14m to Malterie Soufflet Républicque tchéque s.r.o. to acquire shares in Obchodni sladovny a.s., the malting subsidiary of the Czech company, Tchecomalt Group a.s., the EBRD has announced in a press release.
The loan to the subsidiary of the Groupe Soufflet, the French agribusiness company, is the fifth investment under the facility, set up in 1998 to help Soufflet expand its businesses across the region. The loan, as with previous loans to Soufflet subsidiaries, will help improve the efficiency of malt and barley production, and provide a stable source of income for local farmers. It is the Bank's second loan to Malterie Soufflet République tchéque, after a €10m investment in 2001 for the acquisition of the Moravska Sladovna Kromeriz malting plant.
Hans Christian Jacobsen, Director of Agribusiness at EBRD, said the partnership with Groupe Soufflet has promoted the growth of agribusiness, and especially the malting industry, in the EBRD's countries of operations. The EBRD loan will help Groupe Soufflet to expand in the region. Mr Jacobsen emphasised Groupe Soufflet's commitment to promoting agribusiness and supporting local farmers and farming communities in central and eastern Europe.
Groupe Soufflet has worked actively in the region for more than five years and continues to increase its support to local farmers by focusing on ways to replace imports of malting barley with local production. EBRD will continue to support the Groupe Soufflet's efforts to develop farming communities and improve the quality of malt across the region.
"Since it adopted a development policy in the central and eastern European countries, the EBRD has strongly contributed to our malting division and we are confident of continuous cooperation in the future," said Jean-Michel Soufflet, head of the Management Board of Groupe Soufflet.
For more information contact Julia Zilberman, EBRD, tel: +44 20 7338 6640; e-mail ZilbermanJ@ebrd.com.

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PHARMACEUTICALS

Baxter elects to set up production near Prague

Baxter International Inc. has selected the Czech Republic as the site of one of two new plants that will produce a flu vaccine which it hopes to bring to the European market by the end of next year, New Europe has reported.
The US pharmaceutical giant plans to start production just east of Prague in 2004 and expects to employ some 200 scientists and technicians.
Along with a larger one to be built in Krems, Austria, the plant will produce InfluJect, a new flu vaccine. However, the two plants will also be equipped and are likely to be used for the production of other cell-culture and recombinant vaccines, Baxter spokeswoman, Deborah Spak commented. Baxter purchased a half-completed plant form the Czech blood plasma processing company, Sevac, late last year, following a government decision to liquidate the majority state-owned company before it even commenced production.

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TELECOMMUNICATIONS

Three Telecom bids to be judged by sale committee

The National Property Fund's evaluation committee for the privatisation of Czech Telecom was scheduled to meet in early April to examine bids for a majority stake in the former fixed-line monopoly, the holding company for state-owned assets said, the Prague Business Journal has reported. The cabinet is scheduled to decide on the high profile privatisation the following day.
The committee has received bids from three groups for the state-s majority stake, which cold well be combined with a further 27 per cent shareholding held by TelSource, a consortium of Swisscom and Dutch KPN.
Some analysts have said the government may end up hanging on to its stake until the autumn, however, because offers are likely to come in at around US$1.4bn. The state has said it will cancel the tender if the bids fall below its required Kc 80bn (US$2.22bn) for its 51 per cent stake on offer.
According to reports in the daily 'Mlada Fronta Dnes' Danish telecom company TDS has recently entered the bidding, joining forces with Deutches Bank after the bank's earlier partner, Deutsche Telekom, pulled out.
TDC refused to comment on the report, saying that it doesn't comment on rumours. The Danish telecom company and the German bank have already won the tender for another high-profile Czech privatisation at the end of last year, buying the government's 51.19 per cent stake in Ceske Radiokomunikace.
TDC and Deutsch Bank would be competing with telecom rivals Swisscom and Greek OTE. Another interested party, France's Orange, is targeting only Czech telecom's mobile subsidiary Eurotel. Apart from the telecom companies, a number of financial investors, mostly private equity funds, are involved in the bidding consortia. The makeup of the groups is unknown.
A consortium of private equity houses Apax Partner, Doughty Hanson and US investment house, Warburg Pincus have been courting Orange for its support. CVC Capital and Spectrum Equity Partner are also suitors to take part in the purchase.

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