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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: 073 - (27/05/03)

The Czechs are in a quandary about the EU. Their new president, Vaclav Klaus, is an old hand at Czech politics, the driving-force behind reform in the 1990s. With a weak, Socialist government in office, which could fall at any time, he is the main figure in the country's limelight, making much more of the presidency than Vaclav Havel, for all the latter's greater stature as a former jailed dissident and playwright. 

The Klaus populist touch
Klaus is something like a Czech Mrs Thatcher, whose career he much admires, a conservative with radical and populist instincts. Actually for curious reasons, he was unable to introduce as many reforms as he wanted. The banking system remained backward and corrupt, locked into a network of crony capitalism coming out of the old bureaucracies of communism. It was a gargantuan and probably impossible task to effect a 'clean' transition to capitalism. It did not happen. This has made the population deeply distrustful of their politicians. Havel was too aloof in his splendid baroque castle in Hradcany Square. Klaus has vowed to break the mould here and be more in touch with people.

Distrust of the EU
He is sceptical about a lot that the EU stands for. He did not welcome the rebukes to newcomers made by Chirac over the build-up to war. Actually, Klaus opposed the war for similar reasons to the French. But he did not like to be told that he and other leaders in the accession states had "missed a good opportunity to shut up." Havel had signed a round-robin letter among the newcomers and the pro-war countries supporting the US. Klaus considers the French have no right to arrogate foreign policy matters to themselves for the entrants, as if they were a lot of errant schoolchildren.
Klaus has a grave misgiving about the Euroland and the policy of the European Central Bank (ECB), which he deems far too deflationary. But then so he does the policy of the Czech National Bank (CNB). An ex-finance minister and economist he has his own experience of handling affairs to draw upon. He is clearly frightened that the Czechs will suffer from the fall-out of German and French deflation. They are already doing so. In early May Klaus strongly criticised the refusal of the CNB to cut interest rates. The Czechs are likely to be wary of joining the Euroland early on, where monetary policy is totally outside national control.

Berlin-Prague axis 
The European leader that Klaus now feels closest to is German Chancellor Gerhard Schroeder, a social Democrat, but only with a decidedly conservative streak, like the UK premier, Tony Blair. Klaus went to Berlin in April where he found himself in full agreement on most points with Schroeder, who was rather out in the cold at the time because of his strong anti-war stance. 
Prague is the capital that many Germans admire most in Europe. The locals speak German as their second language as often as not, while the cross-influences culturally have been vast, as its outstanding architecture attests.
Klaus described Czech-German relations as "the best ever." German investors are highly interested in the republic, right on their door-step and highly conveniently situated for exports to either east or west.

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ARMAMENTS

BAE Systems purchases Omnyx shares


British arms manufacturer, BAE Systems, has completed a purchase of shares of Omnyx, which holds a 90% stake in Czech arms manufacturer Omnipol at the end of 2002, BAE recently confirmed, Bluebull reported. 
BAE went ahead with the takeover even though it had lost a deal on supplying supersonic jet fighters for the Czech Army. British Defence Minister, Geoff Hoon, was due to arrive in Prague with a proposal for replacing old Russian MiG-21 fighters with British aircraft.

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AUTOMOBILES

Toyota Peugeot Citroen JV ends phase 1 of production facility

PSA Peugeot Citroen and the Toyota Motor corporation have completed the first stage of construction of their new joint production facility in the Kolin-Ovcary industrial zone, CzechInvest Agency reported. The new factory, which will bring total investment of some €1.5bn, is the largest such project in Central Europe and should result in the creation of a total of at least 10,000 new jobs.
"The TPCZ car plant in Kolin will be the most modern and efficient in Europe. Its benefits will be tremendous - approximately 3,000 jobs will be created directly at the plant and at least another 7,000 jobs will be created in connection with the project at supplier companies and related services," CzechInvest CEO, Martin Jahn, was quoted as saying.
Costs of construction and machinery purchase should amount to €750-950m. The new production facility will comprise the entire manufacturing process from component pressing to final assembly.
The new plant should be completed before the end of the year, with production to be launched in early 2005. The facility is expected to turn out some 300,000 cars per year for the European market.
The new model will be sold under three brand names: Toyota, Peugeot and Citroen. While sharing common structures and components, each branch will have its own specific style.
Toyota and PSA Peugeot Citroen signed a deal to establish the new plant in July of 2001 by forming the Toyota Peugeot Automobile Czech s.r.o joint venture.

