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Czech Republic Country Brief

Introduction/overview

The Czech Republic and the Slovak Republic were created as separate States on 1 January 1993 on the territory of the former Czechoslovakia. The Czech Republic is bordered by Poland, Slovakia, Austria and Germany and has a land area of 79 thousand square kilometres. In 2006, the Czech population was estimated at 10.3 million. The Czech Republic celebrates its National Day on 28 October.

Political Overview

The Prime Minister of the Czech Republic is Mirek Topolanek and the President is Vaclav Klaus. President Klaus has been a leading centre-right politician for most of the past 15 years and holds the Presidency until 2008.

While the President performs mainly representational functions, he also holds some important legal powers, including the appointment of the Prime Minister and members of the government, appointing members of the Czech National Bank Board, and signing or vetoing legal acts passed by the Parliament.

Legislative power is vested in a bicameral parliament: the Chamber of Deputies (Lower House) has 200 members elected for 4 years; the Senate (Upper House) has 81 members elected for 6 years, with one-third of senators replaced every two years. The President of the Czech Republic is elected by the National Assembly (at a joint session of both Chambers of the Parliament), for a 5-year term (for a maximum of two subsequent terms).

The political scene in the Czech Republic supports a broad range of political parties. The most recent parliamentary elections, held in June 2006, produced a tied result with right-leaning and left-leaning parties holding exactly 100 seats each in the 200-seat Chamber of Deputies. On 19 January 2007, seven months after the election, Civic Democrats (ODS) leader Mirek Topolanek’s minority coalition government, comprising the ODS, the Greens and the Christian Democrats (KDU-CSL), won a vote of confidence in the Chamber of Deputies due to the absence of two Social Democrats (CSSD).

The Czech Republic joined the Organisation for Security and Cooperation in Europe (OSCE) in 1995, NATO in 1999 and the EU in 2004.

Economic Overview

Since turning away from communism in 1989, the Czech Republic has made significant economic progress and the country now has a solidly performing market economy.

GDP growth is forecast at 5.7 per cent for 2007, down from 6.4 per cent in 2006. The current-account deficit of 3.4 per cent of GDP in 2007, is slightly up against last year’s figure of 3.1 per cent. Unemployment is estimated at 6.5 per cent (source: Economist Intelligence Unit).

Although the government and the Czech National Bank plan to introduce the Euro in future, a target date has yet to be identified and questions remain about the Czech Republic’s ability to meet fiscal criteria for Eurozone membership. In particular, the size of the state budget deficit and the manner in which it is measured are not in line with Eurozone standards. A deficit limit of 3 per cent of GDP is one of the requirements of the EU for the country's adoption of the Euro.

In 1998, the Czech government approved a package of incentives to attract foreign investment. The incentives are offered to foreign and domestic firms that make a US$10 million manufacturing investment through a newly registered company. The package includes relief from corporate taxes for up to ten years, job-creation grants, re-training grants and opportunities to obtain low-cost land. A tax incentive is also available for expansion of an existing manufacturing investment. Subsidies are offered for services centres for software development, customer service and repairs.

More recently, in 2004, subsidies to attract high technology and research and development centres have been added. Tax deductions for new machinery, real estate tax relief, job creation grants, re-training grants, simplified customs procedures and duty-free import of machinery are also available under certain conditions to qualified companies. The incentives were developed with the assistance of the EU in order to ensure their compatibility with EU rules on industrial subsidies.

Bilateral Relations

Australia has a positive and constructive relationship with the Czech Republic. We are like-minded on many international policy issues and we share strong people-to-people links.

Since the Second World War, there have been two major waves of immigration: after the communist takeover of Czechoslovakia in 1948, and following Soviet occupation in 1968. According to 2006 census figures, around 21,000 Australians identify themselves as having Czech ancestry. The largest proportion of the Czech-born population (around 40 per cent) reside in New South Wales.

Cultural relations between Australia and the Czech Republic have developed rapidly over the last decade, responding to Prague's status as a hub of cultural life in Central Europe. Since 1999, a stream of eminent Australian authors, artists, film makers and musicians have traveled to Prague to participate in festivals, exhibitions and performances.

Responsibility for diplomatic relations with the Czech Republic rests with the Australian Embassy in Warsaw. Australia’s Ambassador to Poland is also accredited to the Czech Republic. Visa and migration issues are handled by the Department of Immigration and Citizenship office in Vienna. Australia maintains an Austrade managed Consulate in Prague, headed by an Honorary Consul. The Czech Republic maintains an Embassy in Canberra, Consulates-General in Sydney and Melbourne and Consulates in Adelaide and Perth.

