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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: 070 - (21/02/03)
The ex-dissident and playwright, Vaclav Havel stepped down from the presidency of the Czech Republic on February 2nd. It marks the 'end of history' for the Czechs. Havel is their symbolic bridge to the past, as successor to the Masaryks, elder and junior, the original founders of Czech independence, only for it to be snuffed out twice, in 1938-39 by Hitler, with connivance by the UK and France, and in 1948 by the Communists.
Reflections on the past
The occasion is a poignant one for those with memories of what the country lived though in communist times. Havel, unlike the Masaryks, endured the years of repression, some of the time in prison, and is a symbol of resistance to tyranny.
It was a matter of course for him to sign the eighteen-nation document calling for the EU to back the US in enforcing UN resolutions on Iraq. Standing up to dictators is exactly what could have spared Czechoslovakia its two worst ordeals. The Czechs are not impressed by the new appeasement policy of the French, who with the British let them down badly in 1938 at the Munich Pact, the infamous treaty that led straight to the Second World War.
No new president yet
After two failures to secure a successor to Havel, the Czechs will doubtless be given a third chance soon, with former premier Vaclav Klaus as the favourite. In certain respects it does not much matter. Real power lies with the premiership.
Premier Vladimir Spidla, the new social democrat leader, is the key figure, successor to Milos Zeman, another candidate for the presidency, who stepped down as premier last year at the time of elections. Spidla is not shaping up as a dominant leader, like Klaus and Zeman both were in their different ways. He has yet to give a new direction. But the looming war in the Gulf has distracted domestic attention to some extent. After it is over, he will need to show leadership, or be shortly put in the knacker's yard.
Environmentalists protest against Skoda Auto
An automaker's proposal to convert a former Soviet military base into a proving ground for new cars has stirred a bitter controversy over land use in the Czech Republic, New Europe has reported.
Local residents and environmentalists are trying to block Skoda Auto's proposal to build a test track on a long-vacant and polluted base which includes woods and fields in a rural area south of the company's main manufacturing plant in Mlada Boleslav.
The region in question was part of a 3,600 hectare base that was off-limits to civilians for nearly a century before the Soviet army marched away in 1991. Skoda officials say the tract is dangerous to the public, as it is littered with decaying ammunition, toxic dumps and crumbling buildings abandoned by the Soviets. Eight months ago the Czech Ministry of Environment approved the multimillion-dollar project, yet the ministry was forced to reconsider its decision a few weeks later after receiving a petition signed by 4,000 local opponents.
The Czech environmental group, Arnika, has announced plans to file a new objection based on the project's possible impact on 16 endangered species.
It is unclear when the government might issue its final decision, which has already been delayed for months, much to the disappointment of Skoda, a subsidiary of Germany's Volkswagen Group. The company has offered to clean up the site, relocate endangered species and build a recreation area for local residents near Milovice, the area's largest town.
The controversy is particularly unnerving for Skoda, a company that in the 1990s undertook an enormous industrial clean-up of communist factory sites and today rates itself a producer of environmentally friendly cars.
Test-track opponents think Skoda can find a less sensitive site, and have pledged to continue pressing their case with the government. Cerny, spokesman for Skoda, said that at this point in the debate company officials have resolved to wait for a government ruling, while not giving up on hopes of a project launch before next year. "We'll leave everything to the experts," he said.
Czechs may attract US$2bn-3bn in foreign investment in 2003
Excluding state asset sales, the Czech Republic will probably attract the same amount of foreign direct investment this year as it did in 2002, the head of the Czech state investment agency said, reports the Budapest Business Journal.
The agency, CzechInvest, expects between US$2bn and US$3bn in investments from abroad this year, Director Marin Jahn said.
Raiffeisen Bank's analysts in the Czech Republic said the country probably attracted US$3.2bn last year - not including state assets sales, which would raise the total to around US$7.7bn.
The Czech Republic led the 10 countries to join the European Union in May 2004 in drawing foreign capital as more international companies seek a foothold in Central and Eastern Europe, where labour and other costs are still cheaper than in the West.
"The structure of investment has been changing from quantity to quality," said Jahn, citing projects such as recent service and technology development centres planned by Matsushita Electric Industrial Co and Logica Plc.
