czech republic

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In-depth Business Intelligence 

Key Economic Data 
  2003 2002 2001 Ranking(2003)
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


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Vaclav Klaus

Private sector 
% of GDP 

Update No: 101 - (27/09/05)

Social Democrats capable of winning elections, says Paroubek
Prime Minister Jiri Paroubek (CSSD) said in Mlada fronta Dnes on September 21st that the Social Democrats are capable catching up with the senior opposition Civic Democrats (ODS), who are far ahead of the CSSD in their approval rating, and win next elections, due in June 2006. He doubtless has the surprisingly good showing of Shroeder and the German social democrats in mind here, at the recent elections in Germany.
Paroubek is reacting to the latest public opinion poll by the STEM polling agency, according to which the ODS would win the parliamentary elections if they were held now. The ODS is supported by 32.8 per cent of Czechs, while the CSSD is only supported by 21.1 per cent. 
As in Germany, people in the Czech Republic will realise that a social state could break apart and they will not vote for the ODS, Paroubek says. "When I took over the government, the CSSD's loss against the ODS was 20 per cent. I said several months ago that if the Social Democrats have the support of more than 20 per cent of voters, they will be able to eliminate the gap and win the election," Paroubek says. 
Good news for ODS chairman Mirek Topolanek is that his party would be able to form a government with the Christian Democrats (KDU-CSL) that would have a convenient majority of votes in the Chamber of Deputies. According to the STEM poll, the two parties at present enjoy the support of 40 per cent of voters, while the left-wing parties - the CSSD and the Communists (KSCM) - jointly have six per cent votes less. 
However, there is still a period of nine months before the elections and the CSSD is gradually catching up with the ODS. 
"The poll results published in September show that the new leader of the Social Democrats, Jiri Paroubek, has managed to get the party out of the worst and keep its approval rating permanently on a very decent level," STEM director Jan Hartl said. "Even the scandals around the CzechTek rave or doubts over the privatisation of the Unipetrol oil group have not influenced the people's position," Hartl said. 

Klaus criticises 'NGOism', compares it with Communism
Speaking at a conference of PepsiCo on September 12th, President Vaclav Klaus criticized NGOs and compared them with Communists. Klaus is a well-known admirer of Lady Thatcher and, like her, something of a Eurosceptic, although, again like her, he baulks at the idea of withdrawal from the EU altogether.
Klaus said that some people expect democracy to make miracles, so they then turn to the "preachers" of civic society and NGOs, and lose trust in the parliamentary system. "I see this as dangerous. We should not underestimate this development, neither in this country, nor elsewhere. For me NGOism is almost at the same level as Communism," he said. 
He also compared the economic conditions in the European Union, with all its directives, limitations and bureaucracy, to the Communist model. He said that the EU's insufficiently liberalised economy is behind the poor economic results of the continent. 
Asked by a conference participant whether he would be in favour of the Czech Republic's withdrawal from the EU, Klaus said that the Czech Republic is in the EU and would remain in it in the future. "We only assert that many things can be changed, and that its institutions can be made more effective and democratic," Klaus said. 
Klaus's opinions have differed for a long time from the opinions of the government parties, the Social Democrats (CSSD), the Christian Democrats (KDU-CSL) and the Freedom Union-DEU. His opinions are on the other hand close to those of the senior opposition Civic Democratic Party (ODS), of which he is honorary chairman. 
Klaus spoke for the first time in public about the alleged danger of the growing influence of NGOs, for which he introduced the term "NGOism," at the summit of the Council of Europe in Warsaw in May. He called "post-democracy" the NGOs' alleged effort to interfere in people's lives without a mandate gained in elections. 
NGOs then sharply criticised his opinions and wanted him to apologise. His spokesman Jiri Hajek however said that Klaus had nothing to apologise for. 

