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Update No: 090 - (27/10/04)
Economy on the mend
The economic statistics are looking up after a poor year or two recently. This
is doubtless because so is the rest of the EU, of which the Czechs are now proud
Czech GDP grew by only 2.9% in 2004, not so brilliant for a transition economy.
It is now rising by 4.0%, a more healthy record.
There is one thing going for it, a big amount of FDI, which at $37bn is second
only to Poland's more than US$40bn, in the former communist world.
Czech trade gap lowest since 1995
Confirming the trends, the August trade deficit was the lowest monthly deficit
since 1995. The improving trade position was driven by a 29 per cent rise in
exports as against a 23 per cent rise in imports. The overall figure was far
better than the market had expected and the Czech currency, the crown, rose
against the euro immediately after the data was released.
The Czech economy has picked up in recent months with GDP in the second quarter
growing by 4.1 per cent year-on-year.
The Czech Republic's overall economy, as we have already remarked, has been
helped in recent years by a wave of foreign direct investment, most notably by
car producers. Cars, car parts and machinery also represent one of the largest
segments of the Czech export sector with companies such as Germany's Volkswagen
producing cars and parts in the Czech Republic and exporting them back to
Germany and other lucrative markets in the West.
Macroeconomic situation improves
The macroeconomic situation overall is in fact improving. The Czech Republic's
inflation rate fell unexpectedly in September to 3 per cent year-on-year with
unemployment falling to 9.1 per cent.
Analysts had expected inflation to remain static at the August level of 3.4 per
cent and said the surprise decline would ease the pressure on the central bank
to raise interest rates, at least in the short term.
In monthly terms inflation was negative at minus 0.8 per cent after registering
no change month-on-month in August.
Unemployment, at 9.1 per cent, was 0.2 percentage points lower than in August.
Jobless data in the Czech Republic are now calculated under International Labour
Organization methodology. Under local methodology unemployment would be 10.1 per
Czech Social Democrats get poll boost
The ruling Social Democrats in the Czech Republic have gained in opinion polls
since the accession of Prime Minister Stanislav Gross. He is a populist,
down-to-earth politician with wide appeal.
An opinion poll by the STEM agency quoted in September 24th's edition of the
Mlada Fronta Dnes newspaper suggested the Social Democrats had the support of
16.3 per cent of voters in September compared with 13.6 per cent in a similar
poll taken by the same agency in July. The poll put the Social Democrats in
second place, overtaking the largely unreformed Communist Party, whose support
dropped to 15.5 per cent from 19.1 per cent.
The rightist opposition Civic Democrats continued to hold a strong lead taking
31.6 per cent. The only other party to cross the 5 per cent threshold necessary
for parliamentary representation was the Christian Democrat Party, which took
7.6 per cent. The Freedom Union had the support of just 1.1 per cent of voters,
the poll suggested.
Gross formally replaced Vladimir Spidla as prime minister in August. Spidla was
ousted by his own party after a disastrous showing in elections to the European
Parliament in June.
The poll was conducted among a representative sample of 1,732 adults between
September 1 and 10.
Bosch to open Czech design centre
German parts maker Robert Bosch will set up a €4m design centre in the Czech
Republic where it has become one of the largest foreign investors, a Czech
government agency said, New Europe reported recently.
CzechInvest, the state run agency for investment promotion, said the technology
centre would be built in Ceske Budejovice, about 150km (93 miles) south of
Prague, and employ up to 200 people.
The Czech Republic, an EU member since May, has attracted scores of foreign
manufacturers thanks to its central European location, skilled and educated
workers and several times lower labour and other production costs than in
western Europe. But the government has recently focused on luring more
investment into high valued-added projects such as research and business service
outsourcing centres that employ university graduates and give them access to the
newest technology. Jarmila Horska, a project manager at CzechInvest, said that
the state aid scheme for technology centres played a vital role in Bosch's
decision to build its Czech centre, which will develop new platforms for
automotive components. CzechInvest did not say what the specific incentives
were. Robert Bosch's Czech unit supplies Volkswagen, BMW, Fiat, Hyundai and
Between the wheels
Hayes Lemmerz Alukola (Alukola) in Ostrava-Kuncice is expanding its production
of aluminium wheels by 50% in the company's drive to stay at the top of the
market by expanding its production and technological facilities, Czech Business
Alukola, a subsidiary of Michigan-based Hayes Lemmerz International (HL) in the
United States, invested €20m (Kc 631m) for the construction of a new aluminium-wheel
production hall that opened on September 29th. What's more, HL's steel-wheels
subsidiary, Hayes Lemmerz Autokola (Autokola), also in Kuncice, won the contract
to be the sole supplier of steel wheels for all cars produced at the Toyota
Peugeot Citroen Automobile (TPCA) plant in Kolin. HL opened its first
development centre for suspension systems outside the United States in Kuncice.
