Remarks by Angel Gurría,
6 June 2016
Prague, Czech Republic
(as prepared for delivery)
Good morning Prime Minister, Ambassador, Ladies and Gentlemen,
6 June 2016, Prague - OECD Secretary-General Angel Gurría and Czech Prime Minister Bohuslav Sobotka launching the 2016 Economic country survey.
The Czech Republic: A strong performer
During the past two decades, the Czech Republic has successfully adopted many best practices and has been a strong partner and active contributor to the work of the OECD.
By many measures, the Czech Republic is performing well. The economy is growing strongly at 2.4% in 2016 after 4.3% in 2015, and unemployment is low at less than 5%. Government debt is also comparatively low at 41% of GDP. And GDP per capita rose by an impressive 48% between 1995 and 2014.
The Czech Republic is also among the best performers in terms of inequality; in addition the risk of poverty stands at 5% in the Czech Republic compared to the average 11% for OECD countries.
In terms of wellbeing, the Czech Republic scores well on the OECD Better Life Index, exceeding the OECD average score on personal security, work and life balance, social connections and education.
Despite these achievements, challenges persist
These are very important achievements. However, complex challenges which – if not tackled adequately – threaten to reverse the progress made so far.
For example, income convergence has stalled compared to the OECD average and represented 76% of the OECD average in 2014. Productivity growth has also slowed markedly in recent years, while certain peer countries such as the Slovak Republic and Poland are among top performers in the OECD.
Another key challenge is getting the right conditions for healthy SMEs; it is particularly important given that firms with 1-49 employees represent as much as 99% of all firms.
Czech SMEs and start-ups face multiple challenges with regard to access to financing, availability of relevant skills across the labour force and high entry and exit barriers, notably steep bankruptcy costs. Competition policy is sub-optimal in supporting successful firms’ growth.
Our study also remarks the need to better reconcile work and the family. This remains a particular challenge for parents due to a lack of childcare availability, which leads to relatively long spells out of the labour force and lower participation rates for Czech mothers.
Another challenge that we revisit relates to the environment. Although outcomes have improved considerably over the past two decades, issues such as air pollution and energy efficiency remain challenges for policy makers. The rate of deaths due to air pollution is one of the highest in Europe.
Greenhouse gas emissions per unit of GDP are the sixth highest in the OECD, due to a coal and energy-intensive economy. These challenges are not news but more effort is needed.
Key recommendations from the Survey
The 2016 Economic Survey for the Czech Republic puts forward a number of key recommendations which focus on helping the Czech economy remain on a sustainable and inclusive growth path.
First, strengthening R&D and innovation policies to bolster productivity. Although R&D spending has been increasing since 2003 and currently amounts to about 2% of GDP, it remains below the OECD top performers.
A further boost in spending could leverage business spending in research and development, for example through well-designed and adequately administered tax incentives, complementing direct support.
In addition, streamlining the administration and implementation of R&D and innovation policies would increase their effectiveness and reach. An important step was taken recently in establishing the position of Deputy Prime Minister in charge of Science, Research and Innovation within the Office of the Government.
Going one step further and creating a full-fledged Ministry of Science and Research, as intended, would be welcome as it would reassemble all research institutions under a unique institution.
Second, better framework conditions will contribute to productivity growth. Start-ups and SMEs are often at the forefront of innovation introducing new products and organisational methods. It is therefore critical for policy makers to stimulate start-ups and SME creation and expansion.
To this end, the government should accelerate the implementation of the SME Strategy 2014-20, including setting up instruments such as the National Innovation Fund. As there are many instruments and programmes devoted to SMEs they need to be streamlined to ease SMEs’ access to finance.
Productivity is also about skills. Compared to other OECD countries, a high share of Czech workers are over-skilled (16% compared to the 10% OECD average). Policies that facilitate mobility between firms, as well as regions, would help reduce the skills mismatch.
Third, a more effective public sector will reinforce productivity growth. Public policies have been hampered by a high turnover of public officials resulting in policy discontinuities and loss of institutional knowledge. The 2015 Civil Service Act created a national civil service and should improve stability of the workforce. It is crucial to evaluate the implementation of the Act and continue to make improvements. Ultimately, more competitive civil servant wages, compared to private sector, may be needed to retain highly-skilled workers.
Moreover, public procurement was equivalent to around one-third of government spending in 2014. Significant steps have been taken since 2012 to increase transparency and controls over procurement processes, but there is more room for improvement. For instance, joint purchasing by public authorities should be used more to generate economies of scale, lower administrative costs and improve competition in tenders. Tools like e-procurement and e-training could help further increase value-for-money.
Public investment has also been volatile, due to problems with procurement processes and co-ordination difficulties across the government. The forthcoming Strategic Framework of Sustainable Development provides an opportunity to adopt a whole-of-government approach and overcome sector-based investment strategies, through greater co-ordination of projects and multi-year planning.
Last but not least, there is a high degree of territorial fragmentation with over 6,200 municipalities – on average the smallest in the OECD, many with fewer than 200 residents. Strengthening the capacity and co-ordination of the sub-national government is thus needed to increase the efficiency and quality of local services.
Prime Minister, Ambassador, Ladies and Gentlemen:
Let me conclude by stressing the impressive trajectory of the Czech Republic since it became an OECD member 20 years ago. As you strive to develop a more sustainable and inclusive economy, it will be important to remain on the path of policy implementation and adoption of best practices. Reform agreements make the headlines, implementation changes lives.
The OECD stands ready to support the Czech Republic in achieving this goal. I hope that this Survey will offer helpful guidance to the government to design, promote and implement better policies for better lives!