Council on Czech Competitiveness
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2009 Czech Competitiveness Report
Statistical Assessment and Opinion Survey of Czech Economic Policy
Czech Competitiveness Report 2009
The Council on Czech Competitiveness works to improve the business climate in the Czech Republic.
The council is supported by:
Managed by:
American Chamber of Commerce in the Czech Republic Weston Stacey
Executive Director
Project lead Assessment concept, design & analysis Statistical research Survey composition
Iveta Havlová
Deputy Director, Legal Reform
Project lead- Legislative Framework Statistical research & analysis Survey composition
Andrej Kandráč
Legal Reform Specialist
Statistical research & analysis
Aleš Hanek
Legal Reform Specialist
Statistical research & analysis
Martina Kopečná
Economic Development Manager
Statistical research & data accuracy
Lucie Lagová
Communication Manager
Survey composition
Roman Minařík
Report Design Statistical research Survey composition
Web & Publication Manager
Competitiveness.
It is one of the fundamental words used to describe economies. So what does it mean?
Most economists would say it means having the highest GDP per capita. Most businesspeople would say it is achieving the highest possible profit margins- after minimal taxation. Most workers will say it means the highest level of income for the same level of work. And every politician will tell you that competitiveness is an unattainable state of theoretical perfection- like the perpetual motion machine- which has been created in order for the governing parties to lose elections. Competitiveness is indeed an elusive concept. Michael Porter, who has spent more time and intellectual capability on this issue than perhaps any other human alive, admits that “it is far from clear what the term ‘competitive’ means when referring to a nation”. If this is the best that one of the world’s top minds can do, how should a government- and particularly a democratic government with all its various interests and factions- decide what policies it should pursue to become more competitive? Our competitiveness report will leave the definition of competition to more competent minds. Instead, we will focus on the factors of the economy that contribute most to making businesses successful, in the belief that a policy which helps business succeed achieves a higher GDP per capita, higher profit margins, and a higher living standard for every citizen. And by business, we do not mean single national champions, or even clusters of excellence, but all types of business: manufacturing, service, large, and small. The report is not intended to award or punish today’s political leaders. The measures introduced in the report take longer than one election cycle to develop, and therefore no one leader or party can take all the credit or blame for leading or lagging results. The report also makes no claim to be comprehensive or complete. We view it as the first, sincere try to gather all the pieces of the Czech Republic’s economic puzzle and to make a coherent and objective picture of the concrete outcomes of yesterday’s government policy, and to provide some statistical framework for deciding how that policy should be modified today. Study the report, and please let us know how we can make it better define competition and guide policy. Weston Stacey The Council on Czech Competitiveness
Content:
Report Explanation Overall Results General Policy Competitiveness Legal Framework Public Administration Physical Infrastructure Human Resources Finance/Monetary Policy Opinion Survey 4/5 6/7 8/9 10 / 11 12 / 13 14 / 15 16 / 17 18 / 19 20
Where the Czech Republic Ranks in Competitiveness
Ranking World Economic Forum's The Global Competitiveness Report 2007-2008 (www.imd.ch/wcc) IMD World Competitiveness Yearbook (www.worldbank.org) Doing Business 2008, World Bank (www.weforum.org) 33 28 56
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How We Constructed the Report
Other excellent competitive reports- the World Economic Forum’s Global Competitiveness Report and IMD’s World Competitiveness Yearbookassess a country’s competitiveness in full. This report attempts only to assign a value to how government policy impacts competitiveness.
To do so, we split economic policy into six areas: general, legislative framework, public administration, physical infrastructure, human resources, and fiscal/monetary policy. • • • • • • General covers macro outcomes of the other five policy areas combined. Legislative framework weighs the effectiveness of legislation. Public administration assesses how effectively and efficiently regulation is enforced. Physical Infrastructure describes how government policy has built up the necessary supporting landscape for business. Human Resources addresses how policy has influenced the labor force, education and research. Fiscal/Monetary highlights how policy has affected access to capital and price stability.
For each area of policy, we created a statistical model and conducted an opinion survey. The statistical model gives us hard, but lagging, numbers for judging the effectiveness of policy. The opinion survey gives us current, yet subjective, views of over 300 of the country’s leading businesspeople. For the statistical model- except for the legislative framework- we decided to present both actual numbers and a comparative index with the average result within the EU. We chose to index the final score on how the country performed against the EU average, because the EU is the primary competitive for the Czech Republic. For each of the policy areas, we then totaled up the EU index scores and divided the sum by the number of statistical indicators in that area. That gave us the overall score for each area. The six areas were then added together- without any weighting- and the result multiplied by 100 to give visual dimension to the differences. Thus, each of the seven countries compared received an overall economic policy score. Determining a numerical benchmark for legislative framework was more difficult. No such comparison exists in any form for all EU countries. We, therefore, had to create such a survey from scratch. First, we defined categories of law, and developed a series of principles required for competitive legislation in each category. These principles must be subjective: after all, law itself is a series of rules to define a philosophic system of governance, and we all do not share the same philosophy (and often have a different understanding of it even if we believe we agree).We then enlisted other AmChams in our comparative countries to help locate knowledgeable sources to inform us how well our seven countries achieved these principles. The final step was assigning a numerical score for each of these principles. Comparative Countries. We chose four neighbors and a high and low outlier- based on population size and GDP per capita- for comparison. The neighbors are Austria, Hungary, Poland and Slovakia. The high outlier is the Netherlands, an aspirational target. The low outlier is Bulgaria. Sources. Our primary statistical sources have been Eurostat and national statistical offices. We have also used the OECD, the European Central Bank, the IMF and the World Bank. The Global Competitiveness Report and the World Competitiveness Yearbook were sources of inspiration; every business interested in crossing borders should have a copy of each.
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How were the indicators selected?
