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CZECH REPUBLIC


 

 
Key Economic Data 
 
  2002 2001 2000 Ranking(2002)
GDP
Millions of US $ 69,590 56,800 51,400 43
         
GNI per capita
 US $ 5,560 5,250 5,310 68
Ranking is given out of 208 nations - (data from the World Bank)

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: 079 - (01/12/03)

The Czechs are in a disgruntled mood, as if it was the end, not just the beginning, of winter. The government is weak, kept in power only by the conviction of the opposition that it would be more trouble than it is worth right now to eject it. It manages consequently just to scrape by in defeating no confidence motions against its continuation.

A bugging scandal
The opposition, led by the conservatives, allied to their former chief, Vaclav Klaus, now the president, are keeping up a constant stream of carping at whatever the government does. It is being held responsible for all ills of the body politic.
There is a scandal concerning the bugging of the car telephone of parliamentary deputy, Josef Hojdar. The prime minister, Vladimir Spidla, is harassed enough already and is not prepared to let malicious gossip by opposition politicians make political capital out of the affair. He has categorically denied that either the Security Information Service (BIS) or the Military Counterintelligence Service (VOS), let alone the police, are behind it. He dismisses as "nothing but speculation" any such insinuation, saying that there is "no circumstantial evidence" to substantiate their involvement.
Defence Minister Miroslav Kostelka and Interior Minister Stanislav Gross stated a day earlier that none of the services they oversee was involved in any way. The scandal reflects a paranoia by the opposition that the government is up to any dodge to keep itself in office.

The EU beckons
In office the government may be, but not really in power. Everyone is waiting for a pick-up in the EU economy to enable the Czech economy to start growing again as it did in the 1990s. GDP growth is expected to be 2.5% for the year. 
There is a general expectation that everything depends on the success or otherwise of Czech adhesion to the EU, due in June next year. The current account deficit exceeds 5% of GDP and recovery is only likely from an export-led expansion as the Germans and others move out of the doldrums. 
Tourism was slack this summer, with a second year of bad weather at just the wrong time, this year from drought, last year from flooding. There are few Czechs who do not accept that global warming is happening and playing havoc with their weather. 

Czechs block foreign firms from tenders
Foreign energy firms are being blocked from taking part in the privatisation of the Czech brown coal mining industry, making domestic firms clear favourites to buy up the sector at bargain prices.
International Power (IP) of the UK was prevented from bidding, together with Demir Export of Turkey and Allianz of Germany, for 50% of Sokolovska Uhelna. Only the firm's management and a local black coal mine, OKD, have been allowed to complete due diligence. IP is protesting to Spidla himself and to the EU.
In another tender, for 55% of Severoceske Doly, only Appian Group, a financial business that owns the Mostecka Uhelna Mine, Penta Group and J&T Group, two Slovak corporate raiders, were allowed to progress.
CEZ, the dominant Czech power generator, also failed to qualify for both tenders. Of the 14 bidders in the two tenders nine were disqualified. This leaves the field clear for three local mining companies and Slovak financial groups.
The European Commission has already requested clarification of the tender conditions because of the suspicion that they were designed to exclude EU bidders, as is now evident. This is in contravention of the country's 1993 Europe Agreement. The closed nature of the privatisation process in the republic has long been a source of controversy which had earlier been disfigured by 'sweetheart deals.'

