Overseas Business Risk – Czech Republic
Political and Economic
UK exports to the Czech Republic were £1.72 billion in goods in 2012, making the Czech Republic the UK’s 28th largest export market globally. Two way trade is worth some £6.1 billion. There are many opportunities in various sectors including Advanced Engineering, Science & Technology/Innovation, Power, Biotechnology, Consumer Goods, Education & Training, Food & Drink, and Security. In some sectors (e.g. Automotive, Electronics and Engineering), there has been a trend towards sourcing supply from, or investing into, the Czech Republic, in addition to the usual flow of UK exports here.
The Czech Republic is one of the most stable and prosperous markets in Central Europe. The country’s business environment ranks well compared to other countries in the region, especially thanks to the foreign trade policy, infrastructure and FDI policy. The country weathered the financial crisis relatively calmly, thanks to its export-led economy doing well on the back of strong German performance. However, depressed domestic consumer sentiment led to a period of recession, with the economy shrinking in 2012 by 1.1% and expected by the Czech National Bank (CNB) to contract by a further 1.5% in 2013. The CNB anticipates a return to growth of 2.1% next year, followed by 3.3% in 2015.
Nominal GDP per head is currently around US$ 18,608 (World Bank) making it one of the highest in Central and Eastern Europe. High levels of foreign direct investment, domestic consumer spending and Czech exports have driven economic growth. Around 80% of trade is with the EU, notably Germany. Czech exports to the UK (worth £4.4 billion in 2012) are dominated by Skoda cars and manufactured goods.
Following the collapse of communism in 1989, the Czech Government pursued a bold programme of economic restructuring, building on its strong industrial base: today some 80% of GDP is generated by the private sector. The Czech Republic has one of the best infrastructure networks in the region, and is fast catching up with Western European levels.
The Czech Republic has been extremely successful at attracting foreign direct investment (FDI), reaching a total stock of US$ 125 billion in 2011 (OECD), much of it in the automotive industry and electronics. Per capita, the Czech Republic receives more FDI than any other Central and Eastern European country, and in real terms is second only to Poland. Foreign investors have also been major players in the privatisation process. For example, all four main banks are in foreign hands. But the Czech government knows they cannot rely on FDI forever especially in the current economic climate. The government agency CzechInvest is therefore promoting the Czech Republic as a destination for more high-tech investment, as well as increasing its support to the domestic SME sector.
British investment in the Czech Republic has reached more than 2.4 billion Euros since the early 1990s. UK companies with major operations here include Vodafone, Tesco, LogicaCMG, Rolls Royce, FKI Brush and others. A range of high-street names are also present, often through franchises, including Marks and Spencer, Next, Mothercare, Tie Rack and Debenhams. The UK is also represented in the financial services sector (e.g. Provident Financial, HSBC, RBS, Aviva), and most of the UK’s major law firms have offices here. Companies such as Rolls Royce, BAe Systems, Marks & Spencer and Allen & Overy run their Central and Eastern European operations from Prague.
While most UK companies generally find the legal-business climate conducive, it is not all plain sailing. Improvements are needed, e.g. a speedier judicial process, and greater transparency in public procurement. The amended Commercial Code, allowing company registration within 5 days (compared to the previous average 88 days), and a new Bankruptcy Law, were steps in the right direction. Accession to the EU in May 2004 has driven improvements, and the Czech government acknowledges the need for reform. The main challenge for the economy over the coming years will be slow growth in Eurozone markets, a reduction in state spending (to fall into line with the 3% deficit target) and structural reform, particularly in the health and pension sectors. The Czech government has not set a target date for joining the Euro.
In October 2013, early general elections were held after the collapse of the previous right-of-centre government. The Social Democrats (SSD) narrowly won with 20.5% of the vote. Close behind was new party, ANO, headed by billionaire Andrej Babiš, who ran on a ticket of cleaning up politics and managing the state along the lines of his successful businesses. At the time of writing, coalition negotiations are yet to get underway, although most observers are expecting a SSD-led administration to emerge, supported by ANO and smaller centre-right party, the Christian Democrats. Discussions on the formation of a new government are expected to take 2-3 months.
Recent high profile visits from the UK include the Rt Hon William Hague MP, Foreign Secretary, David Lidington MP, Minister for Europe, and Rt Hon David Cameron MP, Prime Minister. Trade Minister, Lord Green, and Farming Minister, Jim Paice MP, were also recent visitors to Prague.
In summary, the Czech Republic remains an attractive market for UK exports and investment. The UK Trade & Investment team at the British Embassy in Prague stands ready to help.
Further information how UK Trade & Investment can help can be found on the gov.uk website.
As a member of the European Union, the level of respect for human rights in the Czech Republic is generally very high. As the standard of living in the country continues to rise, the Czech Republic has found itself increasingly the target of traffickers of forced labour. The Czech Police are working closely with other national police forces to crack down on organised gangs.
Tensions with the Czech Republic’s indigenous Roma population have increased of late. The Roma complain of restricted access to education, housing and employment, while they are often blamed for high levels of crime and antisocial behaviour. Last summer saw sustained, although relatively small, anti-Roma demonstrations in areas of the country where Roma form a larger proportion of the population.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
Bribery and corruption still remains an issue in the Czech Republic for legal and business transactions. In 2012 the country was ranked 54th out of 176 countries surveyed in Transparency International’s corruption perception index (CPI). As part of the Government’s Anti-corruption Strategy, an Act on Criminal Liability of Legal Entities was approved in 2012. An amendment to the Public Procurement Act was also passed, which aims to reduce the level of corruption in public tenders. However, the issue of bearer shares obscuring the ownership of participating companies remains an issue and may be addressed in a further amendment. Successive corruption scandals have ensured that the issue has remained high on the public agenda.
The British Chamber of Commerce have published reports on this subject (available on request) and organised several seminars on the UK Bribery Act. They are very active on Corporate Social Responsibility.
Protective Security Advice
Intellectual property issues are not a constraint to doing business. The Czech Republic operates quite a strict policy; it is a difficult and lengthy procedure to secure a patent, but once obtained interests are usually safeguarded and infringement enforced. The Industrial Property Office of the Czech Republic, established in 1818, has further information.
The Czech Republic adheres to all EU laws regarding intellectual property. Patents, trademarks, industrial designs, copyrights, confidential information and trade secrets are the rights of intellectual property which enjoy protection under Czech law.
Organised crime is limited to low key, low impact instances that are usually confined to inter-gang rivalry, and which rarely affects business and everyday life.