The aim was to assess outcomes and efficiency in all areas of government policy. That meant finding statistics that would measure economic impact of policies and also the cost in money and other resources of implementing those policies. Our efforts were restricted by the availability of data. To calculate competitiveness, we needed comparable data not only from our seven comparative countries, but also from all EU countries. For that reason, such competitive data as average length of legislative process, the legislative cost of parliament per law, the cost of highway development and other relevant measures were not possible to include. Some entire areas of economic policy- real estate and health care, for instance- were not included for lack of data covering all of the European Union. We would have liked to assess health care by providing the ratio of sick days per person to the cost of health care per capita. Or we would have liked to provide a view on real estate by providing occupancy numbers for industrial sites, or the amount of square meters of office space per person. Unfortunately, these numbers, as far as our research has carried us, do not exist.
How do we assess the indicators and areas?
We constructed a simple model for determining country performance in every indicator and each area.
Exceeding +.15 meant that the indicator or area was a competitive advantage for the country. These areas are shaded in green. Performing at +/- .15 of the European average (1.0) meant the country was competitive. These indicators or areas are shaded in blue. Falling below -.15 of the European average indicated a competitive disadvantage. These areas or indicators are marked in red.
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Overall Competitiveness Score
Indexed against the European Union average, the economic policy of the Czech Republic helped create a competitive advantage in one area- physical infrastructure- and is performing around the EU average in another two- fiscal/ monetary policy and public administration. Human resourcesprincipally research & developmentare a competitive disadvantage for the country, and, as can be expected two decades after 1989, the general economic outcomes are still lower than the EU average. Within the seven country comparison group, the Czech Republic sits in a middle pairing with Slovakia. Atop the group rests the Netherlands and Austria, and the lower tier consists of Hungary, Poland and Bulgaria. The Czech Republic achieves its ranking through its strength in physical infrastructure and legal framework. It scores solidly in every area except public administration, in which it is again at a competitive disadvantage. If you break out the Netherlands- our aspirational outlier- and Bulgaria- our cautionary comparison- the Czech Republic is vying with Slovakia to be the first country in Central Europe to catch Austria. Within the CE cluster, the country has competitive economic policy across all areas. Even though the Czech Republic outperforms Slovakia in 3 of 6 areas, and is nearly even in the general indicators of performance, the poorer results in public administrative efficiency and exchange rate stability place this country slightly behind its former partner. Slovakia benefited from our decision to apply euro stability rates instead of Slovak currency rates; it joined the ranks of euro countries on January 1, 2009. Otherwise, the rankings could have been reversed.
General Policy Competitiveness
• • • • The country is doing as well as expected: gaining on Western Europe and highly competitive in Central Europe. Savings rates are good, and should be maintained. The country remains highly productive versus the EU average. Energy use- especially any wasteful use- cuts the benefit of GDP growth, and makes the country highly susceptible to climate change policy.
Legal Framework
• Judges may need further training- and quickly- in the new re-organization provisions if the country is going to take full advantage of the quality of its new law. The labor code requires more flexibility and greater differentiation between types of employees. The basic capital required joint stock company could be reduced. A quicker registration process for real estate would boost the sector. Progess in e-government is being held up by inadequate rules for the electronic conversion and archiving of documents.
• • • •
Public Administration
• Since systemic reform of the social security system requires a political consensus currently unattainable, policymakers could concentrate on cutting the contribution costs but reducing the amount of money necessary to administer the system. Improving the effectiveness of administration and the judiciary should be a top policy priority.
•
Physical Infrastructure
• • • • • Use the current energy capacity to attract more business and build capital for investment into greater efficiencies. Build up the convention and international event infrastructure to exploit fully the advantages we have in air traffic and accommodation. Invest in renewable energy. Find incentives to increase the number of homes with internet access. Make public the costs of public investments into the infrastructure.
Human Resources
• • • • • The education of the workforce needs to become a political and policy priority, and the focus needs to shift from talk to action. A greater percentage of the population needs access to university education. Before spending more money on education, the effectiveness of current spending should be studied. Policymakers should consider investments into university research capacity to turn the country into European centers of expertise. Greater incentives into commercial research and development should be developed.
Finance/Monetary Policy
• Access-to-credit policies have been good to date. The country’s traditional approach to banking may serve as a model for the new financial system. Of course, the current crisis may require more active intervention to ensure that this traditional approach provides enough credit to keep the economy functioning well. Over the past two years, the euro has been more stable than the crown. Whether this will hold true for the next decade has to be considered as a principle consdieration as we enter a period when predictability will be a more important competitive advantage than before.
•
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Index to European Union average
Economic Competitiveness Score
Austria Bulgaria Czech Republic Hungary Netherlands Poland Slovakia 763 487 594 526 848 511 601
1
Laws and Governance General
1,31 1,07 0,91 0,94 1,31 0,84 0,92
5
1
Economic Development Physical Infrastructure
1,34 0,47 1,21 1,02 1,37 0,71 1,08
Total
7,63 4,87 5,94 5,26 8,48 5,11 6,01
Index to EU avg.*
1,27 0,81 0,99 0,88
Legal Framework
1,00 0,93 1,00 1,05 1,17 0,89 0,96
Public Administration
1,22 1,19 0,96 0,90 1,79 0,88 1,12
Human Resources
1,14 0,54 0,81 0,76 1,18 0,78 0,66
Fiscal/Monetary
1,61 0,66 1,05 0,60 1,66 1,00 1,26
1,41
0,85 1,00
* The score against the average score for all EU countries.
Source: AmCham analysis.