Strong crown, lost order sends troubled truck maker Tatra into the red

Koprivnice-based truck maker, Tatra, sank into the red in 2002 after posting a net profit a year earlier, the company announced recently, the Prague Business Journal has reported.
The loss was mainly due to the strong crown. "The Czech crown's exchange rate against the dollar deprived us of Kc 427m in sales last year," said CFO Igor Vlcek. Tatra posted an audited loss of Kc 535m in 2002 against net profit of Kc72.5m a year earlier, while its sales fell from Kc 4.5bn to Kc 3.4bn last year.
Last year's performance was also affected by a decline in sales on the Russian market, Vlcek added. Tatra produced 90 vehicles for a Russian client, but the deal did not materialise and some of the trucks haven't been sold yet.
Last year Tatra sold 1,678 tucks against 1,604 in 2001. Production rose by 210 to 1,761 units with exports counting for 80 per cent of output. The principal buyer was the Indian military, with whom Tatra had signed a long-term contract for the supply of more than 1,000 vehicles. This year, the company expected to further increase its sales in India.
Tatra also succeeded in the Middle East. American Truck Company, a joint venture between Tatra, its owner Terex corporation and STV USA, won a tender for the supply of 315 military vehicles to the Israeli Defence Ministry, Tatra board chairman, Zbynek Keisler said in early April. The contract is worth more than US$590m and the trucks are to be supplied in two years. "The contract should be signed by the end of June, "Keisler said.

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CONSTRUCTION

Record bid of Kc 605m paves way for hotel and office complex

Real estate development company, Bricks Invest, bought a group of commercial buildings in Wenceslas Square recently for Kc 605m (US$21.5m) in what is a record property auction price for the Czech Republic, according to auction house, Naxos.
Bricks Invest's executive director, Alessandro Grosso, plans to transform the group of buildings into a hotel, modern office centre and car parking area. Grosso has already participated in 17 residential development projects in Prague. He refused to release any details of the last project as it is still being prepared.
Libor Nevsimal, a board member of the action organiser, Naxos, said the package of building need significant reconstruction which will cost several billion crowns. The property's starting price was Kc 525m but advanced to a final price after 47 bids.
The sale was ordered by Integra, the daughter company of IPB real Investment, which will cover its debts to the state bad debt agency, the Czech Consolidation Agency (CKA), with the auction income.

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FINANCIAL NEWS

Czech jobless rate drops to 9.6 per cent in April

The unemployment rate dropped to 9.6 per cent in April and is 0.4 per cent lower than in March, Czech Radio1 - Radiozurnal has reported.
The unemployment rate is still lowest in Prague-West and the highest unemployment is in the area of Most in northern Bohemia.

EBRD predicts higher Czech growth

The Czech economy is expected to grow faster this year, by 3 per cent in spite of an expected fall-off in foreign investment from the record level of 2002, the European Bank for Reconstruction and Development (EBRD) predicts in its May 2003 report on transition economies, released in late April, the Prague Business Journal has reported. 
Strong growth this year, up from an expected 2 per cent in 2002, is forecast in spite of foreign direct (FDI) seen dropping to around US$5bn from the extraordinarily high US$8.22bn in 2002. Inflation will continue to be lowered, running at an expected annual rate of 1.3 per cent in 2003 compared with 1.8 per cent in 2002.
The biggest risk for the economy stems from the health of its most important export markets, primarily Germany, and the danger that the government will fail to rein in public spending. The EBRD report predicts the general government spending deficit falling slightly to 7.1 per cent of Gross Domestic Product (GDP) in 2003 from 7.3 per cent in 2002. The figures exclude privatisation revenues.
The country will slightly improve its ability to pay its way in terms of foreign trade with the gap between exports and imports expected to fall to a negative US$2bn in 2002 compared with a trade deficit of US$2.27bn in 2002.
The EBRD report does not contain 2003 predictions for output, employment or average earnings. It does, however, comment that it has become "clear that European Monetary Union (EMU) membership is not planned before 2009." The Czech Ministry of Finance said it had no clear target date for EMU membership. "It (the date) ranges between 2007 and 2009," a spokesman said. Most neighbouring countries have said they will join in 2007.
The expected Czech GDP growth rate for this year is slightly lower than the 3.7 per cent average forecast by the EBRD for countries across central and Eastern Europe, the Balkans and the former Soviet Union.

