Economy of the Czech Republic

emergent Countries of the Central Europe, the Tchéquie offers the economy the most industrialized and the most developed. It is one of the most stable and prosperous countries among the communist ex-countries.

This article, when well even the Czech Republic is born only at January 1st, 1993 milked from the period which extends from the Révolution of velvet, in 1990, at our days being given the crucial importance, to include/understand the current location, of the political decisions and economic to dismantle a planned economy among most rigid of the area and to operate a transition towards the market economy then to ensure her own economic and legislative preparation the widening of the European Union.

A formerly brilliant economy

The years 1990 and the exit of Communism

The Révolution of Velvet in 1989 offers the possibility of an in-depth economic reform.

The first signs of the growth appear the day before the “ Therapy of shock ” that the Fonds international currency indicates like a “ big bang ” in January 1991. Consequently, 95 % of the prices are released, the inflation maintained in the 10 %, the rate of Unemployment low, the positive Balance of payments, the foreign exchange rate of the stable crown, the exports realigned since the Eastern bloc towards the Common Market and the Foreign debt among lowest of the area.

Under the crook néolibérale of Václav Klaus, federal minister for Finances before becoming Prime Minister, the Fiscal policy is strict and the modest and controlled Budget deficit. After a series of Devaluation S, the crown remains stable with respect to the US Dollar and of the Deutsche Mark. The Czech crown reaches free the Convertibilité for the majority of the transactions at end 1995.

In addition to these economic aspects, the government, to support the Investissement S must set up a “ climat ” stable and favorable which comprises legislative aspects and infrastructurels (banking environment, telecommunications, transport, etc) to catch up with the Western level and to attract the capital. The successive governments supported the capital coming from the the United States, in particular to counterbalance the economic power close to the Germany. Although the Direct investment abroad (IDE) is cyclic the United States occupies on average the third place with 12,9 % of the total IDE between 1990 and 1998 behind Germany and the Netherlands.

These economic successes make that the Czech Republic is the first country postcommunist has to receive an investment loan by the international credit rating agencies financial.

Privatizations

Václav Klaus, according to model néolibéral of its égérie, Margaret Thatcher, convinced that the Actionnariat of the Private sector, whatever it is, is better than the official state intervention (of which it was one of the impotent actors under Communism), undertakes the Privatization Czechoslovakian economy, then one of the most centralized Central Europe. These privatizations are done in three waves: the “ petite ” privatization ( malá privatizace ) begins at the end of 1990 and profits from a broad political consensus, the Privatization by coupons ( kupónová privatizace ) is committed at October 1st, 1991 and is finished officially in 1996, the third wave which one could describe as “ pragmatique ”, in opposition to the strongly ideological options of the preceding one, takes over then and still continues.

The “ small privatization ”

The Czech Republic then counts 25.278 companies in the sectors tertiary and secondary. Small privatization consisted in selling with the biddings, in general with the managers of the small companies (from where the name of “ small privatization ”) the capital of the production units which it managed. Within the framework of this small privatization, committed at end 1990 and which are spread out 1991 with 1993, they are twenty-three - thousand production units which pass in hands private, representing for the Czechoslovakian State then Czech a profit of approximately 32 billion crowns.

To be done one uses the method of the Dutch bidding or downward bidding, whose advantage lies in the speed of execution. In the first six months, almost 19.000 production units changed hand and for 24 billion crowns.

Privatization by coupons

Under the aegis of Václav Klaus, then Minister for Finance, Czechoslovakia sets up an original solution for privatiser of the whole pieces of industry: the Privatization by Coupon S. Each household for tax purposes can buy, for a modest sum, a “ notebook of coupons ” ( kupónová knížka ) which gives a “ droit ” (a Cal in the jargon of finance) to acquire actions of the companies with privatiser.

This privatization by coupons tries to transform the Czechs into a nation in small carriers. But small-time speculator is not improvised. And how to even invest when the financial information is completely non-existent or, when it exists, corresponds to communist standards kafkaïennes which mix debt and subsidy. How to invest these coupons when information is lacking?

A swindler brings a miracle solution to these questions without answer: Viktor Kožený quickly becomes famous by melting the Harvardský investiční bottom ( Fonds of investment Harvard ), with the consonances “ américaine ” and “ capitaliste ” (all exclusively positive concepts at this exit fifty years of Communism) which, via a advertizing Slogan simple, percussion and effective, offers a Return on investment guaranteed of ten times the initially invested sum. Once in possession of the titles of the small savers, i.e. control of the privatized companies, the Harvardský investiční bottom hastened of in “ siphonner ” cash, via more or less transparent financial montages via Cyprus and others tax shelters. Sign times, the Czech then grows rich by a Néologisme tunelování starting from English “ Tunnel ” to describe this activity of Embezzlement.