Czech Republic index to 7 country comparative group
Economic Competitiveness Score
Benchmark AVG Czech Rep. index Source: AmCham analysis. 618,55 0,96 1,05 0,87
1
Public Administration
1,15 0,83
5
1
General
Laws and Governance Legal Framework
1,00 1,00
Economic Development Physical Infrastructure
1,03 1,17
Human Resources
0,84 0,97
Fiscal/Monetary
1,12 0,94
Country index to Central European cluster
Economic Competitiveness Score
Benchmark CE Cluster 592 1,00 1,27 0,88 0,86 1,00 3 0,99 0,92 1,33 0,96 0,85 0,94 4
0
Laws and Governance Legal Framework
0,98 1,02 1,02 1,07 0,91 0,98 2
7
0
General
Economic Development Physical Infrastructure
1,07 1,13 1,25 0,95 0,66 1,01 2
Public Administration
1,02 0,95 1,20 0,88 0,87 1,10 3
Human Resources
0,83 0,98 1,38 0,91 0,94 0,80 2
Fiscal/Monetary
1,10 0,95 1,45 0,54 0,91 1,14 3
Source: AmCham analysis
Austria index Hungary index Poland index Slovakia index CR Rank in CE Cluster
Czech Republic index
Source: AmCham analysis.
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General Policy Competitiveness
The five pillars of economic policy combine to create some general outcomes. The most common way to express that outcome is GDP per capita. That is loose way to track policy success. First, GDP is not created by government; it is created by natural resources and business. Second, GDP per capita is far too generic to give any meaningful assessment of the economy. Was the GDP created by natural resources concentrated in the hands of a few wealthy people? Was the GDP created by businesses which then shifted its profits into investments elsewhere? How much employee income did that GDP create, and how much savings for future investment exist? We, therefore, have broken down GDP into elements more useful for assessing policy: labor force, household consumption, fixed capital, trade, and- since it will become more and more a part of policy creation- energy use. As could be expected, the Czech Republic straddles the divide between Western Europe and former Soviet satellites. In 10 of 18 categories, the country is at a competitive disadvantage with the EU average. In four categories, it is competitive neutral, and in four it has a competitive advantage over the average EU country. The country‘s areas of strength indicate it has the potential for substantial competitive advances. Strengths. The country’s most prominent strength is in its productivity. Productivity is measured in many ways. For the sake of general policy, we chose to use a per capita measurement of GDP over employment compensation- or a rough ratio of what people made over what they were paid. The Czech Republic registered a result two times the EU average. The country’s citizens also score well in saving what they make; they put away 50% than the average European. Such thrift should provide some cushion against the current hard times, and provide future seeds for economic investment through bank lending. Weaknesses. The country’s ratio of household consumption to government consumption is 16% below the EU average. The higher this ratio, the more stable and dynamic the economy is. The country scores around the average both in government percentage of total employment and employee compensation to government consumption per capita; there is hope, therefore, that households will contribute an increasing part of GDP over the long-term- unless policy changes dramatically due to the current economic crisis. Our energy intensity and CO2 emissions per capita are among Europe’s worst. How much this is a factor of the country’s economically vital manufacturing base or a consequence of wasteful use is unknown. What is known, however, is that climate change has become accepted reality by most leading policymakers globally, and that the two most powerful regulatory engines of the world, the EU and the US, are likely to make it a priority in the next four years. A second reality is that energy consumption shifts wealth to those who control energy sources. A high energy intensity means that the Czech Republic pays more for every unit increase in GDP than most other countries. Both realities put the country in a vulnerable position.
Survey
Has the government‘s economic policy over the past 5 years contributed to economic growth? Does the current economic policy need to be changed in order to sustain high levels of growth? Is there consensus on the basic principles of economic policy across all the major political parties? How would you rate the following areas of economic policy compared to other EU countries? Should the country maintain and regular update a package of legislated investment incentives?
For the results of the survey go to page no. 21.
Policy Learning Points
• • • • The country is doing as well as expected: gaining on Western Europe and highly competitive in Central Europe. Savings rates are good, and should be maintained. The country remains highly productive versus the EU average. Energy use- especially inefficient use- cuts the benefit of GDP growth, and makes the country highly susceptible to climate change policy.
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4
Total Sum Total Score
4
10
Netherlands
22,28 1,31
General Indicators
Austria
22,35 1,31
Czech Republic
15,45 0,91
Hungary
16,04 0,94
Slovakia
15,71 0,92
Poland
14,29 0,84
Bulgaria
18,26 1,07
General Indicators
Netherlands
National % EU avg.*
Austria
National % EU avg.*
Czech Republic
National % EU avg.*
Hungary
National % EU avg.*
Slovakia
National % EU avg.*
Poland
National % EU avg.*
Bulgaria
National % EU avg.*
