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CZECH REPUBLIC

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Area (sq.km) 
78,866

Population 
10,249,216 

Density 
(per sq.km) 
132.2

Capital 
Prague 

Currency 
Koruna 

President 
Vaclav Klaus

Private sector 
% of GDP 
80%

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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 members. 
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 cent.

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.

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AUTOMOBILES

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 other automakers.

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 Weekly reported.
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.

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AVIATION

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 reported.
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 Agency [CKA].
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." 

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BANKING

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.

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CONSTRUCTION

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 Europe reported.
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.

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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 works reconstruction.
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. 

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INFORMATION TECHNOLOGY

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.

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PHARMACEUTICALS 

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.

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TELECOMMUNICATIONS

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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