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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: 078 - (27/10/03)
A fragile government
The Czech government has narrowly survived several votes recently, one of no confidence. The Social Democrats (CSSD), led by Premier Vladimir Spidla, were handed a poisoned chalice in winning elections last year, after their leader, Milos Zeman, had stood down. He may have thought that likely himself, which is why he surrendered power after a decade of prominence in Czech politics.
The Czech Republic has had a difficult time of late. In 2002, the Czech Republic ran a deficit of 7.3% of GDP. This was due partly to the costs of coping with exceptional flooding last summer. The deficit could be as high this year, partly due to the effects of exceptional drought. State spending is over 50% of GDP and the budget deficit is expected to be over 7% again of GDP in 2003. Moreover, the country is suffering from the usual blues of the Central Europeans right now, above all slow growth in the EU, which on last count was reckoned to be quite flat.
With difficulties abounding all around it, Spidla's government is in trouble. It has a bare majority in parliament and now has a hostile president in the old warhorse of the conservatives, Vaclav Klaus. The largest strike in the country since 1989 took place on September 1st, when the teachers staged a one-day strike at inadequate pay. The teachers are the bastion of the natural constituency of the Social Democrats. But to have yielded to their demands would have worsened what is already shaping up to be the record deficit that the economy has ever had.
It may have suited the opposition parties the Civic Democratic Party (ODS) to lose the no-confidence vote by 100 to 98. With so small a margin between the parties what every MP thinks and does matters. The ODS leaders urged one of their own members, Petr Kott of Liberec, to stand down after being so drunk as to be unable to operate the voting machinery on the day of the vote. Another opposition deputy was absent on health grounds. If these two had voted for the motion, it would have been a dead heat. It was as close as that.
The opposition may well want to let the government steer the unpopular 2004 budget proposals and financial reforms through their early stages in parliament first before taking over. Some reforms are going ahead. The government plans to reduce benefit costs by trimming index-linking. But it has neither the will nor political wherewithal to make a real dent on the problem of excessive state spending. A centre-right successor would be more plausible in the role of retrenchment and reform.
Devolution a blessing in disguise?
The crisis in the forint, the Hungarian currency, in June did nothing for the Czech crown either. All the Visegrad powers are seen by the markets as having over-extended economies with fiscal problems and an uncertain outlook.
Yet, as in the case of the forint, the devaluation of the crown may yet prove a blessing in disguise, enabling industry to raise its exports when the EU economy does at last begin to grow. The latest IMF report in October has been optimistic here.
Brose Technik to employ more people in new plant
German car component maker, Brose Technik, will build a €40m plant in the Koprivnince industrial zone, Brose CZ Director, Petr Herman, was quoted as saying by Interfax News Agency. Brose Technik hopes to employ 700 people in the new plant. Production should be launched next autumn.
Brose CZ has operated on the Czech market for 10 years. It employs 400 people in a leased facility in Roznov. Brose Technik is a key supplier to a number of important automobile concerns, like Germany's Mercedez Benz and Volkswagen (VW). The company operates 20 production plants around the world employing a total of 7,200 people. Its annual turnover stands at around €1.8bn
Germany's Brose Technik is the third automotive company, after the US firm Dura Automotive Systems CZ and the Netherlands' Cirex BV, to invest in the Koprivnice industrial zone. Unemployment in the Koprivnice region stands at 15.2%, and is rising, thanks to layoffs a the region's main employer, the truck maker, Tatra. Tatra will dismiss a third of its 5,200 staff this year, and the layoffs are to continue in 2004.
Ministry frees funding for cleanup of 'oil lagoons'
After more than a decade of waiting for the government to fund and set rules for the clean-up of chemical waste from Ostrava's industrial pools, so-called 'oil lagoons,' the city finally received the long hoped-for news, the Prague Business Journal reported.
On a visit to the north Moravian region recently, Minister of Environment, Libor Ambrozek, announced that all obstacles to the cleanup of the lagoons had been eliminated and that the process will soon begin.
"We have been waiting for this for 13 years, two months and five days," said Ostrava mayor, Ales Zednik.