PSA Peugeot Citroen is expected to announce this month its choice for a €700m factory in the region, while Huyundai Motor Corp is also mulling an investment, Jahn said. Hungary is also among the possible locations for these projects, according to previous announcements of Hungarian government officials.
A unit of Honeywell International Inc said it will open a product development centre in Brno, the second largest Czech city.
Honeywell, the biggest maker of automated controls and cockpit electronics, plans to build its global development centre for developing control products for buildings and combustion systems. The company is adding to its two existing research centres in the country.
The economic slowdown in the European Union that has especially hurt Germany, the Czech Republic's largest trading partner, has not reduced the number of upcoming investment projects in the region so far, Jahn said. It has, though, increased the time international companies take before they decide to invest. "There is a quite clear trend to take more time," Jahn said.
The Czech Republic, the second most popular country poised to join the EU in 2004, has attracted investment from international electronics and car part makers, who took advantage of its geographical position, network of local producers and relatively cheap and skilled labour force, analysts said.
The country attracted US$2,432 per capita in foreign direct investment in the period of 1993-2001. It was followed by Hungary, with US$2,256 per capita, and Estonia, with US$2,238 per capita, according to the Vienna Institute for International Studies. Slovakia placed seventh in Central and Eastern Europe, with US$1,017 per capita over the period, followed by Poland, with US$1,009 per capita.
Direct investment in the Czech Republic was fuelled by the government's sale of the two largest banks and by last year's €4.3bn sale of the nation's gas industry to Germany's RWE AG.
International electronic makers and car parts producers, such as Royal Philips Electronics NV or Matsushits, made other investments.
Analysts said some companies were attracted to the country because it allows them to cut costs at a time when the EU slowdown is making it harder for corporations to make a profit.
EBRD to help Czech Republic after accession
The Czech Republic is on the threshold of entry into the EU after 10-year membership in the European Bank for Reconstruction and Development (EBRD), but it may still lean on support from the EBRD in the future, reports the Prague Business Journal.
The EBRD expects to spend some €1bn a year on projects in eight candidate countries even after their accession to the EU, against the current €1.2bn.
The EBRD is expected not only to bring profits to its owners - 60 member states and two international institutions - but also to support the transformation of new economies and, at the same time, not to compete with private capital.
This is also one of the reasons why the EBRD places some 3% of its total investment in the Czech Republic now, said EBRD analyst, Libor Krkoska.
In Hungary, the EBRD invests 4.5% of the total volume, while Slovakia receives 3.8%. "The sum spent on the Czech Republic is somewhat less than we expected," Krkoska said.
At the same time, however, he pointed out the fact that the Czech Republic boasted the highest per-capita foreign direct investment in the region.
Commenting on the general outcome of the EBRD's activities in the Czech Republic, Krkoska mentioned both successes and failures, although successes prevailed.
Among successful projects, he highlighted above all the privatisation of Ceska Sporitelna and CSOB banks, which the EBRD helped to accelerate and complete.
Other successes include the Karosa, Barum ad Cokaladovny companies.
On the other hand, failed projects include the Korado company, in which the EBRD holds 30%, as well as the privatisation of Czech Airlines, which actually has not taken place yet, Krkoska said.
The EBRD is now looking to focus on aid to small and medium-sized companies, the privatisation of telecoms and infrastructure. Infrastructure projects are long-term and usually very demanding in terms of finances; so domestic banks may not have enough capacity to cover them, the EBRD explained.
However, the EBRD's survey as of September 2001 showed that most of its money placed in the Czech Republic was aimed at the financial sector, which means that the EBRD is involved above all in other banks.
Tourism rebound seen, but services still lacking
Tourism, the second most important business sector in the Czech Republic, should bounce back this year, but the Czech Tourist authority warns that poor service and quality is costing the country dearly, the Prague Business Journal has reported.
Czech tourism could increase the average spending by each tourist if the country put a premium on higher quality services and tackled some of the recurring problems confronted by most visitors. Foreign tourists on average spend Kc 10,000 on a six-day stay in the Czech Republic, but they could spend twice as much if services were improved, according to the Czech Tourist Authority.
"We are not by a long stretch using all the possibilities the republic has (for tourism)", said David Gladis, CEO of the tourist authority. "Income from tourism in 2001 reached Kc 118bn, but according to our estimates it could have been Kc 130bn higher."
Tourism and related businesses gave jobs to more than 112,000 people directly and a further 490,000 indirectly last year.
