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CZECH REPUBLIC


 



In-depth Business Intelligence 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 85,438 69,590 56,800 39
         
GNI per capita
 US $ 6,740 5,560 5,250 66
Ranking is given out of 208 nations - (data from the World Bank)

Books on Czech Republic

REPUBLICAN REFERENCE

Area (sq.km) 
78,866

Population 
10,246,178 

Density 
(per sq.km) 
132.2

Capital 
Prague 

Currency 
Koruna 

President 
Vaclav Klaus

Private sector 
% of GDP 
80%



Update No: 094 - (24/02/05)


Historic residue
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). 

Economic success
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 this year.
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 switching over.
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.

Net recipient
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 after 2006.
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. 

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ENERGY

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.

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INDUSTRY

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 Agency reported.
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 year-on-year.
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.

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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 reported.
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.

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TELECOMMUNICATIONS

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.

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TRANSPORT

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 recently. 
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.

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