Alukola's new facility expands production at the company from 1.2m to 1.8m
aluminium wheels annually, increases the work-force at Alukola from 260 to 360
workers, and follows in the company tradition of using state-offered incentives.
Jana Studnickova, a press relations officer at CzechInvest, said Alukola was one
of the first four companies to make use of the new tax incentives in 1998. The
company has recently applied for tax benefits on the new facility via an
incentive programme called "the framework programme for the support of
technology centres and business support-services centres."
Rene Hilscher, Alukola's managing director, said the production increase is not
due to one particular industry customer but is intended to better service all of
Alukola's clients in the region as well as Western Europe, including Skoda, Opel
the VW Group, Ford, Dacia and Smart.
Czech government to buy Boeing share in plane producer
Boeing is, after six years, leaving the Czech plane producer, Aero Vodochody.
Boeing Ceska's one-third share in the company, which produces mainly military
planes, will be transferred to the [Czech] state for 2 Czech korunas, Czech TV1
However, this does not mean that this is for nothing. The Czech Republic has
guaranteed the US company's loans and paid 10bn korunas.
This is why the government decided after long talks with Boeing that it would in
the critical situation take over the company once again.
"Unless the government had approved Boeing Ceska's departure from Aero,
then bankruptcy proceedings would have been inevitable," Czech Deputy Prime
Minister for Economy, Martin Jahn.
Subsequently, one-half of the shares owned by the US company will be transferred
for one koruna to the Letka company [a subsidiary of the National Property Fund]
and the other half will be transferred for one koruna to the Czech Consolidation
Spokesman for the Czech Industry and Trade Ministry, Ivo Mravinac, said "it
is really too early to speak about any other strategic investor. The company is
now facing restructuring - that is, all its production programmes will be
re-assessed and those loosing money will be stopped."
CSOB hikes IAS net 20%
Czech bank CSOB posted a consolidated net profit of 3.93bn Czech crowns to
international account standards (IAS) in the first six months of 2004, an
increase of 20% over the same period a year earlier, according to figures
released by the bank, New Europe reported.
The increase was fuelled in particular by growth in the home financing segment,
according to the bank. CSOB's total assets at end June were up 9.0% from the end
of 2003 to 659.5bn crowns. The operating profit of the CSOB group stood at 5.4bn
crowns in the first half of the year, an increase of 54% year-on-year.
Individual clients and small and mid-sized businesses generated 33% of the
operating profit, while large companies accounted for 27% and financial markets
16%. Income from interest was up 17% year-on-year to 7.8bn crowns. Fee and
commission revenues rose by 11% to 3.4bn crowns at end June, thanks mainly to
increases in mutual fund sales and payment card sales.
Construction output up
Czech construction output increased by 0.3% year-on-year in July 2004, the Czech
Statistical Office (CSU) announced, New Europe reported.
Adjusted for the number of workdays, Czech construction output was up 3.9%
year-on-year in the monitored period, said the CSU. Czech construction output
grew in July again after two months of decline caused by changes to the value
added tax (VAT) that came with the Czech Republic's entry to the European Union
(EU). In May, construction work was shifted from the lower 5.0% VAT rate to the
basic 19% rate.
Aguna to build new plant in Brno
Swiss firm Aguna will build a new 250m Czech crowns facility for the production
and development of precision instruments in Brno's Cernovicka terasa industrial
zone, a statement from CzechInvest, the state agency for promotion of foreign
investment, said. The new plant will create around 80 high-quality jobs, New
The high-quality workforce available in the area was the main factor in Aguna's
decision to locate in Brno, according to the Tomas Bohrn, project manager at
CzechInvest. "This precision engineering project demonstrates the huge
potential of Brno as well as the South Moravian region to attract technically
advanced engineering R&D investments," said Bohrn.
