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FY 1999: Czech Republic |
CHAPTER I. EXECUTIVE SUMMARYThis Country Commercial Guide (CCG) presents a comprehensive look at the Czech Republic's commercial environment, using economic, political, and market analysis. The Country Commercial Guides were established by recommendation of the Trade Promotion Coordinating Committee (TPCC), a multi-agency task force, to consolidate various reporting documents prepared for the U.S. business community. Country Commercial Guides are prepared annually at U.S. Embassies through the combined efforts of several U.S. government agencies. During the past year, the Czech Republic has weathered a sudden governmental collapse which led to unprecedented early elections. These elections brought the opposition Social Democratic Party (CSSD), a mainstream, center-left party, to power for the first time since the 1989 revolution. The government of Prime Minister Vaclav Klaus resigned in November 1997 in the wake of a scandal over political donations to Klaus' ODS party in connection with privatization; his resignation also reflected the culmination of a buildup of pressure within the ruling center-right coalition over slumping economic results during the period 1995-97 and overdue structural reforms. An interim government headed by PM Josef Tosovsky (former Governor of the Czech Central Bank) oversaw steady progress on a number of those unfinished reforms, including capital market regulation, separation of bank and corporate ownership, bank privatization, and bankruptcy laws -- all of which remain vital to consolidating the Czech economic transition. Amid the political tumult, the Czech Parliament passed an austere, balanced budget for 1998, re-elected Vaclav Havel to a second five-year term, and approved the Czech application for NATO membership. Elections for a new government held in June resulted in a split vote, with a third of the electorate favoring the center-left Social Democrats and just under half voting for one of three center-right parties. After intensive negotiations, the two strongest parties -- CSSD on the center-left, and Klaus' ODS on the center-right -- agreed that CSSD will head a minority one-party government with limited ODS backing in exchange for the latter holding some key positions in Parliament.
Economically, the picture is mixed. Exports are up sharply and consumption is moderating. But growth remains weak: after peaking at 5.9% in 1995, GDP growth slowed to 4.1% in 1996 and slumped to approximately 1% in 1997. Part of this slowdown is deliberate, the result of the government's austerity measures implemented in 1997. However, in the first quarter of 1998 the economy actually contracted 0.9%. The currency depreciation, a balanced 1998 budget, and a 42.2% increase in trade between the Czech Republic and the EU (first quarter of 1998) have improved trade and current account deficits, and boosted exports. Increased unemployment is a signal that firms may be stepping up restructuring, perhaps in response to the govern- ment's reform efforts and tight money policies. However, key problems \still face the Czech economy. Of particular interest to U.S. firms are privatization of state-run banks and energy distribution, tele- communications, and transportation networks. Capital market regulation is still in its infancy. A newly created Czech Security Exchange Commission has launched an effort to reform the market trading system, which suffers from lack of price, information and ownership transparency. Stricter bankruptcy laws have come into effect, as has legislation forcing investment funds with high discounts to redeem shares. But concerns persist over the functioning of investment funds and their close links to manage- ment companies and lenders.
Overall foreign direct investment (FDI) into the Czech Republic continued to slow in 1997 to $1.3 billion from a high in 1995 of $2.5 billion and $1.4 billion in 1996. While still lagging behind Poland and Hungary in total FDI, major multinationals including Proctor & Gamble, Ford, Motorola, Volkswagen, ABB and Nestle have established operations in the Czech Republic. In a long-awaited move, the government approved an "off the shelf" package of incentives for investments of over $25 million, including a 5-year tax break, duty-free machinery imports, and subsidized land. Meanwhile, trade between the United States and the Czech Republic increased by 9.5% from 1996 to 1997 to over $1.5 billion. U.S. exporters saw dramatic increases in sales of machinery and transportation equipment, manufactured items, chemicals and related products, fuel and fuel- related products, and crude materials. Many of these products were earmarked for specific sectors such as telecommunications and information technologies, environmental control and water pollution, energy and aerospace industries. In addition, U.S. service industry skills were and are highly sought after, particularly in the fields of consulting, marketing, public relations, and financing as the Czech Republic continues to move toward privatization in banking, tele- communications, transportation, and the energy distribution networks.
The majority of business transactions in the Czech Republic are with the EU. Germany is the largest trading partner, accounting for 61% of all trade. In spite of strong European competition, many U.S. exporters have succeeded in establishing strong footholds in the Czech market by placing special emphasis on pricing, delivery, initial and follow-up service, and financing. In addition, successful U.S. exporters have realized that patience and a long-term perspective are essential for success.
The Czech Republic's central location makes it an excellent hub for exporting into CEFTA (Central European Free Trade Agreement, whose members are: (the Czech Republic, Hungary, Poland, Slovakia, Slovenia, Bulgaria and Romania), Russia, the NIS, and Europe. The country's highly skilled labor force and relatively developed infrastructure are tremendous strengths in the establishment of local offices by U.S. corporations. Quality of life in the capital, Prague, has continued to improve. Ruzyne airport has expanded into a first- class facility, with plans for new passenger and cargo terminals slated in the next two years. A new $13 million international school, which opened in early 1997, offers state-of-the-art facilities and an innovative curriculum based on American educational philosophy and standards, enriched with international content. Several U.S. universities are now working with local universities to develop joint core programs and are offering graduate degrees in management, international education, and other fields. If Prague becomes the Central European air traffic control center in September, it will strengthen the Czech Republic's position as a growing center of importance in Central Europe.
Country Commercial Guides are available for U.S. exporters from the National Trade Data Bank's cd-rom or via the Internet. Please contact STAT-USA at 1-800-STAT-USA for more information. Country Commercial Guides can be accessed via the World Wide Web at http://www.stat-usa.gov; http://www.state.gov/; and http:www.mac. doc.gov. They can also be ordered in hard copy or on diskette from the National Technical Information Service (NTIS) at 1-800-553-NTIS. U.S. exporters seeking general export information/assistance and country-specific commercial information should contact the U.S. Department of Commerce, Trade Information Center by phone at 1-800-USA-Trade or by fax at (202)482-2164.
[end of document]Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.