Books on Czech Republic
% of GDP
Update No: 094 - (24/02/05)
Following the First World War, the closely related Czechs and Slovaks of the
former Austro-Hungarian Empire merged to form Czechoslovakia. During the
interwar years, the new country's leaders were frequently preoccupied with
meeting the demands of other ethnic minorities within the republic, most notably
the Sudeten Germans and the Ruthenians (Ukrainians).
After World War II, a truncated 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 Communist party rule and create "socialism
with a human face." Anti-Soviet demonstrations the following year ushered
in a period of harsh repression and decades of dismal rule.
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. The Czech Republic joined NATO in 1999 and the
European Union in 2004.
The chief of state since 7 March 2003 has been President Vaclav Klaus, the
former premier and bugbear of the previous and the Czech Republic's first
president, Vaclav Havel, who stepped down from office on 2 February 2003 having
served exactly 10 years; parliament finally elected a successor on 28 February
2003 after two inconclusive elections in January 2003.
The head of government, a more important post, has been Prime Minister Stanislav
Gross since 26 July 2004. His deputy premiers have been Zdenek Skromach (since 4
August 2004), Martin Jahn (since 4 August 2004), Pavel Nemec (since 4 August
2004); Milan Simonovsky (since 4 August 2004).
One of the most stable and prosperous of the post-Communist states, the Czech
Republic has been recovering from recession since mid-1999. Growth in 2000-03
was supported by exports to the EU, primarily to Germany, and a near doubling of
foreign direct investment to over US$20bn on an accumulative basis.
Domestic demand is playing an ever more important role in underpinning growth as
interest rates drop and the availability of credit cards and mortgages
increases. High current account deficits - averaging around 5% of GDP in the
last several years - could be a persistent problem. Inflation is under control.
The EU put the Czech Republic just behind Poland and Hungary in preparations for
accession, which will give further impetus and direction to structural reform.
Moves to complete banking, telecommunications, and energy privatisation will
encourage additional foreign investment, while intensified restructuring among
large enterprises and banks, and improvements in the financial sector, should
strengthen output growth. Nonetheless, revival in the European economies remains
essential to stepped-up growth.
The country has economic problems nonetheless
High state-budget gaps could soon cost the country billions of crowns in
subsidies from European funds. In early January the European Commission (EC)
proposed 2007 as the deadline for EU member states to get their budget deficits
to 3 per cent or less of their gross domestic product in order to be eligible
for Cohesion Fund subsidies.
The government has managed to trim the initially projected 115bn Kc (US$5
billion) 2004 state budget deficit to some 100bn Kc. Furthermore, the 2005
state-budget deficit should be further reduced to 83.6bn Kc. The cut will lower
the share of the budget deficit on GDP from 5.2 per cent in 2004 to 4.7 per cent
Under the current plan of the ruling Social Democrats, the country won't meet
the 3 per cent requirement until 2008, and so it may find itself cut off from
the EU money for some time. The new requirement has added extra pressure to the
government to get the budget under control. Public-finance deficits are today a
crucial problem for the Czech economy. "Should the EC decide to push
through the 3 per cent limit ... there's a real danger that the Czech Republic
will not be able to access the money for some time," said Finance Ministry
spokesman Marek Zeman. Zeman said the government wanted to reduce the
state-budget deficit to 3 per cent by 2008 so that the country could adopt the
euro by 2010. Reduction of the deficit below 3 per cent is a requirement for
While the government's progress toward adopting the euro could be smooth,
drawing EU subsidies in the meantime could be a problem, Zeman said. "We
hope that when deciding about the eligibility for EU subsidies, the EC will take
into account that we are steering the economy in the direction approved in the
convergence program, which was approved by the EC," Zeman said.
The EC has begun holding talks on the requirements for drawing money from the
Cohesion Fund within its discussions about future EU budgets to come into force
The Cohesion Fund supports large projects worth hundreds of millions of crowns
in transport and protection of the environment. In 2007 the Czech Republic could
draw up to 44.5bn Kc from the fund. Business analysts agreed that the monies are
significant for this country. "It is one of the major financial sources
from the EU," said Next Finance economist Marketa Sichtarova.