Unipetrol becomes more expensive
The Czech Republic has periodic scandals over corruption. Like in other countries in transition, the interface between the public and private sectors opens all sorts of opportunities for shady deals. For instance, it now transpires that PKN Orlen, the Polish oil group, will have to pay more than it hoped for Unipetrol, its Czech equivalent, and that it has become embroiled in allegations over privatisation kickbacks.
Premier Paroubek recently dismissed Zdenek Dolezal, the head of his office, after receiving a tape recording of a meeting in which a Polish lobbyist allegedly detailed, to his aide, kickbacks from Orlen's Kc13.05bn (US$540m) acquisition of Unipetrol.
Orlen's Czech problems may reflect the company's desperation to expand under former chief executive Zbigniew Wrobel, who was forced out last year. His replacement, Igor Chalupec, is focusing more on extracting value from its dominant position in Poland and making sure that its foreign purchases make money.
The kickbacks scandal follows revelations by Orlen's new management that its predecessors signed a disadvantageous secret forward agreement with Agrofert, one of its consortium partners. Under its contract the Czech agro-chemicals company will be allowed to buy Unipetrol's chemicals subsidiaries for just 103m Euro (US$126m) - almost a third of their current value.
Agrofert has extensive business and ownership links with the Unipetrol group, and its owner, Andrej Babis, has the ear of top politicians.
Agrofert won the first failed tender for Unipetrol in 2001, even though it was not the highest bidder, and its support for Orlen in the April 2004 tender was regarded as a significant advantage. In the event, Orlen was the only bidder in the tender and, at Kc99 a share, offered much more than had been expected for the state's 63 per cent stake.
Orlen's new management is now trying to withdraw from the contract with Agrofert and has put aside a provision of 376m zlotys (US$114.4m) in its second quarter results to pay for this. Orlen will also have to pay more than it envisaged for buying out the state and minority shareholders because the company's performance - and share price - dramatically improved during the long process of winning European Commission regulatory approval. Under the privatisation contract the price paid to the state looks set to be adjusted upwards by 15 per cent.
Moreover, recently the Czech regulator ruled that Orlen must offer minority shareholders at least Kc 139 - compared with its initial offer of Kc 103 - though this was still below that day's close of Kc 193.
Orlen has also run into problems with its acquisition of 500 petrol stations in eastern Germany from BP in December 2002. Those stations have not proved a good return and now the company is looking at buying an additional 98 Q1 stations in Germany from Beckmann Mineraloel-handel, or else getting out of the German market.
"In the region every oil company is in a tough competition to be a leader," said Andras Zekany, downstream oil and gas specialist for ING Securities in Budapest. "Some companies have run into some investments that have proven to be negative value."

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Korean auto supplier picks Czech site 

South Korean auto supplier SungWoo Hitech, has picked the Czech Republic over Slovakia and Poland for a new, 1,000-job factory, officials said recently, New Europe has reported.
SungWoo will build the plant in Ostrava to supply car-body parts to a Kia Motors factory that's under construction in nearby Slovakia. SungWoo is the first major Kia supplier to pick a Czech site for a new plant. Others are building in Slovakia. The government agency CzechInvest said the 12.5 billion Czech crowns (US$104 million) factory and spin-off investments should help Ostrava lower its 15 percent unemployment rate.

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Japanese bank to open branch 

The Bank of Tokyo-Mitsubishi will become the first Japanese bank to open a branch in the Czech Republic, the Czech Business Weekly newspaper reported.
BTM, whose parent Mitsubishi Tokyo Financial Group is among the world's 10 largest banks, plans to open a Prague branch in October to cater for an increasing number of Japanese manufacturers operating Czech factories. Mineo Hiyazaki of the Japanese Export Trade Organisation in Prague told the paper that Japanese manufacturers in auto, electronics and other sectors have invested more than 48 billion crowns (US$1.9bn) in Czech plants in recent years.

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Beer-loving Czechs drink less and export more 

