Czech Republic Business Guide
Introduction
The Czech Republic (officially Czech: Èeská Republika) is a landlocked country in Central Europe and a member state of the European Union. The country has borders with Poland to the north, Germany to the northwest and west, Austria to the south, and Slovakia to the east. The capital and largest city is Prague (Czech: Praha), a major tourist destination. The country is composed of two entire historic regions, Bohemia and Moravia, and parts of Silesia.
The Czech lands were under Habsburg rule from 1526, later becoming part of the Austrian Empire and Austria-Hungary. The independent republic of Czechoslovakia was created in 1918, following the collapse of the Austro-Hungarian empire after World War I. After the German occupation of Czechoslovakia, disillusion with the Western response and occupation by the Red Army, the Communist party got a majority in 1946 elections. Czechoslovakia was a Communist state from 1948 until the 1989 Velvet Revolution. On 1 January 1993, the country peacefully split into the Czech and Slovak republics.
The Czech Republic is a pluralist multi-party parliamentary representative democracy. President Václav Klaus is the current head of state. The Prime Minister is the head of government (currently Mirek Topolánek). The Parliament has two chambers — the Chamber of Deputies and the Senate. The Czech Republic joined NATO in 1999 and the European Union in 2004. It is also a member of the OECD, the Visegrad group and the Council of Europe.
Economy
The Czech Republic is one of the most stable and prosperous of the post-Communist states of Central and Eastern Europe. Growth in 2000-05 was supported by exports to the EU, primarily to Germany, and a strong recovery of foreign and domestic investment. 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. The current account deficit has declined to around 3% of GDP as demand for Czech products in the European Union has increased. Inflation is under control. Recent accession to the EU gives further impetus and direction to structural reform. In early 2004, the government passed increases in the Value Added Tax (VAT) and tightened eligibility for social benefits with the intention to bring the public finance gap down to 4% of GDP by 2006. However, due to significant increases in social spending in the run-up to June 2006 elections, the government is not likely to meet this goal. Negotiations on pension and healthcare reforms are continuing without clear prospects for agreement and implementation. Privatization of the state-owned telecommunications firm Cesky Telecom took place in 2005. Intensified restructuring among large enterprises, improvements in the financial sector, and effective use of available EU funds should strengthen output growth.
Market Overview
• Until the 1930s, Czechoslovakia was one of the economic powerhouses of Europe with the 9th largest economy in the world.
• The Czech Republic entered the European Union in May 2004.
• The Czech Republic is part of a region dubbed “The Detroit of Europe” because of the volume of auto manufacturing.
• Strong local currency (the crown) gives Czech manufacturers increasing purchasing power.
• The Czech Republic is one of the most popular tourist destinations in Europe.
• Economic growth strong at 6%; steady rates of 4-5 percent growth rates expected to continue through 2008.
Market Challenges
• Lack of transparency in public tenders
• Intense competition from European companies with close historical and economic ties to the market
• Slow and sometimes arbitrary government decision-making
• Purchasing power still lags behind Western Europe and U.S.
• Government corruption, especially with regard to procurement
Market Opportunities
• Power generation equipment (includes renewable energy)
• Automotive parts and equipment
• Electric and electronics sector
• Medical products and services
• Telecommunications and computer equipment
• Environmental equipment and services