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NUCLEAR ENERGY

Czech nuclear station operates at full capacity for first time

Both blocks of the Temelin nuclear power station are now for the first time operating at 100 per cent, producing about 2,000 megawatt hours of electricity, Czech Radio1 - Radiozurnal has reported. After 17 years of construction, it has thus achieved the maximum output...

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TELECOMMUNICATIONS

Radiokom considering buyout of Contactel

Telecom company Ceske Radiokomunikace recently made the surprise announcement that it may buy the 50% of alternative teleco Contactel owned by current joint owner, Danish telecom operator TDC. Radiokom and TDC currently share control of the company with each holding a 50% stake in Contactel. Most analysts had tipped TDC to buy out Radiokom's stake rather than the other way around, the Prague Business Journal (PBJ) reported.
Radiokom CEO, Miroslav Curin, made the announcement recently, adding that it had to make a decision regarding Contactel because the current competition between Radiokom and Contactel "isn't normal."
Radiokom's traditional business centres on transmission and distribution of television and radio signals. Like Contactel, it also provides carrier services to other telcos. Following an agreement between each other, Radiokom has also started offering telecoms and Internet services to end-clients, Contactel's main business area.
Contactel has been losing money since its launch three years ago. In 2002 it had a negative cash flow and posted a net loss of nearly Kc700m, according to company reports. Last year Radiokom and TDC wrote off Kc1.58bn in loans to Contactel by converting the outstanding debt into share capital.
Another option would be for TDC to purchase Contactel, Curin added. The third option would be to sell Contactel to a third party, he said. The various options will be discussed by Radiokom's board of directors and a decision will be made soon, he added.
Last July, Contactel's CEO, Michal Cupa, told PBJ that TDC was expected to become "either the majority or complete owner" of the company. TDC announced that it would decide by May 2nd whether it would buy Radiokom's 50% stake in Contactel, the Czech Press Agency reported. TDC, along with Deutsche Bank, owns 72% of Radiokom.

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TRANSPORT

Freight haulers warn proposed toll system could spell bankruptcy 

Local freight companies warned they will go bankrupt if the new system of performance tolls that has been proposed by the Ministry of Transport comes into effect. It would replace the current highway stamps and raise fees significantly, the Prague Business Journal reported recently.
The ministry plans to introduce an electronic system within three years that would charge trucks for road use by the kilometre. The goal is to increase revenues from highway taxes for building and reconstruction of motorways, Transport Minister, Milan Simonovsky, said at the Adam Smith Conference on financing infrastructure projects in Prague recently.
Trucks would carry a special electronic device that would be checked by satellite or cameras, but the ministry has not decided on the particular system or price schedule yet. Ministry representatives said they plan to discuss the proposal with Poland, Slovakia and Hungary to unify the system in the region.
Vojtech Hromir, secretary general director of Cesmad Bohemia, the association of road transportation companies, warned that introducing performance fees might lead to a collapse of some local freight companies, which operate on narrow profit margins. Introducing higher fees will increase their expenses 20% per kilometre, he said.
Hromir said the Transport Ministry should wait to introduce road fees until it is clear what impact their introduction will have in Germany and Austria. Germany plans to introduce motorway performance fees in August this year, and Austria in January 2004. In spite of the EU effort to introduce the fees in all European countries and unify the market, the European Commission still has many objections to introducing the fees in Germany, Hromir said. For example, the EC warned that the new electronic system for measuring trucks' road use will not be compatible with systems in other EU countries, he said.
Hromir also warned that transport companies would be likely to pass the increased cost onto consumers. In order to survive on the market, transport companies will have to increase their prices and it will force their customers - for example, retail suppliers - to do the same. Ass a result consumer goods and services will go up, Hromir said.
However, Jaroslav Ulc, owner of western Bohemia-based, mid-size transport firm Jaroslav Ulc Autodopravce said that most local haulers will not be able to raise their prices. Ulc, who owns 22 trucks and charges a market average of Kc12 per kilometre on local roads and about Kc14 abroad, said higher prices would drive away customers and "kill the business."
"Introducing electronic tolls would be only the last straw to drive the local freight companies into bankruptcy," Ulc said. "Three times as many foreign companies' trucks will flow into the country without having to wait hours at customs and will take our business away."
Reconstruction of roads in the Czech Republic costs Kc20bn annually. About 10% of the expenses are paid by drivers through highway stamps, which will go up in price by Kc100 next year for private vehicles and up by Kc1,000 for trucks. The state budget should receive Kc12bn from the fees next year, but the Ministry of Transport estimates that at least Kc27bn will be spent on road construction this year.

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