PEOPLE Labor Force- millions Employed Labor Unemployed Inactive Employed: not employed Employment % total population, 2007 Government percentage of total employment, 2006 % population 65 or over to total labor force, 2005 Sum Score GDP Household consumption per capita, USD, 2007 Employee Comp to Government Consumption per capita, USD, 2007 GDP, Ratio Household: Government GDP per capita, USD Government Subsidies as % GDP, 2006 GDP to Employee Compensation per capita, USD, 2007 Sum Score CAPITAL ACCUMULATION Savings per capita, usd, 2007 Savings as % employee compensation, 2007 Gross Fixed Capital per capita, USD, 2007 FDI Inward flow per capita, USD, 2007 Sum Score COMMERCIAL FLOW Current Account Balance per capita, USD ENERGY USE Energy Intensity, metric tons CO2 per USD 1 million GDP, 2005 Co2 emissions per capita, metric ton, 2006 Sum Score 289,30 10,50 1,72 0,82 2,54 1,27 253,30 9,30 1,96 0,92 2,88 1,44 946,70 12,50 0,52 0,69 1,21 0,60 522,30 6,00 0,95 1,43 2,38 1,19 800,40 7,40 0,62 1,16 1,78 0,89 972,90 8,70 0,51 0,99 1,50 0,75 1726,70 7,20 0,29 1,19 1,48 0,74 3076,92 4,12 1358,17 2,38 -436,05 0,57 -685,20 0,32 -740,74 0,26 -414,48 0,59 -1060,21 -0,06 12 892 0,55 9 298 148 1,42 1,12 1,17 0,11 3,82 0,96 12602 0,59 9291 2703 1,39 1,20 1,16 1,98 5,73 1,43 5 519 0,76 4 089 884 0,61 1,55 0,51 0,65 3,32 0,83 3 466 0,55 2 870 2 246 0,38 1,12 0,36 1,64 3,50 0,88 3 676 0,72 3 574 419 0,41 1,48 0,45 0,31 2,65 0,66 2 516 0,64 2 463 624 0,28 1,30 0,31 0,46 2,35 0,59 761 0,42 1 558 1 096 0,08 0,87 0,20 0,80 1,95 0,49 21 996 1,97 1,85 37 743 0,35 1,61 1,02 0,82 0,66 1,28 2,31 1,00 7,09 1,18 24 327 2,71 3,06 37 115 0,90 1,73 1,13 1,13 1,09 1,26 0,90 1,07 6,58 1,09 8 062 2,13 2,37 23 464 0,66 3,24 0,37 0,89 0,84 0,80 1,23 2,01 6,14 1,02 8 918 1,97 6,75 18 509 1,57 2,94 0,41 0,82 2,40 0,63 0,52 1,82 6,60 1,10 7 778 2,07 3,18 19 544 0,51 3,85 0,36 0,87 1,13 0,66 1,59 2,39 7,00 1,17 6 621 2,10 3,51 15 806 0,85 3,99 0,31 0,88 1,25 0,54 0,95 2,48 6,41 1,07 3 560 2,07 4,12 11 007 0,21 6,15 0,17 0,87 1,47 0,37 3,86 3,82 10,56 1,76 7,78 7,35 0,14 3,31 2,13 51,21 27,30 26,10 1,54 1,09 0,82 1,25 4,70 1,18 4,12 3,85 0,17 2,72 1,33 48,29 12,87 31,70 0,97 1,02 1,75 1,03 4,77 1,19 5,23 5,01 0,22 3,65 1,29 47,99 21,00 27,90 0,94 1,02 1,07 1,17 4,20 1,05 4,12 3,87 0,32 3,52 1,01 38,99 28,25 37,60 0,73 0,83 0,80 0,87 3,23 0,81 2,58 2,3 0,28 1,865 1,07 43,66 24,12 23,60 0,78 0,93 0,93 1,39 4,03 1,01 16,81 15,69 1,12 14,45 1,01 39,98 28,40 30,10 0,73 0,85 0,79 1,09 3,46 0,87 3,55 3,36 0,18 1,67 1,82 48,61 30,50 26,00 1,32 1,03 0,74 1,26 4,35 1,09
* The percent of EU average is the index of the country‘s score against the average score for all EU countries. Source: Statistics Austria, Netherlands, Central Statistical Office of Poland, Hungarian Central Statistical Office, Bulgarian Statistical Office, European Central Banks, Czech Statistical Office, national sources, Eurostat, OECD.
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Legal Framework
The benchmark for this section had to be constructed differently. No numerical measurements- or, as far as we know, comprehensive comparison- exists for all EU countries. Therefore, we had to build from scratch and concentrate only on the seven country comparative group. The index, therefore, averages only these seven, and not all of Europe. The Czech Republic receives high marks for the quality of its legislation. In bankruptcy and commercial registration- both recently reformed with intensive involvement of private sector experts- the country has a distinct competitive advantage. In seven chapters of legal reform, the country performs at the comparative group average. Only labor law is a competitive disadvantage. The Czech bankruptcy law is considered to be a fully modern approach to bankruptcy. Over the next few months, the newly formed re-organization provisions will likely be tested thoroughly, as well the judiciary’s knowledge of those provisions. The commercial registration process, once a black mark in the World Bank ratings, now ranks highly. If the demanding basic capital requirement were lowered, the country could receive an even higher score. Most of the seven legal categories that ranked as average could be easily improved with amendments. Some amendments are already in the process: including those introducing rules for e-delivery of documents issued by state authorities; protecting a person who purchased property in good faith from an owner registered in the cadaster but whose ownership is subsequently invalidated; archiving an e-electronic document; introducing the personal liability for cartel arrangements; and creating a new Tax Procedural Code. As for the labor code, the inflexibility of working arrangementsparticularly conditions for ending a working relationship- make the law a significant problem for the economy. The law does not distinguish between large and small firms, or between manufacturing or professional service workers, or between staff and management. The lack of subtlety and flexibility will hurt more in hard times than in good.
Survey
Are the commercial laws of the country cohesive and clear? How did companies rate the legal regulation in selected areas? Do the laws and regulations better enable the start-up, financing, and operations of an entrepreneurial venture than those of other countries?
For the results of the survey go to page no. 22.
Policy Learning Points
• • • • • Judges may need further training- and quickly- in the new re-organization provisions if the country is going to take full advantage of the quality of its new law. The labor code requires more flexibility and greater differentiation between types of employees. The basic capital required to form a joint stock company could be reduced. A quicker registration process for real estate would boost the sector. Progess in e-government is being held up by inadequate rules for the electronic conversion and archiving of documents.
