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Contents | Executive summary | How to obtain this publication | Additional information
The following OECD assessment and recommendations summarise chapter 4 of the Economic survey of the Czech Republic published on 24 April 2008.
Contents
Globalisation is playing a key role in the economy…
The Czech economy is very open. The volume of trade is large, about 50% more than GDP, and much of this reflects the cross-border movement of goods in international production chains. A significant share of trade is with Germany and, linked to this, the largest single sector is vehicle manufacture. A favourable location and relatively low labour costs are the core attractions. The setting up of international production plants has accounted for a large share of the Czech Republic’s substantial foreign-direct investment. Globalisation is affecting the economy in other ways; multinationals now play an important role in retailing, a tradable services sector is emerging and the increasing international mobility of labour is also presenting challenges and opportunities.
Ensuring the economy continues to benefit from globalisation largely implies focussing on the same issues as those that help economic growth in general: namely healthy macroeconomic conditions and attention to structural policies that affect the business environment such as simplification of business legislation, corporate and labour taxation, education policy and innovation policy. This being said, there are some specific issues. Prima facie, trade policy would be one area of potential importance but this is now largely governed by decision making at the EU level. Nevertheless, there are areas where government can play a direct role. The priorities should be as follows:
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Ensure greenfield investment incentives and other business support linked to globalisation are economically justifiable, for example because of market failures or spillover effects. Eligibility for the incentives has been widened, while simultaneously the length of the tax holiday has been halved. This seems sensible, though further alteration in investment incentives should be guided by a stocktaking of the incentives and more monitoring of supported firms. In addition, the subsidies (e.g. public infrastructure) and concessions that are often negotiated between local authorities and investors should be held in check and the support schemes for export-oriented small-and-medium enterprises (SMEs) also closely monitored. Further widening of the responsibilities of CzechInvest ought to be considered. In particular, there is a case for merger with CzechTrade.
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Reform migration policy to tap into the opportunities created by the increased international labour mobility brought by globalisation. Slovakia has traditionally been the main source of immigrants. And, EU membership has widened the pool of labour able to enter without restrictions. However, policy actions are needed to tap into labour from elsewhere. The plan for a “green card” programme is potentially welcome. Experience with the current points-based pilot programme and successful immigration programmes for skilled immigrants in other countries ought to guide design of the scheme.
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Ensure good transport infrastructure as this is one of the few key factors in firms’ location decisions where policy plays a direct role. Given the sizeable funds allocated in the 2007 13 EU budget for transport projects, priorities and implementation mechanisms require careful evaluation. In particular, increased attention needs to be paid to the efficiency of public procurement. Public-private partnerships ought to be considered but care is needed in their design. Further attention to the rail freight sector is required to bring more inter-modal competition and a better balance between road and rail transport.
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Enhance the pulling power of “growth poles”. In the Czech case, Prague is the most important magnet for business and has the potential to play a much bigger role in central and eastern Europe. Factors limiting the expansion of the metropolitan area need to be addressed, notably emerging transport bottlenecks and housing issues.
Developments in exports, manufacturing, investment and the current account
Note: Estimate for 2007 based on Q1 Q3. The high inflow of foreign direct investment in 2005 (bottom-left panel) was primarily due to the privatisation of Czech Telecom, Unipetrol and Vitkovice Steel.
Source: Czech National Bank; Czech Statistical Office; OECD, National Accounts Database.
How to obtain this publication
The Policy Brief (pdf format) can be downloaded in English and in Czech language. It contains the OECD assessment and recommendations.The complete edition of the Economic survey of the Czech Republic 2008 is available from:
- Subscribers and readers at subscribing institutions can access the online edition via SourceOECD , our online library.
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Government officials with accounts ( subscribe) can go to the "Books" tab on OLIS
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Additional information
For further information please contact the Czech Republic Desk at the OECD Economics Department at eco.survey@oecd.org. The OECD Secretariat's report was prepared by Philip Hemmings, Alessandro Goglio and Zuzana Smidova under the supervision of Andreas Wörgötter. Research assistance was provided by Margaret Morgan.
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