CZECH REPUBLIC
Economy
Economy
Cities in CZECH REPUBLIC
| Prague |
Economy
General
The Czech economy, until then a socialist economic system, was largely privatised from January 1991. Citizens were given the opportunity to buy shares in companies in the form of guarantee bonds (the so-called voucher system). Another measure to transform the economy into a free market economy was the liberalisation of prices.
This quickly led to high inflation (52% in 1991), but this quickly dropped to below 10%. Many foreign (especially Western) entrepreneurs have meanwhile invested in the country. The proximity to the European and especially the German market has contributed significantly to this. The Czech Republic is now a stable and prosperous market economy closely integrated with the EU, especially since the country joined the EU in 2004.
The automotive industry is the largest industry and, together with its suppliers, accounts for almost 24% of Czech production. In 2010, the Czech Republic produced more than one million cars for the first time, and more than 80% were exported. The conservative, introverted Czech financial system has remained relatively sound. But the small open export-driven Czech economy remains sensitive to changes in the economic performance of key export markets, especially Germany. When Western Europe and Germany fell into recession in autumn 2008, demand for Czech products plummeted. This led to declines in industrial production and exports. As a result, real GDP fell sharply in 2009.
The economy recovered slowly in the second half of 2009 and then showed slight growth. In 2012, the economy slipped back into recession, due to both a drop in foreign demand and government austerity measures. The country came out of recession in the second half of 2013 and most analysts expect modest but steady growth in 2014. Foreign and domestic companies do fear corruption, especially in public procurement. Other long-term challenges include a rapidly ageing population, financing an unsustainable pension system and healthcare. The solution is sought in diversification from an economy focused on manufacturing to one based more on high tech, services and knowledge.
Economic growth in 2017 is 4.3% and GDP per capita is $35,500.
Foreign investment
The Czech Republic is generally very successful in attracting foreign investors. After a downturn in 1996-1997, the Czech government decided to increase investment facilities to stimulate foreign investment. This proved to be an effective move as foreign direct investment doubled in 1998 and 1999.
Labour force
It is noteworthy that the Czech labour force generally has a high level of education. This is an important motive for foreign investors to invest in the country. The Czech Republic has a particularly long tradition of education in technical skills. Within secondary education, 11% of the workforce complete university or higher education. Labour mobility is rather low so that in certain areas there is a shortage of qualified personnel.
The Czech working age population is approximately 5.4 million (2017). The distribution by sectors in percentages is as follows:
Agriculture 2.8%
38% Industry
Services 59.2%
The average unemployment rate in 2017 was 2.9%. However, unemployment in the Czech Republic has large regional differences.
Agriculture, forestry and fishing
Only 2.8% of the workforce works in this sector, which accounted for 2.3% of GDP in 2017. Czech farms are generally still large-scale, a relic of the communist period. Many collective farms from that era have since been privatised. Private farmers make the most profit per hectare.
About 70% of the cultivable area is used for arable farming, the main products of which are cereals, potatoes and sugar beet. The share of organic farming rose to 6% of total arable land in 2013.
Czech agriculture produces mainly for its own population and therefore many agricultural products are still imported.
In the livestock sector, cattle farming is the most important. In addition, pig and poultry farming is widespread. The number of pigs is increasing sharply and the turnover in the poultry sector is also growing steadily, both in meat and eggs.
Forestry is an important source of income, although its share of GDP has only been about 0.6% for years. Despite this limited share, wood extraction is important as it forms the basis for the woodworking industry.
The state is the main owner of the forests, with more than 50%, and municipalities, companies and private individuals own the remaining forests.
The wood supply is still increasing every year. The Czech forests suffer greatly from acid rain, which is largely caused by Czech industry and power plants still using coal and lignite as fuel. Today, a quarter of the forests are degraded or dead.
Large fish farms in South Bohemia supply the carp popular in the Czech Republic. The first lager, Pilsner Urquell, was brewed in Pilsen in 1842. In 2011, more than 18 million hectolitres of lager and beer were brewed in the Czech Republic.