10
2
7
1
Netherlands
9,98 1,00
Legal Framework
Total Sum Total Score
Austria
9,58 0,96
Czech Republic
8,89 0,89
Hungary
10,46 1,05
Slovakia
9,33 0,93
Poland
10,03 1,00
Bulgaria
11,73 1,17
Legal Framework
Netherlands
Score* CG index**
Austria
Score* CG index**
Czech Republic
Score* CG index**
Hungary
Score* CG index**
Slovakia
Score* CG index**
Poland
Score* CG index**
Bulgaria
Score* CG index**
Starting a Business Real Estate Taxes Judiciary Capital Markets Insolvency e-Government Labor Law IPR Competition
3,83 3,00 3,37 3,77 3,78 2,9 4,66 3,68 3,78 3,9
1,46 1,13 1,07 1,15 1,13 0,84 1,41 1,21 1,13 1,20
2,17 2,9 3,37 3,55 3,35 3,36 3,58 3,04 3,37 3,5
0,83 0,91 1,07 1,08 1,00 0,97 1,08 1,00 1,00 1,08
3,16 3,2 3,03 3,32 2,87 4,09 3,22 2,4 3,5 3,1
1,21 1,00 0,96 1,01 0,86 1,18 0,98 0,79 1,04 0,96
3,5 2,86 3,23 3,27 3,48 3 3,66 3,16 3,52 3,59
1,34 0,90 1,02 1,00 1,04 0,87 1,11 1,04 1,05 1,11
2,66 3,25 3,14 3,05 3 3,81 2,41 2,88 3,11 3
1,02 1,12 1,00 0,93 0,90 1,10 0,73 0,94 0,93 0,93
1,33 3,2 2,8 2,91 3,17 3,45 2,58 3,24 3,07 2,91
0,51 1,00 0,89 0,89 0,95 1,00 0,78 1,06 0,91 0,90
1,66 3 3,14 3,05 3,78 3,64 3 2,96 3,15 2,69
0,63 0,94 1,00 0,93 1,13 1,05 0,91 0,97 0,94 0,83
* Since EU data for legislation is not available, country score indicators in each area were assessed on the scale from 1 (minimum) to 5 (maximum). ** The country score indexed against the average of the seven countries in the comparative group. Source: AmCham analysis.
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Public Administration
Business has moaned for years that the bureaucracy is holding the country back. The numbers support that complaint. The Czech Republic was the second worst in the comparative group, and 11% below the EU average on the whole. The problem did not lie in too many bureaucrats, or even in the cost of bureaucracy- although the social contribution rate is one of the highest in the world. The issue was with its efficiency. In 3 out of the 7 cost indicators, Czech public administration costs less than its EU peers. Both effective personal tax rates and interest costs as a percentage of total government revenue are significantly lower than the EU average. The total tax rateboth as a percentage of GDP and profit- in the Czech Republic are about average. In two areas, however, the country has dangerous disadvantages: social contributions and government deficits. Efficiency is an entirely different story. In 8 of 12 measurements, the country is at a competitive disadvantage with Europe. One of the two bright spots of advantage, the social benefit payments to social contribution ratio directly results from the disadvantageously high costs of the system. The other- the days to start of business- results from a recent reform. More such reform is apparently needed. The danger of continuing the status quo in social security throbs through the numbers. The cost to the economy is one of the world’s worst. At the moment, the benefits paid ratio to contributions received ratio is among the best in Europe, but the country still pays 11% more in benefits than it receives. Administrative costs are 9% higher than the European average (only Slovakia is worse in the comparative group); reform could begin there. Procedural reform is equally necessary. Given the country’s performance in other areas, the poor results in administrative efficiency cannot be excused by a lack of competence. There is no reason why the Czech Republic should be nearly 75% below the European average in the number of days it takes to prepare taxes, or why it should be 46% below the European average in the number of days it takes to register property. The Czech Republic should not lag more than 250 days behind Bulgaria in the time it takes to enforce a contract.
Survey
Is the administration of public tenders by contracting authorities effective and transparent? Are public officials properly regulated? How effective are e-government programs? Is corruption a major obstacle to competitiveness?
For the results of the survey go to page no. 23.
Policy Learning Points
• Since systemic reform of the social security system requires a political consensus currently unattainable, policymakers could concentrate on cutting the contribution costs but reducing the amount of money necessary to administer the system. Improving the effectiveness of administration and the judiciary should be a top policy priority.
•
12
6
4
10
Netherlands
35,85 1,79
Public Administration
Total Sum Total Score
Austria
24,43 1,22
Czech Republic
19,24 0,96
Hungary
17,93 0,90
Slovakia
22,40 1,12
Poland
17,70 0,88
Bulgaria
23,77 1,19
Public Administration
Netherlands
National % EU avg.*
Austria
National % EU avg.*
Czech Republic
National % EU avg.*
Hungary
National % EU avg.*
Slovakia
National % EU avg.*
Poland
National % EU avg.*
Bulgaria
National % EU avg.*