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AUTOMOBILES

Hyundai conducting low-profile tour of car plant sites in CEE


Amid the sort of secrecy that might accompany the test drive of a new car model, representatives of Korean car maker, Hyundai, quietly arrived in the Czech Republic in late October. Amid a virtual media blackout, top Hyundai officials visited a site in Zatec, Bohemia. CzechInvest, the government agency charged with attracting foreign investment, had offered the site to the Koreans for a new Kc40bn (1.2bn Euro) plant that could employ 3,500-4,000 people and produce some 300,000 cars annually, the Prague Business Journal has reported.
Czech dailies reported that a helicopter landed at the town's Triangle industrial zone, a former army base, adding that government officials had explained that reporting of the visit could damage the country's chances of landing the investment. Hungary, Poland and Slovakia are also in the running for the car plant.
Prime Minister Vladimir Spidla confirmed a "courtesy meeting" had taken place with Hyundai representatives. A meeting with Minister of Trade and Industry, Milan Urban, and CzechInvest CEO, Martin Jahn, were also reported.
The former army base on which the 360 hectare Zatec industrial zone is situated was abandoned in 1993. In April this year, the government approved a Kc 400m state subsidy for preparation of the zone. Last year, Hyundai was considering another Czech industrial zone, in Nosovice, North Moravia. However, this zone was not ready and a problematic property buy out is still underway.

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AVIATION

Sweden offers Czechs new fighters for price of second hand

Foreign arms companies are again competing for Czech skies. The latest offer so far came from Sweden. The Swedes are already for the second time luring the Czech army with Gripens and offset programmes. Czech Radio 1 reporter Michal Fila gave more details:
Lending 14 newly-produced fighters for the price of second-hand aircraft for the period of 10 years - this is the Swedish offer officially presented on 3rd November by the Swedish ambassador in Prague, Harald Faelth. According to him, this offer is within the budget proposed by the Czech government for the period of 10 years. The government wants to invest in borrowed fighters a maximum of 1.5bn korunas per year.
Faelth said: "There will be no additional cost to the Czech government for the whole time of the loan of Gripens. This price includes all the operation and maintenance cost. The Czech Air Force will supply only fuel and its employees. This price can even go down if the Czech side does not use the price package offered by the Swedish government as a way of financing the aircraft on advantageous interest rate."
The other four countries, Belgium, the Netherlands, the USA and Canada, have offered older American aircraft and so the Swedish proposal to supply new fighters, JAS-39 Gripens, for the price of old is, according to Defence Minister Kostelka, interesting. This was confirmed by his spokesman, Ladislav Sticha.
Sticha said: "The Czech Army can invest in this project 1.5bn-korunas in investment per year, not a single koruna more or less. Hence, we assume that if Sweden came up with such a proposal, they are able to fit it within these finances."
Sweden accompanies its offer with investment through the so-called offsets of 150 per cent of the total value of supplied aircraft. According to Ambassador Faelth, there are at the moment 31 projects targeting Czech regions with highest unemployment.

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FOREIGN ECONOMIC RELATIONS

Trade links with Russia won't be hit by EU entry says Czech president

The Czech Republic's impending entry into the European Union will not have an adverse impact on its relations with Russia, according to Czech President Vaclav Klaus. He was speaking to students and lecturers at the Financial Academy [which is attached to the Russian Federation government], according to ITAR-TASS News Agency. 
"Despite the fact that we are now very busy with our forthcoming membership of the European Union, I always emphasize that this does not mean that we would like to 'disappear' somewhere in Europe," Klaus said. "It does not mean our trade and economic relations with other countries of the world, including with Russia, should change in some way after EU entry," he added.
Replying to a question about how intensive cooperation between Russia and the Czech Republic in the economic sphere is going to be after EU enlargement, Vaclav Klaus said that trade is carried out not by nations or countries, but by individual enterprises and individual businessmen. "I am not interested in who exactly is going to be developing trade between the Czech Republic and Russia - it will be our countries' individual firms and corporations and they must make sure they derive a benefit from the development of these relations," the president said. "I have always spoken in favour of the removal of all types of trade and economic barriers between countries imposed from above, and I would not like to 'organize' trade in some way," he added. 