Certain large companies thus found themselves with court of liquidities, insolvent. The small savers, for their part, did not see the promised return on investment.

As of December 1994, 80 % of the companies are privatisées. Privatization by coupons ends at December 31st, 1996 officially. Václav Klaus then declares, undoubtedly a little early, that the transition from a economy directed towards a market economy is then finished.

The assessment of this “ Hapax économique ” is not very favorable: in July 1999, Radio Prague notes that the surveys reveal that three-quarter of the Czech citizens estimates that privatization by coupons does not present an positive assessment. Even the voters of the civic Democratic party of Václav Klaus are not convinced that privatization by coupons was a good thing. The economists of OECD and the IMF, an enthusiastic time and recommending the solution to the other countries ex-Communists, judge it with a critical eye.

Pragmatic privatizations

At December 31st, 1996, the Ministry for the Management of the national heritage and Privatization east dissolve and its competences pass to the Ministry for Finances which continues to supervise the activities of the Fonds of the national heritage. The inheritance of the State is then still considerable.

Certain monopolies and some very large companies are still public, that it is under the terms of a Nationalisme of good quality which requires to keep some “ joyaux ” economic for fear they do not pass under foreign control (it is the case of famous the Budweiser) or, for political reasons, because the social democrat government of Miloš Zeman then Vladimír Špidla does not make privatizations a priority.

Always it is that privatizations continue and attack the great Czech groups: the brewer Pilsner Urquell is sold with SABMiller and Československá obchodní banka with the Belgian KBC in 1999, Komerční banka is acquired by the General society in 2001, Eurotel, the old telephone monopoly is acquired, in 2005, by Spanish Telefónica to become Telefónica O2 Czech Republic.

The Funds of the national heritage east dissolves at December 31st, 2005. According to the management report published then, it is a total of seize-mille undertaken which was privatisées by its care, 138 remain, at this date, still with the hands of the State including four for strategic reasons (SCUMS Czech Airlines, ČEZ, ČEPRO and MERO ČR) others for various and varied reasons (of which Budweiser above-mentioned to prevent that it does not fall into the basket from the American agro-alimentary giant Anheuser-Busch).

Restitution of the movable goods

The Communist regime had, after the Coup of Prague of February 1948, nationalized the near total of industries, the grounds and the dwellings.

The Czechoslovakian government decides to undertake a restitution real goods with the owners despoiled by the only Communist regime after 1948. It thus knowingly draws aside the nationalizations undertaken within the framework of the Décrets Beneš by the government (democratic) of post-war period which had confiscated the goods of the German of Sudètes and of the land great landowners feudal (Austro-Hungarian nobility and religious orders).

Corruption

The lure of gain, the possibility of making fortune very quickly, the relative leniency of the laws which are not ready to sanction Criminality financial (Communists did not think of it - paradoxically - not, them which are specialist in the denunciation of the crimes of capitalism), the unpreparedness of the countable laws, the cocktail socio-legislature is explosive at the beginning of the Années 1990.

Example among others, before to become sizeable subsidiary company of General society, Komerční banka distinguishes (without being the only bank to do it) by system where bank loans unguaranteed are granted (by employees vénals and little controlled in-house), where, in the table of refunding, the Intérêt S are not spread out in exigible time but immediately, which causes on the one hand, since the bank perceives immediately the Revenu S attached to its activity of credit, to make believe in profitability mirobolante activities and, other share, since the employees are remunerated by the result, to force the payment of important premiums of results (and, it was included/understood, undue).

The Czech political parties are not remains about it and the Corruption seems, a time, gangrener all the layers of the economy: Mladá Fronta Dnes publishes a cartoon where one sees a taxi driver pragois (notorious not to use a Taximètre or for the bidouiller in order to make more the race… remunerative) refusing a Czech customer, proud to be able to affirm that it “ do not steal its own people! ” The mayor of Prague, Pavel Bém, invited by this same daily newspaper to disguise itself as an Italian tourist and with going by taxi, of the town hall to the district close to Malá Strana, which had to pay ten times the normal price, to be solved not to be unaware of this problem and to propose concrete measures to clean the “ stables of Augias ” on pressure of the media. The other politicians are subjected to the same pressure of the media and the civil society, finally awaked on the crucial importance of this phenomenon.

Release of the prices

One estimates at more than one million the number of the articles whose price is fixed by the Committee of Czechoslovakian planning. It is a challenge which to release them to make play free the competition. It should be stressed the part played by Václav Klaus first of all as a federal minister for Finances of Czechoslovakia then as a Prime Minister of the Czech Republic to impose a orthodoxe budgetary economy which avoided with the Czech consumers knowing, contrary to its Hungarian and Polish neighbors, the pangs of the Hyperinflation:

The rents, on the other hand, remain, to date (January 2007) controlled according to a principle equivalent to that of the Loi of 1948 in France.