COST Cost- Tax Receipts as % GDP, 2007 Cost- Government Budget Surplus/ Deficit, % GDP, 2007 Cost- General Government Debt, % GDP, 2007 Cost- Interest Payment, % current revenue, 2007 Cost- Effective Personal Income Tax Rate, %income equal to per capita GDP Cost- Employer's Social Security Contribution Rate, %income equal to GDP per capita, 2007 Cost- Tax rate as % Profit, 2008 Judiciary- Cost as % of Claim, 2008 Judiciary- Cost % of Estate to Close business, 2007 Sum Score EFFICIENCY Efficiency- Public Sector Employee Compensation as % Total Revenue, 2006 Efficiency- Value added:tax receipts Efficiency- Social Benefits: Social Contributions Efficiency- Administrative Costs as % Social Contribution, 2006 Efficiency- % Share of Non-Resident tourist nights Bureaucracy- Time expended on taxes annually Bureaucracy- Days to start a business Bureaucracy- Licensing Procedures, 2007 Bureaucracy- Days to Register Property, 2007 Judiciary- Time to enforce contracts, 2007 Efficiency- E-government on-line availability, 2007 Sum Score 20,07% 0,53 1,40 5,10 2,93% 180,00 10,00 18,00 5,00 514,00 63,00 1,15 1,08 1,01 0,61 0,79 1,39 2,05 0,94 13,25 1,05 1,07 24,39 2,22 19,03% 0,43 1,48 1,70 7,49% 170,00 28,00 13,00 32,00 397,00 100,00 1,21 0,88 0,95 1,82 2,02 1,47 0,73 1,31 2,07 1,36 1,69 15,51 1,41 18,27% 0,41 1,11 3,40 2,16% 930,00 17,00 36,00 123,00 820,00 55,00 1,27 0,83 1,27 0,91 0,58 0,27 1,21 0,47 0,54 0,66 0,93 8,94 0,81 25,57% 0,51 1,33 2,10 1,07% 340,00 16,00 31,00 63,00 335,00 50,00 0,90 1,03 1,06 1,48 0,29 0,74 1,28 0,55 1,05 1,62 0,85 10,85 0,99 20,95% 0,47 1,35 3,60 0,54% 344,00 25,00 13,00 17,00 565,00 35,00 1,10 0,96 1,04 0,86 0,14 0,73 0,82 1,31 3,90 0,96 0,34 12,16 1,11 24,08% 0,47 1,36 2,00 1,14% 418,00 31,00 30,00 197,00 830,00 25,00 0,96 0,95 1,04 1,55 0,31 0,60 0,66 0,57 0,34 0,65 0,34 7,97 0,73 21,62% 0,00 1,40 2,40 1,26% 616,00 32,00 22,00 19,00 564,00 15,00 1,07 0,00 1,00 1,29 0,34 0,41 0,64 0,77 3,49 0,96 0,00 9,97 0,91 45,60 0,57 45,70 4,89% 36,38 0,99 1,15 1,28 1,24 0,66 47,90 -1,12 59,50 5,99% 28,62 0,94 0,96 0,99 1,01 0,84 41,60 -2,95 28,90 2,74% 20,10 1,08 0,76 2,03 2,21 1,20 44,90 -9,18 65,80 9,01% 38,33 1,00 0,09 0,89 0,67 0,63 32,70 -3,39 29,40 4,24% 14,23 1,38 0,72 2,00 1,43 1,70 40,00 -3,96 44,90 6,10% 31,77 1,13 0,66 1,31 0,99 0,76 41,60 3,33 18,20 2,47% 20,66 1,08 1,45 3,23 2,46 1,17
16,35 43,40% 24,40% 4,00
1,55 1,10 0,79 2,70 11,46 1,27
21,83 54,60% 12,70% 18,00
1,16 0,87 1,52 0,60 8,89 0,99
35,00 48,60% 33,00% 15,00
0,72 0,98 0,58 0,72 10,28 1,14
34,52 55,10% 13,00% 15,00
0,73 0,87 1,48 0,72 7,08 0,79
34,70 50,50% 25,70% 18,00
0,73 0,94 0,75 0,60 10,25 1,14
20,61 38,40% 10,00% 22,00
1,23 1,24 1,93 0,49 9,74 1,08
23,98 36,70% 22,20% 9,00
1,05 1,30 0,87 1,20 13,81 1,53
* The percent of EU average is the index of the country‘s score against the average score for all EU countries. Source: Eurostat, National Sources, PwC „Resource Tax Manager“, World Bank
13
Physical Infrastructure
The Czech Republic has a solid physical infrastructure, with some strong advantages and some equally nagging disadvantages. Cost is not adequately reflected in this scoring due to the availability of data. For the same reason, real estate and convention infrastructure did not make it into the tables. The country has a competitive advantage in 5 of the 15 indicators, a neutral score in 3, and a disadvantage in 7. Transport infrastructure and energy supply are strengths. Broadband, internet access and renewable energy supply are not. Strengths. On a GDP per person and per unit basis, the country supplies energy at a rate significantly higher than and at a cost close to the European average. The capacity exists for more economic growth. The capacity also exists for selling energy abroad to build capital for investing into a more efficient infrastructure and electrical grid. Although the country is below the European average for air traffic, it is doing well in comparison to its neighbors. In hotel and accommodation infrastructure, the country has been in a golden age, with a bed utilization rate much higher than the European average. The combination of good results in the air and hotel infrastructure bodes well for tourism- if other currently unmeasurables such as convention and international events match the airport’s capabilities. Weaknesses. As noted earlier- and mentioned often in the domestic press- the cost of infrastructure remains unknown, and is suspected to be higher than in comparable countries. The government would do a great and responsible service to the citizens if it reported those costs. Two weaknesses can be seen in the numbers we do have. First the broadband and internet penetration rates remain below the EU average. This is not unexpected. That the country performs below Hungary, Poland, and Slovakia in household internet access is a surprise. The low level of renewable energy contribution underlines how vulnerable the country is to major changes in the global approach to climate change.
Policy Learning Points
• • Use the current energy capacity to attract more business and build capital for investment into greater efficiencies. Build up the convention and international event infrastructure to exploit fully the advantages we have in air traffic and accommodation. Invest in renewable energy. Find incentives to increase the number of homes with internet access. Make public the costs of public investments into the infrastructure.
Survey
Is the administration of public tenders by contracting authorities effective and transparent? Are public officials properly regulated? How effective are e-government programs? Is corruption a major obstacle to competitiveness?
For the results of the survey go to page no. 25.