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FOREIGN INVESTMENT

Foreign investors in CR favour Central Bohemia

Central Bohemia is the most popular Czech region among foreign investors. It has attracted investment worth US$2.4bn, according to CzechInvest, the government agency charged with attracting foreign investment, the Prague Business Journal reported.
Central Bohemia, with almost 50 investors creating up to 14,000 jobs, leads the rankings ahead of the Usti region with investment topping US$1.2bn, CzechInvest said in a news release recently.
Total investment in the country mediated by CzechInvest has exceeded US$8bn (Kc1.27 trillion, or 127,000 per capita, the largest amount in Central and Eastern Europe) to date, creating more than 66,000 jobs.
The biggest investment in the Czech Republic in recent years is the plant of car-making consortium Toyota-Peugeot-Citroen in Kolin-Ovcary, Central Bohemia, worth some US$1.75bn.

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TOURISM

Marriott makes local impact to mirror changes on global market

John W Marriott III, the executive vice president of US-based hotel chain, Marriott International, and company managers joined a declining breed when they stayed at the company's Prague hotels recently, the Prague Business Journal reported.
Fewer Americans, like Marriott, are travelling to Europe, and Prague in particular has been hit by a fall in the number of large, organised groups since September 11th, 2001.
"The impact of the crises in tourism has been showing in two ways," said Roger J Dow, the company's senior vice president responsible for global and fields sales. "Primarily it has meant that the business has become regional. Americans don't travel much outside the US, and Europeans don't travel outside Europe as much as they did before."
Over the last two years, Marriott International's Prague hotels have experienced a fall of around 10 percentage points in the number of US groups staying at the hotel, Lenka Juraskova, the spokeswoman for the company in the Czech Republic, said.
The fall-off has been compensated by a 15 percentage point increase in the number of tourists from Italy and Spain, she said. Moreover, the number of Czechs and other Central Europeans has been growing and now accounts for 30% of the clients at the Prague hotels, Marriott said.
These changes are partly behind a "go local" approach by the US-based international hotel chain, which also prompted Marriott's first fact-finding trip to the Czech Republic.
In the Czech Republic, Marriott International runs the Marriott Executive Apartments, which comprises of 53 luxury flats.
As part of the local flavour, the restaurant at the Renaissance hotel now offers only Czech cuisine, Juraskova said. "Hotels must fit into the local market," Marriott said. "We realised that food and beverage is more important in Europe than in America, for example, while in Asia people like to have large lobbies and that tends to be the most important reason for where they decide to stay."
Central and Eastern European countries still constitute a growing market and a great opportunity, Marriott said. "Eastern Europe is attracting a strong influx of business and leisure travellers from throughout Europe, providing a solid foundation for future development," he said. In Prague, Marriott International plans to open a three- or four-star hotel, the Courtyard, at Flora, Prague 3, by the end of 2003.
It is also in negotiations to open a top-of-the-range hotel, the Ritz Carlton, in a large house on the corner of Old Town Square, Juraskova said. If the company succeeds the hotel could open in 2006, she said.

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TRANSPORT

DHL adds detail and size to Kc16bn FDI announcement

The multinational express and logistics company DHL recently expanded on its investment announcement of September. The company said it would invest €500m (Kc16bn) into is new IT operations centre in Prague-Chodov over the next five years, which would make it the country's third-largest foreign direct investment ever just after the new car plant of TPCA in Kolin and tube plant LG Philips Displays in Hranice, the Prague Business Journal reported.
The new centre will house 600 servers and employ 400 people when it opens next year. At a news conference, DHL global chief information officer, Stephen McGuckin said, "by 2005-2006 the number of people in the centre should grow to around 1,000 employees."
The facility is expected to be DHL's largest IT centre in the world. In Kuala Lumpur (Malaysia) and Scottsdale, Arizona (USA) it employs 400 and 500 people, respectively. The relocation to Prague of assets from DHL's current IT centres in the UK and Switzerland are due to be completed in 2005.
An Ernst & Young analyst quoted in the daily 'Hospodarske Noviny' recently, that DHL's investment was the biggest IT investment in Europe in the last two years.
The consolidation is a result of the merger of the sister companies, Deutsche Post World Net, which is the owner of DHL, Danzas and Deutsche post Euro Express.

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