The Hon Alexander Downer MP, then Minister for Foreign Affairs, visited the Czech Republic from 14-15 September 2005. This was the first visit by an Australian Foreign Minister to the Czech Republic since its formation in 1993. In Prague, Mr Downer met with then Foreign Minister Svoboda, Speaker Zaoralek, then Defence Minister Kuhnl and Mayor of Prague Bem. NSW Governor Marie Bashir AC, CVO visited Prague in September 2007.

The Agreement between the Government of Australia and the Government of the Czech Republic on Cooperation in Peaceful Uses of Nuclear Energy and the Transfer of Nuclear Material entered into force in 2002.

Bilateral economic and trade relationship

Australian exports to the Czech Republic in 2006-07 were valued at A$79.1 million. Although wool remains by far Australia's largest single export item (A$68.2 million), Australian firms have begun to diversify the export mix, in health products, IT, food and beverages, particularly wine. Export of services has shown rapid growth, especially in education. Imports from the Czech Republic over the same period totalled A$206.4 million, and included wood products, glassware, computer parts, passenger and railway vehicles and specialised machinery.

Australian investment in the Czech Republic has reached a reasonable level (about A$112 million), but there remains ample room for further development in this strategically located market. The largest Australian investor is Village Cinemas with two entertainment complexes in Prague. Others include Cochlear (manufacturer of the ‘bionic ear’ implant for the profoundly deaf) and Bovis Lend Lease (design, development and consulting services, focusing on shopping mall construction, industrial sites and reconstruction of historical buildings in Prague).

The framework for Australian commercial relations with the Czech Republic include an Investment Promotion and Protection Agreement and a Double Taxation Agreement, signed in 1994 and 1995 respectively.

Export Opportunities

All sectors

As the Czech Republic has entered the EU, the range of trade and investment opportunities has grown. Expectations are that exporters will continue to profit from the Czech Republic's economic transformation, as major upgrades of pollution control equipment, telecommunications equipment and services, energy production and distribution, housing and municipal infrastructure and medical services continue.

There should be increasing opportunities for Australian business in IT (smart card applications, e-government, e-business), automotive industry (components and spare parts), wine, consumer goods and tourism.

Foreign investment has played a major role in the development of the Czech economy by providing both management expertise and the capital needed to restructure many Czech firms. The most promising sectors for deepening Australia's commercial investment involvement are infrastructure, energy and coal gasification, the high technology sector (especially in the living environment area), and industrial services.

Education and Training

The Czech Republic is a significant market for Australian education exports. There were around 2,600 enrolments in Australian education institutions by Czech nationals in 2006 – a considerable number given the small Czech population and the distance involved. The majority of Czech student enrolments were in the English language sector, followed by or combined with vocational education and training (VET). The Australian Government's International Education Network works in partnership with Austrade (Prague) to promote Australia as a quality provider of education services.

Wine

The availability of Australian wine in the Czech Republic is increasing, along with consumer interest. Wine exports have increased on average by 53 per cent in each of the past five years and in 2005-2006 stood at A$0.9 million. However, as the market saturates, growth has slowed down.

Automotive

The Czech Republic is the largest automotive producer in the Central/Eastern European region. There are opportunities for Australian automotive suppliers of components, spare parts and after-sale products.

Infrastructure

There are ongoing opportunities in this sector for Australian companies. Best prospects include projects involved in highway, road and bridge construction, sewage treatment plant rehabilitation, and waste water system reconstruction. Other opportunities lie with commercial and storage building construction, construction of houses for senior citizens and industrial park development.

The quality of Czech transport networks and systems, as well as rolling stock and vehicles, is generally below the standards of advanced European countries. All transport sectors, including railway, highway, inland waterway and air, have been targeted for infrastructure upgrade. Projects currently include a US$3.5 billion modernisation of the rail system; a plan to modernise and extend the country's network which reached 1,000 kms and is planned to be doubled by 2014; and plans to develop the river transport system for intensive usage by the container hauling industry.

Aerospace and Defence

In 2006, defence spending was at 1.73 per cent of GDP or US$2.5 billion annually. Procurement from abroad is crucial to military development since the Czech Republic does not produce telecommunications equipment, nonferrous metals, plastics, chemicals, transport machinery, or specialized metalworking equipment specifically designed for military use.

E-commerce

E-commerce in the Czech Republic continues to grow. Potential for exports is strong in both services and equipment. All banks now offer on-line banking and many Czech internet sites accept payment using this method. Electronic signature is also being accepted in the Czech Republic and a number of public portals have been launched with more expected.

The Czech Republic is a market of more than10 million with stable political, legal and economic systems. Czech banks have significant potential in the area of general banking services. All 36 banks in the Czech Republic have been privatised. However, Czech banks face numerous challenges arising from full harmonisation of domestic laws with EU legislation.

TradeWatch Contacts

If you would like more information on the trade and economic conditions in Czech Republic, please email the Department of Foreign Affairs and Trade.

Trade Successes

(source: Austrade Success Stories)

Last reviewed date: 14/01/08