The country that proudly wears the world's beer-consumption crown is pouring less at neighbourhood pubs and exporting more of its precious brews abroad, Deutsche Presse-Agentur (dpa) said in a special report. It's a globalisation strategy that Czech breweries are being forced to adapt because the country's domestic drinkers have simply filled their mugs of famous "pivo" to the limit. 
"We have reached the maximum per capita consumption - 160 litres per capita, or 16 million hectolitres a year," said Jan Vesely, spokesman for the Czech Beer and Malt Association. "We can't expect any increase in consumption or revenues from the domestic market." 
That maximum rate has led the world for years, with Czechs edging out even the Germans and Irish in per capita quaffing. No wonder this country of just 10 million supports about 90 breweries and still imports brands from as far as Mexico. 
But soon Czechs may lose their legendary consumption crown. Reasons include an ageing population, falling birth rate, changing diets and a growing taste for wine, especially among young adults. 
These days a stagnant domestic market is the best the Czechs can expect. "Thank God it's flat, because in other countries (beer consumption) is declining," Vesely said. 
Actually, the per capita consumption figures are skewed by tourism, since the millions of thirsty tourists who visit Prague and Czech spa towns every year contribute heartily to brewery sales. 
"It's the phenomenon of tourism that helps us keep up the domestic consumption," Vesely admitted. 
So breweries have responded to the trend by cranking up exports. Last year about 7 per cent of the 18 million hectolitres brewed in the Czech Republic was shipped abroad - a 60 per cent increase in exports from the 1999 level. 
The main destinations were Germany, Slovakia, Britain, United States and Sweden. 
This year's exports are expected to climb another 12 per cent, topping three million hectolitres for the first time and boosting the country's total brewery output to the highest level since 1990 - the celebratory year after communism fell in the 1989 Velvet Revolution. 
Budejovicky Budvar is among the brewers setting the pace, with nearly half of its beer now being shipped abroad. "Exports are very important for us," said spokesman Petr Samec. 
Budvar is the state-owned company locked in a legal battle for years with the world's largest brewer, America's Anheuser-Busch, over the product names Budweiser and Bud. 
Although the American beer is not sold in the Czech Republic, the Czech company recently got around the legal hurdle by renaming a product for the US market "Czechvar" - and grabbing a new export niche. 
The largest Czech brewer and exporter is Plzensky Prazdoj, owned by the conglomerate SABMiller. Between 2003 and last year, Prazdoj's domestic sales were flat but exports rose 13 per cent. That trend is expected to continue. 
Small breweries are looking abroad, too. The Lobkowicz company in the village of Vysoky Chlumec, for example, is now exporting 60 per cent of its annual output of 100,000 hectolitres, mainly to Germany. "We're seeing a lot of changes, even among the small brewers," Vesely said. 
In addition, Vesely noted several Czech brewers are making or plan to make beer abroad under foreign licensing agreements, although that output is not counted with Czech exports. 
Lobkowicz, for example, said it's interested in finding an Asian licensee, while larger Czech firms have already gotten footholds in Poland, Russia and Slovakia. Proud Czech breweries generally attribute their export success to quality and flavour, but it's clear that they're also being driven by the flat domestic market. 
The Czech Republic's status as the world's most beer-loving country helps the foreign marketing campaigns. 
Also encouraging the Czechs' global reach are the tourists who spend a weekend or weeks enjoying local pub offers, and then return home with tales of tasty discoveries. "Tourists are good ambassadors for us," Vesely said. 

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Demand for Czech steel down in H1 

Czech steel production slowed in the January-June period this year due to lower demand abroad as well as at home, the daily Hospodarske noviny reported.
Crude steel production fell by 15 per cent on the year, and steelmakers cut their final production by 13 per cent. But sales went up, the newspaper said, citing the most recent data from Hutnictvi zeleza association. In absolute figures, steel production decreased by 415,000 tonnes to nearly 2.4 million tonnes. Milos Nyvlt, chairman of the Association of Steel Distributors, said that customers had stocked themselves up and demand dropped early in the year and a lot of steel was imported to the country from abroad.

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Eurotel chooses Finnish Nokia for UMTS deal 

Mobile carrier Eurotel has chosen Finnish telecom giant Nokia as the supplier of the infrastructure for its UMTS network, the eastern European CIA news agency reported recently. 
Eurotel's executive head for strategy, Tomas David, said Nokia was chosen as it already cooperates with Eurotel in its NMT and GSM networks and because it is the largest supplier of UMTS networks and terminals in the world. Nokia will deliver mobile telephone exchanges and the radio network, including the HSDPA and the Nokia IP Multimedia Subsystem, the Finnish company said. Nokia will also provide Eurotel with a solution for the network management, services for planning and realisation of the network, the operation, maintenance and training.

T-Mobile boosts client number 

T-Mobile recently announced that it raised its client numbers to 4.46m at end of June, becoming the largest Czech mobile operator based on the number of SIM cards, Prague Monitor reported. 
Eurotel registered 4.42m clients after switching to a new methodology which slashed the number by 240,000 compared to the end of March. Oskar-Vodafone had 1.951m SIM cards at the end of June. The market evaluates mobile operators by sales or profit and by revenues per client, where Eurotel is still number one.

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