• • •
14
5
3
6
Netherlands
19,11 1,37
Physical Infrastructure
Total Sum Total Score
Austria
18,71 1,34
Czech Republic
16,87 1,21
Hungary
14,23 1,02
Slovakia
15,18 1,08
Poland
9,94 0,71
Bulgaria
6,52 0,47
Physical Infrastructure
Netherlands
National % EU avg.*
Austria
National % EU avg.*
Czech Republic
National % EU avg.*
Hungary
National % EU avg.*
Slovakia
National % EU avg.*
Poland
National % EU avg.*
Bulgaria
National % EU avg.*
COMMUNICATION Enterprises having a broadband connection, 2007 Households having a broadband connection, 2007 Broadband penetration rate - Number of broadband access lines per 100 inhabitants, 2007 Level of Internet access - households - Percentage of households who have Internet access at home, 2005 Sum Score LAND Arable area, m2 per capita, 2005 ENERGY Total primary energy supply per unit of GDP Tonnes of oil equivalent (toe) per thousand 2000 US dollars of GDP calculated using PPPs, 2008 Total primary energy supply per capita Tonnes of oil equivalent (toe) per capita, 2005 Contribution of renewables to energy supply as a percentage of total primary energy supply, 2005 Electricity prices for Industry: January 2006 – January 2007 (in national currency per 100 kWh), Standard consumer Ie: annual consumption of 2 000 MWh, VAT excluded Sum Score TRANSPORT Roads, km per km2, divided by population % EU Avg, 2006 Railroads, km per km2, divided by population % EU Avg, 2006 Passengers through Primary Airports, millions, 2007 Flight Movements at Major International Airports, thousands, 2007 Sum Score TOURISM Total Nights per bed, 2007 72,82 0,86 106,07 1,26 164,64 1,95 63,90 0,76 70,95 0,84 94,42 1,12 67,58 0,80 3,72 0,07 50,43 2,48 1,23 2,11 1,60 0,07 18,80 2,12 2,52 0,79 1,62 0,12 12,40 1,73 3,52 0,52 1,72 0,09 8,60 1,86 2,67 0,36 0,89 0,08 2,00 1,80 4,17 0,08 1,35 0,06 8,10 0,39 0,47 0,34 0,39 0,04 3,23 0,55 1,54 0,14 577,00 0,20 1765,00 0,61 3221,00 1,11 4767,00 1,64 2629,00 0,90 3281,00 1,13 4371,00 1,50 87,00 74,00 33,10 1,13 1,76 1,82 72,00 46,00 18,40 0,94 1,10 1,01 77,00 28,00 12,20 1,00 0,67 0,67 70,00 33,00 11,60 0,91 0,79 0,64 76,00 27,00 6,90 0,99 0,64 0,38 53,00 30,00 6,80 0,69 0,71 0,37 61,00 15,00 5,70 0,79 0,36 0,31
83,00
1,54 6,25 1,56
60,00
1,11 4,16 1,04
35,00
0,65 2,99 0,75
38,00
0,70 3,04 0,76
46,00
0,85 2,86 0,72
41,00
0,76 2,53 0,63
19,00
0,35 1,81 0,45
0,17
1,06
0,14
0,88
0,25
1,56
0,18
1,13
0,26
1,63
0,20
1,25
0,00
0,00
5,02
1,36
4,17
1,13
4,42
1,20
2,75
0,75
3,50
0,95
2,44
0,66
0,00
0,00
3,50
0,52
21,30
3,18
4,30
0,64
4,40
0,66
4,60
0,69
5,30
0,79
0,00
0,00
10,30
1,12
9,53
1,04
8,74
0,95
8,02
0,87
10,37
1,13
6,85
0,74
0,00
0,00
4,06 1,01
6,23 1,56
4,35 1,09
3,41 0,85
4,40 1,1
3,44 0,86
0,00 0,00
465,69
1,91 7,73 1,93
254,87
1,04 6,47 1,62
174,66
0,72 6,49 1,62
124,29
0,51 5,40 1,35
31,60
0,13 6,18 1,55
126,53
0,52 1,72 0,43
43,08
0,18 2,41 0,60
* The percent of EU average is the index of the country‘s score against the average score for all EU countries. Source: Eurostat, FAO, OECD, Annual Reports of European International Airports, World Roads Statistics, International Road Federation, national sources.
15
Human Resources
In a country with limited natural resources surrounded by an evermore interconnected world, policies which develop the capacities of a country’s citizenry move to the center of economic policy. A competent workforce, in fact, underlies a modern and evolving legislative framework, an effective public administration, and smart monetary and fiscal policy. And a solid physical infrastructure means nothing if there are no products pushed through it. The Czech Republic tops its other former Soviet neighbors in developing such a human resource policy. Yet, again, it still lags far behind countries such as Austria and Netherlands, and overall is 19% below the European average. Erasing this 19% deficit and turning this area of policy into a competitive advantage within the EU should be policy number one for all political parties. Twenty-one indicators were selected. The country has a competitive advantage in two, and a disadvantage in 12. It is doing reasonably well in traditional education, but is far behind in training and education after university. The labor force works long hours, but at a lower productive per hour worked. Not enough of that work force has a university education, and the number in high tech manufacturing is below ever other comparative country except Austria. The ability to convert education into commercial research success is poor; although test scores are high, the country is 90% below the EU average in patent applications. Strengths. The government spends 41% more of its tax revenue on education than other countries. That strength appears to be mitigated by low private sector spending; the country is 12% below the EU average in total public and private sector spending on education. The result of this spending are test scores at the EU average in nearly every available category. The number of doctoral students is nearly twice the EU average. Weaknesses. The country has 53% less 25-34 year olds with university education than the EU average. This is the lowest among the comparison countries. The pupil per teacher ratio in primary school is 17% worse than the European average, and worse than every comparison country except Slovakia. The country has far fewer patents registered per million inhabitants, and almost 50% fewer scientific papers published per million people than the EU average. Research and Development expenditure is 16% below EU average. Part of this is low investment of the private sector; part of it is lower than average spending by the government.
Survey
Does the educational system adequately prepare individuals to compete in the international labor force? What type of quality labor force is hardest to find? What is the main issue facing companies in the area of human resources? What are the most important steps the government has to make in order to support research and development in the private sphere?
For the results of the survey go to page no. 27.
