International Trade in the Czech Republic

News Related to International Trade in the Czech Republic

Business outline for the Czech Republic

Main Industry Sectors

The agricultural sector went through a serious crisis in the 90s and, even today, it is still heavily subsidized.  It generates approximately 2% of the country's GNP and employs more than 3% of the active population. The main agricultural products are sugar beets, potatoes, wheat, barley and hops. 

The production sector is mostly private, it accounts for almost 40% of the GNP and employs 40% of the active population.  The growth at the level of performance was parallel to the increase in manpower's productivity.  One of the main manufacturing sectors is the auto industry, with Skoda (Volkswagen company).  Foreign investors such as Toyota and PSA also started producing cars in the Czech Republic since 2005.  However, this sector has now reached a saturation point. Nearly 10,000 jobs were eliminated in 2009 because of the international crisis. The textile sector is becoming very dynamic. 

Services contribute to 60% of the GDP and employ more than half of the active population.  The tourism sector is booming, thanks to the city of Prague, in particular, which is a very attractive tourist center.

Economic Overview

The Czech Republic's economy is one of the most developed in Central and Eastern Europe. Its economic growth is strongly influenced by the demand on exports and foreign direct investment inflow. The country's GNP growth which was increasing steadily over the past few years, experienced a strong drop in 2009 (-4.2%) due to the global recession.  The growth rate became positive again in 2010, stimulated by exports which shows that the Czech Republic's economy is in full expansion and that its basis is becoming solid.  The growth rate is estimated at 2% in 2010 and it should become stronger in 2011. 

Inflation remained under control but the public funds decreased and the budgetary deficit became larger.  In the context of the economic revival, the government has announced a program to reorganize its public finance for 2011.  Severe measures have already been taken in order to reduce expenditures (suppression of subsidies, freeze salaries, etc.) and to increase the revenues.  The objective is to bring the public deficit to 3% of the GDP by 2013, with the idea of meeting the Maastricht's requirements for the adoption of the Euro as its currency. 

The unemployment rate increased under the effect of the global crisis and it remained stable at 8% of the active population.

FDI in Figures

According to  CzechInvest, Investment and Business Development Center, the Czech Republic is classified in the first place among the Central and Eastern European countries not only for the level of FDI stock but also for the FDI inflows per capita. This situation can be explained by the creation of investment incentives, by the presence of a skilled and inexpensive manpower and also by the natural advantages of the Czech Republic, such as its location in the heart of Central Europe. Since 2007, a change in FDI direction can be observed in the Czech Republic, which is going from the manufacturing industry to the "strategic services centers". 

Due to the deterioration of the international situation, the FDI flow declined in 2008 and 2009, but they should recover progressively with the revival.  The crisis has also reduced the size of the foreign investments in the automobile and electro-technical sectors. 

The European Union and the United States are the two main foreign investors in the Czech Republic.

FDI Government Measures

From 1998, the government put into place an investment incentive plan and has encouraged massive FDI inflow as well as projects on unused land ("greenfield"),  as well as on used land ("brownfield" or development of existing structures).  We can name amongst these measures:
- The non-discrimination and equality of treatment between nationals and foreigners;
- The protection of investment and the avoidance of double taxation;
- The protection of property rights and the export of profits.

Country Strong Points

Good access to the European market, a long history of industrial production and the quality of the labor force are part of the positive factors of the Czech Republic.  We can also name the following factors, which represent non-negligible advantages for the country:

- A strong and independent central bank and an extremely stable currency;
- Rapid economic growth;
- A good capacity to withstand the global economic crisis.

Country Weak Points

The Czech Republic is very dependent in terms of export and on the influx of foreign investments, which makes it vulnerable during crises. The country's skepticism towards Europe and the lack of interest in the adoption of the Euro could discourage certain European entrepreneurs in the long term and make the country less competitive.
The country has also experienced political tensions, particularly in 2009, which could undermine its stability in the eyes of potential entrepreneurs.
The lack of labor force also slows down the country's development (it is often necessary to hire foreign workers in order to fulfill production demands).

Foreign Trade Overview

The Czech Republic's economy is very open to foreign investment.  Trade represented more than 145% of the GDP during the 2007-2008 period.  Its membership to the European Union allowed the Czech Republic to enter into the common market and to consolidate its position as a low-cost production base. 80% of the country's trade is now conducted with the OECD countries (of which 80% is with EU countries).  A certain number of agreements made it easier to trade with neighboring countries (CEFTA).  The country has recorded a structural positive trade balance since it became a member of the European Union, a trend that should continue.