Woodworking industry, furniture industry
The woodworking industry has become increasingly important in recent years. It produces, among other things, sawmill products, wooden building materials, pallets, wooden containers, baskets and other wooden composite materials such as (prefab) wooden houses. The sector faces problems due to outdated machinery and low labour productivity. The sector is strongly export-oriented.
The furniture industry accounts for 3% of industrial production on average. The sector is dominated by small companies. Due to the low production costs and the presence of the raw material wood, the Czech Republic has a long historical tradition of furniture making. The exports are mainly focused on Austria, Germany, the Netherlands and Belgium.
Construction and infrastructure
The Czech construction industry is characterised by a large number of small independent companies. However, the larger companies with more than 20 employees account for 83% of production.
The sector has benefited from large foreign investments in production facilities, large office complexes and large infrastructure projects. The construction sector focuses mainly on building and renovating government buildings and other public works. Housing construction is still limited due to the opaque housing market and high interest rates on mortgages. A major project is the renovation of high-rise buildings called "panelaky". One third of the Czech population lives in such prefabricated houses.
The construction of railways and motorways, among other things, is providing a major boost to construction. By 2010, EUR 1.8 to 2.6 billion had been allocated to road construction alone. Major projects in the pipeline, which are also being carried out with loans and grants from the European Investment Bank and the EU, among others, are
Completion of the D-47, the trans-European connection to Poland
Completion of the Prague-Nuremberg motorway (Germany)
A second motorway between Prague and Dresden
The Southern link with Austria
Chemicals and plastics
The chemical industry is a strategic and important branch of industry for the Czech economy. Its main products are basic chemicals, which account for 63% of total revenues. The main emphasis is on heavy chemistry. Most companies in this sector have more than a thousand employees and many belong to the top 100 Czech companies.
Production is still at a rather low level; compared to the countries in the European Union, it is 3.7 times higher than in the Czech Republic.
Main imports are basic chemicals and synthetic fibres. Main export products are bulk chemicals, inorganic chemicals and about 20% of export products are advanced chemicals, including detergents.
he rubber and plastics industry is almost entirely in the hands of small and medium-sized enterprises and has one major customer, the automobile industry (e.g. Skoda). This sector is concentrated in the regions of Zlín, Liberec, Central Bohemia and Prague.
Service sector
The service sector is very important for the Czech economy. More than 60% of GDP is generated by services. With the transition to a market economy, the service sector grew through the establishment of many new companies and the strong increase in tourism. Financial services are also growing strongly.
Until the second half of 1997, the Czech banking sector was in a very bad way. Many loans were taken out on which neither interest nor repayments were made. The government decided to privatise the banking sector and took over many bad loans and restructured the sector. Today, a large part of the Czech banking sector is in the hands of foreign investors. The last major state-owned bank, Komercni Banka, was taken over by the French Société Generale in July 2001.
In Central and Eastern Europe, the Czech Republic is the leader in especially financial leasing. This consists of a lease with an option to buy at the end of the contract period. Leasing is considered a different way of financing in the Czech Republic and one third of the investments in the country are financed by leasing. There is a high demand for leasing machinery, trucks, office equipment, IT, software and agricultural machinery.
Insurance is increasing in the Czech Republic. Life insurance in particular is a real growth market. Until 1991, the state-owned Ceska Pojistovna had a monopoly in the Czech insurance market. After that, competition was gradually allowed in.
Energy
The production of electrical energy currently takes place in thermal, nuclear and hydroelectric power plants.
One of the goals of the Czech government after 1989 was to restructure the energy sector, partly because of the heavily degraded environment. The Czech Republic had a very high energy consumption due to heavy industry and inefficient energy use. With the development of the service sector and the reduction of heavy industry, energy consumption has fallen by a quarter since 1990.
Although brown and coal are still the main sources of energy, gas is increasingly used as a supply, which is of course much better for the environment. Nuclear power, wind and solar energy are also becoming more important.