A considerable legislative effort

In January 1990, if the mode (political) communist tomb, nothing is ready at the legislative level to make so that the market economy can open out. It is necessary to reform the Code of the trade, the Code of the taxes, the Labor regulation, etc the room of the deputies, sticks with zeal to the task and passes an annual average of:

161 laws in the years 1980
610 laws in the three years which follow the Révolution of velvet
330 laws in the remainder of the years 1990
570 laws between 2000 and 2006 in order to prepare the integration in the European Community and to catch up with the community asset

The legislative effort is, one sees it, considerable as well for the deputies as for the companies which must constantly be maintained up to date of a legislation in constant change.

The “ divorce velours ”

Thus named according to the Revolution of velvet, the “ divorce velours ” of the Czech and Slovak republics whose principles are negotiated between Václav Klaus and Vladimír Mečiar within the framework of the Villa Tugendhat of Brno, bases itself on several relatively simple aspects:

the debt of the Czechoslovakian Federal state is divided between the States which succeed to him in proportion to the respective populations, that is to say two thirds for the Czech Republic and a third for Slovakia
the assets of the Czechoslovakian Federal state is shared:

according to their localization on the territory and what is as Slovakia becomes Slovak, which is in Tchéquie becomes Czech
according to the principle of the two-third/a-third for the foreign assets (consular buildings for example) or immaterial.

This agreement becomes effective at the day of the separation of the two countries, on January 1st, 1993.

Monetary separation

The two countries create in the tread their own currency, excluding in fact a monetary Union which would have been easily realizable being given the thorough economic integration of the two countries and the close examples like the Belgo-Luxembourg economic Union (1922-2002) or the economic Union and monetarist European signed on February 7th, 1992 within the framework of the Traité of Maastricht and thus preceding by little Czechoslovakian division.

Thus are born the Czech Couronne and the Slovak Couronne which are at the beginning with parity. Very quickly the Slovak crown is devaluated: at the end of 1995, when the currencies are freely convertible, the Slovak crown is worth 0,89 Czech crown.

Economic structure

Primary sector

Concerning the mining resources, the Czech Republic has coal (16th world rank), Lignite (8th world rank) and Uranium (11th world rank).

Agriculture, having for goal the self-sufficiency, represents 3,41 % of the active population and 1,5 % of the GDP (semi-2002 according to www.centreeurope.org).

One cannot mention the Czech Agriculture and the Agroalimentaire without evoking his famous beers: Pilsner Urquell, Budweiser, Staropramen, Radegast, Gambrinus, etc

Pernod Ricard took, in 1997, the control of the producer of the Becherovka of Karlovy Vary. The French presence most important is nevertheless that of Danone which, in a partnership with Nestlé, divided the Czechoslovakian giant of the agroalimentary one, Čokoládovny (this one keeping the activities chocolate and that one the cookie factory) at the time of its privatization in 1992 and which, always within the framework of the privatization of agribusiness industry, acquired the dairy of Benešov which gives him 25 % of the Czech market

Tchéquie, famous for its thermal spas (let us think of Karlovy Vary - Karlsbad and Marienbad - Mariánské Lázně ) also produced mineral water of which the Mattoni, formerly prestigious and “ exportée ” on the table of the emperor of Austria-Hungary (but it was about the same country).

Industry

Industry represents 39,6 % of the active population (according to the CSU) and 35 % of the GDP (according to DREE in 2003).

The most carrying sectors include/understand electrical equipment, mechanics, automotive engineering, the means of transport, the environment, the construction and the rehabilitation of residences.

Services

On the 4,7 million active people in 2003, the service sector employs 55,5 % of this active population (according to the CSU Office of the Czech statistics in 2003) and represents 56 % of the GDP (according to the DREE in 2003).

Tourism

The sector of the Tourisme plays a leading role with 3,1 Mds € of foreign currencies entered in 2003 according to the DREE.

According to the Czech Office of the statistics, they are a few 6,4 million foreigners who spent at least a night in Tchéquie in 2006, in increase in +1,6 % over the previous year whereas the number of nights caused by national tourism increased +4,4 % and represents a little less than half of the total.

Prague and its wonders still drains the essence of this tourism (57,5 % of the total of the nights in Tchéquie) and develops an activity of Tourisme of businesses to compensate for the fall of traditional tourism: the offer of the number of room in Hôtel five stars increased and the frequentation felt some with +10,1 % in 2006.

For reasons of proximity, the Germans represent the main part of the visitors followed by the English who profit from charter offers and for which Prague almost became the destination obliged to bury his life of boy (because of the moderate price of the Czech beer and, it should be said, of the Prostitution which becomes a flourishing industry). The Russians, spend the most time (5 nights on average) and particularly appreciate the hydropathic establishments of Karlovy Vary.

Finance departments

Had with privatization, the banking environment and financial took a new rise.