Sichtarova pointed out that even if the EC decided to toughen conditions, the
country may never be cut off from the EU money trough. The EU's lengthy
administration procedures would likely mean that the country would not be cut
off overnight for failing to get its budget in line. Instead, the EC would call
on the Czech government to put things right and would launch proceedings with
the country that could take up to two years, she said.
From 2004 to 2006, the country can tap up to 30bn Kc in EU Cohesion Fund
subsidies. Once it complies with the 3 per cent criterion, the country should
receive 48bn-68.5bn Kc a year from the fund, plus an additional 96bn-137bn Kc
from structural funds.
The EC has already approved the first 15 Czech projects in transport and
environmental protection. Individual projects are subject to approval by the EC.
The EU funds can cover 70-80 per cent of costs. Remaining costs must be paid
from the country's state budget.
Last year Czech costs related to co-financing Cohesion Fund projects reached
some 8bn Kc. In 2007 the Czech Republic is expected to spend 37.5bn Kc on
co-financing, and in 2013 the sum should climb to almost 58bn Kc. Finance
Minister Bohuslav Sobotka said he wants to curb national programmes for
subsidies to raise enough money for co-financing.
Regardless of the outcome of the EC talks on the EU budget after 2006, the Czech
Republic will remain a net recipient of money from the EU until 2013, said Petra
Masinova, spokeswoman for the Czech Republic's permanent representation to the
EU. "There is no way we could become a net contributor. Even if we do
absolutely nothing [in terms of public-finance reforms], it cannot turn out
badly for us," Masinova said.
The Czech Republic should receive 80bn-90bn Kc from the EU every year from 2007,
according to calculations made by the Finance Ministry. This is about four times
the sum received at present.
CEZ to expand Pocerady
Czech power utility CEZ wants to expand its power station Elektrarna Pocerady in
North Noravia, CEZ board member, Jiri Borovec, said at a press conference on
January 11th, New Europe reported.
While details of the expansion are unclear, Borovec said CEZ is considering a
plan to build three units with output of 300 MWh each. CEZ said it expects to
invest more than 100 billion Czech crowns in the gradual modernisation of its
power stations. CEZ general director, Martin Roman said at the and of 2004 the
company hoped to decide on construction of a new power station as well as
renovation of a plant located in an area with insufficient coal supplies to met
the demands of a new plant this year. Roman said it was above all necessary to
ensure coal supplies in the long run.
Industrial production grows 11%
Czech industrial production went up by 10.9% in November, after 8.1% growth
in October, the Czech Statistical Office (CSU) announced recently, Interfax News
Next finance analyst, Marketa Sichtarova, said industry, along with
construction, was again the driving force of Czech economic growth in November.
Higher output was again reported by steelworks and carmakers, while footwear
production decreased in November, she said.
According to Sichtarova, the 21.8% increase in output of so-called investment
related products in the monitored period is especially positive. This means that
firms are investing in production capacity expansion and the massive investment
are helping to boost labour productivity, which jumped 13.8% in the sector in
November. The efficiency potential of the Czech economy therefore continues to
increase, said the analyst, adding that it improves the Czech Republic's chances
of gaining on Western European economies.
In the first 11 months of the year, Czech industry added 10 per cent
Analysts said the rise in output for full-year 2004 should be the best in the
past three years. Some of them have forecast an increase of 9%, while in 2003,
industrial production increased by 5.8%. Exports remained the driving force in
Czech industry last year.
Concerns that domestic industrial companies could be hit by the slowdown of the
German economy have not materialised for the moment, said Sichtarova. Sales from
direct exports of industrial firms added 20.8% in real terms in the monitored
period. Czech industry performed well last year thanks to job cuts, among other
things. The workforce in the industrial sector fell 0.2% compared to a year ago.