For natural gas, the Czech Republic is almost entirely dependent on imports, especially from Russia and increasingly also from Norway (now 20% of demand). The system of pipelines (approx. 2500 km) that runs through the country is a strategic part of the European network that transports gas from Russia to Western Europe. The Czech Republic is also largely dependent on foreign sources for oil. The Czech Republic also has nuclear power stations and domestic uranium reserves. However, the extraction of uranium is too expensive and is being phased out.
Clothing and textile industry
The textile industry is concentrated in eastern and northern Bohemia and in southern Moravia. The sector is entirely in the hands of the private sector and is becoming increasingly large-scale as a result of many mergers. There is a lot of foreign investment in this sector.
The production of clothing takes place mainly in Central Moravia and Eastern Bohemia. Approximately 70% of Czech clothing exports are destined for the EU. There are also large imports from low-wage countries such as Vietnam, China and Taiwan. To protect its own industry, a minimum price has been set for various types of clothing.
The leather industry is concentrated in the Zlin region. The leather industry is also mainly export-oriented. This sector suffers greatly from the import of cheap shoes from China.
Mining
The Czech Republic is not really a mining country, only coal is an important mining material. Lignite is mined in northern Bohemia and coal in the Ostrava region of northern Moravia.
The Czech government wants to close a number of lignite mines because the use of lignite causes serious environmental pollution.
The Czech Republic's oil and gas resources are not very significant. The natural gas reserves amount to approximately 3.5 billion m3 , which covers two per cent of Czech gas needs.
Mineral resources are plentiful and include limestone, china clay, gravel, stones and gold.
Automotive industry
The automotive industry has long been the most successful branch of the Czech metal industry. There are 270 active production companies. More than half of the automotive industry is foreign-owned, and because of the many advantages, many foreign supply companies also have a Czech branch. In 2001, approximately 475,000 means of transport were produced.
In terms of passenger cars, Škoda is the only significant producer; for trucks, it is the Czech Tatra and the Japanese/Czech Daewoo Avia. Karosa, which in turn is 90% owned by Renault, is the largest producer of buses.
In March 2002, Toyota and PSA Peugeot Citroën started building a new car plant. This makes the Czech Republic one of the largest car producers in Europe, producing more than 1 million cars a year.
Trade
Main trade partners are the countries of the EU. Also Slovakia and Russia are important exporters. Mainly raw materials are still imported from the Russian Federation (oil). The trade balance is positive. The value of exports in 2017 was $145 billion and the value of imports was $135 billion.
The main Czech export products are machinery, machine parts, transport equipment, metal products and electronics. The main import products are chemical products, machinery, machine parts and transport equipment.
Traffic
Due to its favourable location in Central Europe, many international traffic flows pass through the Czech Republic. Most transport is by rail and road. Road transport and rail transport have increased significantly in recent years.
The dense road network of the Czech Republic is about 60,000 kilometres long, but there is only a small percentage of motorway. Currently, investments are mainly made in motorways that connect to the international road network.
The Czech railways are more than 9,000 kilometres long, of which almost 3,000 kilometres have been electrified. Although there is still a lot of freight transported by rail, rail freight transport has decreased in favour of road transport.
Rail transport is currently very slow and outdated in terms of both infrastructure and equipment. The main connections with foreign countries are being modernised.
The Czech Republic has 11 international airports (including Prague, Ostrava and Brno) and 60 local airports. Ryzyne Airport near Prague is by far the most important with 95% of passenger traffic and 85% of air freight.
Transport by ship is not important as only 2% of transport is done by ship. The cargo transport by inland navigation runs via ports on the Elbe and Moldau rivers. In the Czech Republic, there are nine ports for passenger transport and 28 ports for goods and transhipment along these waterways. The direct connection with the port of Hamburg is very important and the condition of the Czech section of the Elbe has improved.
Pipeline connections exist with some former Soviet republics for the transport of oil and natural gas.
Sources
Mandos, M. / Tsjechië
ANWB
Schneider, J. / Tsjechië
Kosmos-Z&K
Sioras, E. / Czech Republic
Marshall Cavendish
Tsjechië, Slowakije
Lannoo
Wilson, N. / Czech & Slovak Republics
Lonely Planet
CIA - World Factbook
BBC - Country Profiles
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