The Stock Exchange Prague (in Czech: Burza cenných papírů Praha or BCPP ) is, after fifty years of closing by the Communist regime, reopened the November 24th 1992.

Infrastructures

Roads, transport

At the time of the fall of the Berlin Wall, there is hardly but a Autoroute, D1, which crosses the country and connects Prague to Bratislava via Jihlava and Brno. It attaches the Eastern bloc to Czechoslovakia which of it is the most Western part.

At the same time as they think of reorientating the foreign trade towards the Common Market, the authorities of Prague must build new highways and connect the capital to Munich via Plzeň (D5) and to Berlin via Ústí nad Labem (D8), as well as many fast tracks.

The rail network of the Czech Railroads ( České dráhy ) has existed for the 19th century but fifty years of underinvestments during Communism one made completely obsolete: the stations make piteous figures with the travellers arriving of the west and the railway material plank the age of breakage. The Czech Railroads buy to the Italians some Pendolino S in 2004 to bring them into service in December 2005.

One cannot speak about rebuilding, the country not having known the war but it is an considerable effort which is necessary.

Air transport developed exponentially since the velvet Revolution, the Aéroport of Praha-Ruzyně thus knew a rise out of arrow of its passenger traffic because of the suppression of the quibbling imposed by the Communist regime and the boom of tourism where Prague became a privileged destination for tourism of weekend. The temporal barrier of each new million travellers does not cease being shortened:

1963 - L million travellers (37 years after the foundation of the airport)
1975 - 2 million travellers (12 years)
1995 - 3 million travellers (20 years)
1997 - 4 million travellers (2 years)
2000 - 5 million travellers (3 years)
2001 - 6 million travellers (L year)
2003 - 7 million travellers (2 years)
2005 - 10 million travellers (2 years)

The company SCUMS Czech Airlines covers 77 destinations at the beginning of Prague with 49 planes.

Energy

Tchéquie is traditionally an important producer of Lignite but tries to reduce its consumption of this highly polluting energy resource (sulfur).

The Nuclear , produced by ČEZ, represents approximately 30 % of the total of energy consumption and its share should increase until 40 %. The two sections of the Nuclear plant of Temelín, planned under Communism with engines of Russian design of type VVER 1000/320, at pressurized water, are brought into service in June 2002 and April 2003.

The Natural gas is provided by Russian Gazprom (for two thirds - it forwards via the Ukraine and the gas pipeline Droujba) and by the Norway (the third remaining - it forwards via Germany). Gas consumption is roughly of 100 TWh in 2003-2005 is twice that of electricity.

The energy production increased 2 % in 2006. Let us recall that Tchéquie is an important producer of machine, machine tool, etc - the electric branch of this industry believed of 16,3 % in 2006

Telecommunications

The privatization of the state enterprise of telecommunication Český Telecom took place in 2005. Spanish Telefónica acquired the company and his branch of mobile telephony, Eurotel. At July 1st, 2006, these two companies were famous Telefónica O2 Czech Republic.

In 2007, Tchéquie has three operators of Mobile telephony: Telefónica O2 Czech Republic, Vodaphone and T-Mobile.

Human capital

On the job market, one notes a Chômage long life persisting and a general brake with employment because of Tax pressure very high which it is difficult to attenuate. Judicious initiatives were taken to motivate the applicants for work and to improve the compensation for the disease, but the reform of the Labor regulation in 2006 appeared limited and the access to higher education remains to be improved.

Active population

The rate of Active population reached 65,6 % (74,2 % for the men and 57,0 % for the women), which is the level reached in Germany, a little with the top of the rate reached in France and far in front of its neighbors, the Hungary (56,7 %), the Slovakia (57 %) and the Poland (51,8 %) which suffer more than Tchéquie of the reorganization from their economies.

Unemployment

Unemployment rate reached 8,2 % in February 2004. At the end of 2007, it rises with 6,6 %, which starts has to touch the full employment.

Education

An closer examination of the higher Secondary education and watch than of new measurements is necessary to face a request of graduates of the university which increases quickly.

Teaching in Tchéquie, had been formatted for a strongly industrial country and is powerful on the level of the Technical education. It leaves something to be desired however for the tertiary economy which Tchéquie enters to the third millennium.

OECD recommends in this respect more to conceive secondary education in the optics of higher education, by more opening the courses which make it possible to enter to the university. Moreover, it would be necessary to put an end gradually to the early shunting of a minority of pupils towards the establishments of elite to public finance.

Business partners

Having reorientated her foreign trade towards the Western countries after the fall of the Berlin Wall, the Czech Republic trades mainly with the European Union and particularly with Germany which represents 36 % of the total exchanges (average customers/suppliers according to the DREE in 2002).

The Russia represents nothing any more but 6,4 % of the suppliers and less 2 % of the customers.

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