The four settling lagoons are spread over 7,000 square metres and contain more than 350 cubic metres of oil waste. They lay in a fairly close proximity to Ostrava's Fifejdy housing estate and are a legacy of bankrupt chemical producer Ostramo. Fifejdy's inhabitants are most aware of them when it starts to rain and the chemical odour permeates the neighbourhood.
"This is very good news, because there is a lot of unused land involved. And nobody knows what pollution is leaking into the air even when it doesn't smell," said Jan Zonek, who lives at the Fifejdy estate.
Rain poses another risk. "The lagoons are in the open air, and so when it rains, the additional water has to be pumped out so that they don't overflow" and pollute the surrounding area, said Valerian Pavel, head of the water protection department of Ostrava City Hall. The constant monitoring and pumping is expensive for the city, he said.
Even before Ostramo's privatisation in the early 1990s, many locals were calling for it to be shut down and for the environmental damage it had caused to be cleaned up. Established at the end of the 19th century, Ostramo became the only company in Czechoslovakia regenerating car oils in 1965. In 1993, it was privatised as a highly profitable company to Vitezslav Vlcek.
Because of the extent and seriousness of the ecological damage the company had caused, the state bought the lagoons back from Vlcek for Kc1 in 1996. The same year, the government decided to allocate Kc4bn for their clean-up from the National Property Fund (FNM).
A branch of the state-owned company Diamo secured the lagoons to prevent the further spread of pollution and contamination and had been preparing to hold a tender for the cleanup. But the company was ineligible to receive the earmarked FNM funds according to the law at the time because it was not the source of the ecological damage. With the floods of 1997, the situation worsened when Ostramo's production plant was devastated. That damage was never repaired, production never resumed. Ostramo was officially declared bankrupt in 2001.
The government finally passed a decree in June to allow Diamo to receive the clean-up funding. But it took another two months for the Ministry of Environment to draft guidelines for the clean-up. In Ostrava recently, Ambrozek said clean-up of the lagoons should be finished by 2010.
Diamo sanacni Prace's chief officer, Jiri Belohradsky, said the next step will be opening a tender for the clean-up work. "Now we have to incorporate the ministry's sanitation rules into the tender," he said. "The Kc4bn is only the state guarantee. The actual amount for the clean-up can be lower. It will be up to the participants of the tender." Price as well as suggested technology for the clean-up will be one of the main criteria of the tender, which he said should be opened this year.
Because of the enormity of the job, Belohradsky said he expects big players like OKD, ODS-Dopravni Stavby Ostrava or Tchaz to take part.
Once the work is completed, the city hopes to reforest part of the land and use another part as an industrial zone for light engineering.
Clean-up of ecologically damaged areas of privatised properties in the Czech Republic as traditionally been funded by the FNM from privatisation revenues. Since 1991, when funding through FNM begun, the government has approved over 260 such projects, and the state has paid out some Kc16bn.
Spanish auto parts company invests
Within the next three years, CIE Plasty CZ, a subsidiary of Spain's fourth-biggest supplier of automotive components CIE Automotive, will invest Kc414m into its new production line in Valasske Mezirici creating as many as 100 new jobs, Prague Business Journal has reported.
"Our Moravian factory should reach its maximum level of production in the year 2006," said Jose Guedes, director of CIE Plasty. "Our installed production capacity allows us to produce yearly more than 4.5m pieces of plastic components for the automotive industry."
Production should begin in 2003 and 2004, mainly for Volkswagen and Ford. "We expect to produce in the Czech Republic for other actual CIE clients such as General Motors and Faurecia and we will look for the possibility of supplying also TPCA and Skoda auto," Guedes said.
Because of the high rate of unemployment in the region, the investor can obtain as much as 49% from the public resources financing project.
The investment incentives can be drawn in the form of tax deductions and a subsidy for new jobs created but must be approved by the Office for the Protection of Economic Competition (UOHS), CzechInvest spokeswoman, Jana Viskova, said.
Meanwhile, the German automotive components supplier, Brose, was planning to move its Czech daughter company, Brose CZ, from Roznov pod Radhostem to an industrial zone in Koprivnice in North Moravia, Hospodarske Noviny reported recently. Within one year it will invest over Kc1.2bn into construction of a new production facility, Petr Herman, director of the Czech daughter company, told the newspaper. The company has been renting its production complex. He added that TPCA creates new business opportunities in the country.