FOREIGN ECONOMIC COOPERATION
Czech, Tajik presidents sign co-operation agreement
Tajik President, Emomali Rakhmonov, and Czech President, Vaclav Klaus, have
signed an agreement on Czech-Tajik cooperation, including the areas of science
and education, CTK News Agency reported.
In Rakhmonov and Klaus's presence, representatives of both countries signed two
economic agreements. The main Czech interest in Tajikistan is construction
material production and waterpower engineering.
"The Czech Republic is interested in close contacts with Central Asian
countries," Klaus said following the meeting with Rakhmonov.
According to Rakhmonov, the operation of Czech companies in Tajikistan will
indirectly involve also reconstruction of Afghanistan, whose border with
Tajikistan is 1,340km long. The Czech Republic will take part for example in the
Rogun water power station completion and the GUP Tadzikcement Dushanbe cement
In connection with Rakhmonov's visit, Tajik Economy and Trade Minister, Hakim
Soliyev, arrived in the Czech Republic as well. Soliyev has had talks with
Martin Jahn, Czech deputy prime minister for the economy, in which he has
offered the Czech Republic the opportunity to participate in the privatisation
of Tajik companies.
DHL opens European computer centre in Prague
Logistics firm DHL will launch the operation of a new 5bn Czech crowns European
computer centre in Prague this month, CzechInvest agency spokeswoman, Jana
Viskova, said, Interfax News Agency reported.
The Prague-based centre will be the largest IT operations centre in the
company's global network, said Viskova.
DHL's 5bn crowns investment in the project, which will create some 1,000 new
jobs, is exceptional in the relevant sector in the past two years, said Viskova.
DHL expects to gradually move activities from its centres in Great Britain and
Switzerland to the new Prague centre.
The centre will be part of a single infrastructure of DHL's information system,
together with similar facilities in the US and Malaysia. According to previous
information, DHL will invest €500m, or some 15bn crowns in the centre, making
it the third largest investment in the Czech Republic.
It will employ about 400 staff by end 2004, and the workforce should gradually
rise to some 1,000 in two years. DHL is owned by Deutsche Post World Net and
operates in 228 countries with staff of 170,000.
Zentiva sales to top 10bn crowns
Zentiva, the largest Czech pharmaceutical maker, expects sales to top 10 billion
Czech crowns this year, spokesman, Petr Polievka, said, New Europe reported.
Zentiva was formed in 2003 through the merger of the Czech pharmaceutical firm
Leciva and the Slovak pharmaceutical Slovakofarma. The company employs 2,750
people. Polievka said Zentiva hopes to strengthen its position in central and
eastern Europe - particularly in Poland, Russia and the Baltic States. The
company expects "double-digit" growth.
Sanofi-Aventis to boost research
The French pharmaceutical company, Sanofi-Aventis on September 13th announced
plans to invest 150m Czech crowns in development and research of new drugs in
the Czech Republic this year, New Europe reported.
Last year, the French firm invested 130m crowns in the Czech Republic and it
said its investments should grow over time. Sanofi-Aventis is the second largest
drug maker in the Czech Republic, claiming 7.2% of the domestic market. It is
the largest importer of drugs. The firm specialises in drugs for high blood
pressure, obesity, diabetes, cardiovascular, oncological and psychiatric
diseases. In 2003, Sanofi-Aventis imported pharmaceuticals worth 3bn crowns.
Over the first 7 months of 2004, it reported revenues of 1.6bn crowns. The
company employs 282 in the CR and expects the workforce to grow.
Special Cesky Telecom quarterly bonuses in the offing
Management and supervisory board members of the country's dominant telecoms
operator Cesky Telecom (CT) could receive a total of 200m Czech crowns in
quarterly bonuses over the next two years, as part of a planned motivational
programme, the business daily Hospodarske noviny (HN) reported recently.
According to CT spokesman, Vladan Crha, the bonuses are not connected to the
result of CT's privatisation, but aim to motivate the management to focus on
increasing the company's value for shareholders over the long term. The bonuses
would be paid as of March 2005.
The IT ministry expects the new owner of the state's 51 per cent stake in CT to
be chosen by this date. Responding to the news, Finance Minister, Bohuslav
Sobotka, has asked CT CEO, Gabriel Berdar, and supervisory board Chairman, Jiri
Hurych, to explain the planned motivational programme.
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