Flooding, economic slowdown and fear of terrorism hit tourism earnings last year. What's more, foreigners stayed for a shorter period - an average 5.7 days in 2002, half a day less than the average in 2001, according to a tourist authority study. The number of foreign visitors fell to 5.8 million, down 15 per cent from 6.9 million in 2001, said Jaromir Beranek, director of Mag Consulting, the agency that tracks tourism development. Foreign currency revenues from tourism fell to Kc 100 billion for 2001's Kc 118bn. "This year, the number of foreign tourists is likely to rise again and may surpass the figure for 2001," Beranek said. "If nothing extraordinary like last year's floods happens, revenues could grow to Kc 120 billion."
But experts say that Czech Republic is falling well short of its earning potential. The tourist authority has pinpointed the most serious obstacles and wants the government and other authorities to start tackling them immediately.
D47 doubts threaten EU road funding
Worries about the controversial tender to construct the D47 motorway in northern Moravia could cost the Czech Republic funding from the European Union for another key road project, a top Finance Ministry official told Prague Business Journal recently.
Ludmila Lefnerova, the director of the department for coordination of EU support at the Finance Ministry, said concerns about the D47 could impact on funding for the planned reconstruction of the R48 main road from Belotin to Cesky Tesin, north Moravia.
The European Commission could withhold financing for the 60-kilometre reconstruction under its main infrastructure programme for candidate countries, ISPA, if the government contract with private consortium Housing & Construction for building the D47 proceeds, she explained.
Deputy Transport Minister, Jiri Kubinek confirmed that the D47 contract could prove an obstacle to R48 funding. The two routes are parallel in several places and financing might be shared, some observers said.
Reconstruction of the R48, including bypasses, could cost around Kc900m (€28.4m). Money for section of the planned work, between Horni Tosanovice and Zukov, is currently lacking in the state budget. EU money would be more than helpful, said a high-ranking source at the Transport Ministry who asked not to be named. ISPA can finance up to 75 per cent of construction costs but the rest must be paid by the state.
National coordinator for ISPA and Deputy Regional Development Minister, Cestmir Sajda, said in a request for co-financing of work on the section between Tosanovice and Zukov has been proposed to the European Commission. "During the approval process, the EC will take the D47 project into consideration," he said.
The future of the D47, sometimes described by its critics as a contract to tunnel money rather than a road, is still in the balance in spite of the Cabinet making no move so far to cancel the contract with Housing & Construction.
Terms of the contract have been heavily criticised for being far too favourable to the consortium, resulting in the state paying far more in the long-term than if it had chosen to build the much-needed motorway itself.
Difficulties in buying land for the motorway have now surfaced, being only the latest in a series of problems to plague the construction project. Kubinek said the state cannot now give property owners the amounts initially promised to them because of changes in the rules for assessing and buying out land. Due to the changes, the prices offered by the government have been halved. "Taking over the properties is delayed," Kubinek said. An ongoing problem exists with a strategic plot of land near Olomouc where the receiver of the food company, Seliko, does not want to sell, Kubinek added. A construction permit for the D47 has still not been granted and will not be given until all the required property has been bought.
Recently the Transport Ministry announced a tender for an independent expert to act as an impartial middleman in any disputes between the state and Housing & Construction. The tender was taken as a signal that the government will continue working with the private consortium.
Czech as well as foreign companies can bid for the work provided they have assisted in at least three motorway construction projects worth at least Kc 3bn in the past five years, are authorised to do such work and are not biased towards the state or consortium. The first shortlist for the tender will be known in mid-February.
Housing & Construction signed the contract with the Cabinet for the construction of the D47 last June, just ahead of the general elections. It is now holding talks with the government about adjusting some of the contract conditions. These should be completed by the end of February. Transport Minister, Milan Simonovsky, should submit a proposal to the Cabinet to alter the contract on March 19th. The Cabinet will then decide whether to continue with the contract and under what conditions. Observers say it is unlikely the Cabinet will cancel unless criminal offences linked to the original terms are proved.
According to the original contract, construction of the D47 would cost Kc 125bn. However, the recently appointed chairman of Housing & Construction's supervisory board, Jiri Sedivy, said construction will not cost more than Kc 115bn. The figure is based on the updated model of financing drawn up by Deutsche Bank. Opponents of the project warn that the state could end up paying more than Kc 2000bn.
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