Honeywell opens new R&D centre on old Flextronics site
US concern Honeywell launched operations recently at its new global development centre and production facility in Brno. The initial 40 researchers in the development centre will gradually increase to 400 specialists making the project the largest in the country in research, development and strategic services.
The Brno centre will focus on the development of solutions and products in air-conditioning and heating of buildings and combustion equipment.
The production facility now employs about 200 staff, but Honeywell's representative in the Czech Republic, Jaroslav Dolezal, said at a news conference recently that the company expects to employ 300 there before the end of this year.
The company took over one of Flextronics International's old production halls in Brno's industrial zone, Cernovicka terasa, which the latter company closed down last December when it pulled out of the country. Flextronics promised to bring jobs for about 3,000 people. While Honeywell's project isn't as big, CzechInvest CEO, Martin Jahn, said "it combines production with research and development" and that Honeywell's investment plan confirms the growing interest of both Czech and foreign companies in the new incentives scheme for technology centres.
Kevin Gilligan, president and CEO of Honeywell's automation and control solutions division, said that an adequate supply of educated and skilled employees - alongside Brno's location and incentives - was key to Honeywell's decision.
Honeywell is a diversified technology and manufacturing leader of aerospace products and services; control technologies for buildings, homes and industry; automotive products; power generation systems; specially chemicals; fibres; plastics and advanced materials.
Honeywell currently operates four divisions in the Czech Republic focused on automation and controls sales, aerospace support and automotive sensors. The company opened its first development laboratory outside the US in Prague in 1993.
TelSource's exit widely expected to help Telecom's privatisation
The Dutch-Swiss consortium TelSource's plans to withdraw from Czech Telecom by selling its 27 per cent stake in the nation's dominant fixed-line operator, is likely to make it easier to privatise, analysts said recently, the Prague Business Journal has reported.
TelSource (made up of KPN and Swiss-com), announced its intentions on September 20th. The consortium has picked Morgan Stanley and Credit Suisse First Boston as its advisers, who will also decide on the timing of the sale.
TelSource is in no rush to sell and wants to offer the shares to institutional and individual investors in a road show starting in November, which will take place in Prague, London, Frankfurt and New York.
Telecom announced that it would hold an extraordinary shareholders' meeting on October 23rd to discuss the sale of the TelSources stake.
Swisscom said it has wanted to unload its stake for two years, especially during the government's efforts to privatise the company. "For us, Telecom is only a financial investment," said Pia Colombo, a Swisscom spokeswoman. "Swisscom does not believe in holding minority stakes," she said when asked why the company was leaving Telecom. "We will see how the market will react, but we are looking at getting the best price," she said.
A KPN spokesman said Telecom was not KPN's core business and that the sale had nothing to do with the management changes in the telco, as KPN had also decided to sell its stake two years ago.
Tomas Gatek from Atlantik Financni Trhy said the consortium's exit from Telecom would simplify the ownership structure and might result in faster privatisation "if there are buyers on the market."
Tomas Vyskocil from Wood & Company said the last effort to privatise Telecom in 2002 collapsed because TelSource insisted that its shares be bought out at the same share price under a tag-along agreement.
The agreement between the state and TelSource on the shares buyout still exists, a National Property Fund (FNM) spokeswoman confirmed. The agreement sets out the conditions under which the state will buy out TelSources's shares, should Telecom be sold, but no specific details were made public. The FNM spokeswoman said the agreement was valid until the end of 2004 or until TelSource sold its share.
It appeared highly unlikely that the Czech state would buy TelSource's stake. "At a time when the state is looking for every billion (it can find) I exclude this option," Vyskocil said.
Minister of Informatics, Vladimir Mlynar, told the Financial Times previously that the government was ready to negotiate but he hadn't seen "long lines of bidders waiting for Telecom."
Mlynar said he would not propose another effort to privatise Telecom if there were no buyers. For his part, Vyskocil said buyers would only materialise if the Czech state made clearer how it would sell the
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