MINERALS & METALS
Vitkovice Steel sale starts
The state published an advertisment announcing the sale of a 99% state-owned
stake in the Czech steelworks, Vitkovice Steel (VS), in Czech dailies on January
14th, officially launching the privatisation process, Interfax News Agency
Investors interested in VS had to submit binding bids before January 31st. The
state, which controls VS through Osinek, expects to generate 4.5bn Czech crowns
from the sale. The cabinet announced in November 2004 that the VS tender would
have two rounds. For the second round, the privatisation commission will
shortlist investors on the basis of privatisation plans ensuring the firm's
viability and minimal employment until 2008, which they submit.
Oskar targets UMTS licence
The Czech Telecoms Office (CTU) has declared a tender for the third UMTS licence,
CTU announced on its website, New Europe reported recently.
In the first round of the tender, the CTU is offering the licence to the mobile
phone operator Oskar Mobil for 2bn Czech crowns. If Oskar, the third mobile
operator on the Czech market and the only one yet in possession of a UMTS
licence, does not express interest in the licence, the CTU will declare an
auction that would last until June. Oskar Mobil said the licence is only worth
300 to 500m crowns. The firm said earlier it was interested in the UMTS licence,
but only under acceptable conditions. T-Mobile bought a UMTS licence for 3.81bn
crowns, while Eurotel, the country's biggest mobile phone operator, offered
3.54bn crowns. UMTS supports video-conversation, multi-media and multi-player
games, and high speed internet connection at rates up to 360kbit/s.
54 Czech firms eye digital broadcasting licences
Czech Council for Radio and TV Broadcasting (RRTV) has received 54 applications
for 12 digital broadcasting licences from 34 companies, RRTV announced recently.
The deadline for submitting applications was December 21st. The most popular
commercial TV station in the Czech Republic, TV Nova, submitted eight
applications, New Europe reported.
Other applicants include TV Prima, TA, Ocko music channel, Febio TV, and the
regional TV's Lyra, and Genus, among others.
A total of 29 applications concern the C network, operated by the country's
biggest fixed-line operator Cesky Telecom. The remaining 25 applications concern
the B network, operated by Czech Digital Group.
The council now has 90 days to hold a public hearing. The winners of the
licences will be announced within 3 months of the hearing and must begin
broadcasting by mid-2006.
Belacom seeks info memo on Telecom sale
Belgian telecoms firm Belgacom has asked for an information memorandum on the
sale of a 51.1 per cent state-owned stake in Cesky Telecom (CT), said Belgacom
spokesman Thirerry Bouckaert recently, New Europe reported.
At the same time, Belgacom is considering a possible investment in Turkey, which
is privatising its telecommunication firm Turk Telekom. As a result, Bouckaert
said it is not yet clear whether the firm will actually submit a bid for CT.
While Belgacom has enough free cash, there are not many investment opportunities
left on the Belgian telecommunications market. CT is one of the most profitable
firms in the Czech Republic, but because of the liberalisation of the Czech
telecoms market, increasing competition is likely to erode the firm's market
share, according to analysts.
Analysts put the price of the stake in CT at 50 to 60bn Czech crowns. The market
value of the stake is currently 63.6bn crowns.
Cabinet decided in early December that the FNM should select a buyer by the end
of March 2005.
Other telecoms firms interested in CT include TDC, Swisscom, Vodafone,
TelisSonera and Telefonica. Possible suitors from among the financial investors
are BlackStone, CVC, Cerberus, Permira, Providence Equity and PPF.
CD revenues to stay flat
Czech national rail operator Ceske drahy (CD) expects revenues of 46.4bn Czech
crowns in 2005, roughly the same as in 2004, Interfax News Agency reported
The company expects freight transport sales to fall by 400m crowns from last
year to 17.8bn crowns due to stiff competition. Passenger transport sales, on
the other hand, should be higher, bringing in 5.5bn crowns, a 220m crowns
increase over 2004. CD expects to end the year with a loss of 690m crowns. For
2004, it had expected a loss of 1bn crowns, but now said it will be lower,
between 500m crowns and 700m crowns. Nevertheless, the rail operator expects a
balanced cash flow this year. It said it should break even, generating enough
money to cover its obligations. The rail operator plans to dismiss another 6,000
employees, having laid off 6,800 in 2004. CD now employs roughly 70,000 workers.