Policy Learning Points
• • • • • The education of the workforce needs to become a political and policy priority, and the focus needs to shift from talk to action. A greater percentage of the population needs access to university education. Before spending more money on education, the effectiveness of current spending should be studied. Policymakers should consider investments into university research capacity to turn the country into European centers of expertise. Greater incentives into commercial research and development should be developed.
16
2
7
12
Netherlands 24,88 1,18 Austria 24,02 1,14 Czech Republic 17,08 0,81 Hungary 15,87 0,76 Slovakia 13,95 0,66 Poland 16,39 0,78 Bulgaria 11,42 0,54
Human Resources Total Sum Total Score
Human Resources
Netherlands National
% EU avg.*
Austria National
% EU avg.*
Czech Republic National
% EU avg.*
Hungary National
% EU avg.*
Slovakia National
% EU avg.*
Poland National
% EU avg.*
Bulgaria National
% EU avg.*
LABOR FORCE Labor Force - Prodperhour worked, 2007 Labor Force- High Tech Manufacturing, 2006 Labor Force- Working Hours per year, 2007 Labor Force- % foreign workers with high education Labor Force- % 25-34 with tertiary education, 2005 Sum Score EDUCATION Education- English Proficiency, Toefl Scores, 2006 Education- % Total Gov Revenues spent on education Education- Science/Math Graduates, 2004 Education- Doctoral Students as % population 20-29, 2006 Education- Lifelong Learning, 2007 Education- Pupil per teacher, primary, 2006 Education- Reading Scores, 2006 Education- Math Scores, 2006 Education- Science Scores, 2006 Education- Annual Private and Public Spending as % of GDP per capita, 2005 Sum Score COMMERCIALIzATION Commercialization- High Tech patents per million, 2004 Commercialization- Patent applications per million, 2004 Research- Scientific Articles published per million, 2005 R&D Expenditure, %GDP, 2007 R&D- Government spending per researcher, euro, 2006 R&D-% financed by government, 2006 Sum Score 61,87 222,45 848 1,70 11061,40 0,14 2,91 2,11 1,61 0,93 1,22 1,00 9,78 1,63 22,65 172,95 549 2,56 3869,05 0,05 1,06 1,64 1,04 1,40 0,43 2,80 8,37 1,40 1,27 10,86 307 1,54 4478,26 0,18 0,06 0,10 0,58 0,84 0,49 0,78 2,85 0,48 2,70 15,07 260 0,97 4560,00 0,25 0,13 0,14 0,49 0,53 0,50 0,56 2,35 0,39 0,62 3,64 170 0,46 3086,96 0,33 0,03 0,03 0,32 0,25 0,34 0,42 1,39 0,23 0,59 3,05 180 0,56 4628,10 0,37 0,03 0,03 0,34 0,31 0,51 0,38 1,60 0,27 0,31 1,37 100 0,48 4333,33 0,64 0,01 0,01 0,19 0,26 0,48 0,22 1,17 0,20 103 9,62 7,20 0,00 16,60 15,30 507,00 531,00 525,00 22,80 1,12 0,96 0,56 0,00 1,75 0,94 1,03 1,07 1,05 0,90 9,38 0,94 99 9,96 17,20 0,49 12,80 13,90 490,00 505,00 511,00 28,70 1,08 1,00 1,33 1,40 1,35 1,03 1,00 1,01 1,02 1,14 11,36 1,14 89 14,1 10,00 0,68 5,70 17,30 483,00 510,00 513,00 22,20 0,97 1,41 0,78 1,94 0,60 0,83 0,98 1,02 1,03 0,88 10,44 1,05 88 17,43 6,40 0,18 3,60 10,40 482,00 491,00 504,00 26,70 0,96 1,75 0,50 0,51 0,38 1,38 0,98 0,99 1,01 1,06 9,52 0,95 89 15,70 9,90 0,46 3,90 18,60 466,00 492,00 488,00 19,90 0,97 1,57 0,77 1,31 0,41 0,77 0,95 0,99 0,98 0,79 9,51 0,95 86 19,29 11,20 0,17 5,10 11,40 508,00 495,00 498,00 26,60 0,94 1,93 0,87 0,49 0,54 1,26 1,03 0,99 1,00 1,06 10,11 1,01 88 22,95 9,50 0,22 1,30 15,80 0,00 0,00 0,00 25,20 0,96 2,30 0,74 0,63 0,14 0,91 0,00 0,00 0,00 1,00 6,68 0,67 122,10 40,10 1776,00 28,70 35,00 1,34 1,23 0,98 1,00 1,19 5,74 1,15 104,80 23,20 1735,00 23,10 20,00 1,15 0,71 0,96 0,80 0,68 4,3 0,86 53,30 26,20 1864,00 25,60 14,00 0,58 0,80 1,03 0,89 0,47 3,77 0,75 55,40 29,10 1931,00 22,00 20,00 0,61 0,89 1,07 0,76 0,68 4,01 0,80 64,20 25,40 1852,00 0,00 16,00 0,70 0,78 1,02 0,00 0,54 3,04 0,60 45,70 40,90 1866,00 29,80 26,00 0,50 1,26 1,03 1,04 0,88 4,71 0,94 32,00 45,30 1970,00 0,00 22,00 0,35 1,39 1,09 0,00 0,75 3,58 0,72
* The percent of EU average is the index of the country‘s score against the average score for all EU countries. Source: National sources, national statistical offices, Toefl, Eurostat, OECD.
17
Finance/Monetary Policy
Finding the right title for this area was, ultimately, a losing struggle. We wanted to find a term to describe how government monetary, credit and exchange rate policy impacted the economy. We ended up with a somewhat misleading hybrid. Whatever it is called, this area has been an area of competitive strength for the Czech Republic. In 3 of the 7 indicators, the country achieved a competitive advantage. In only one indicator did the country perform well below the EU averageinterest rate spreads- and, given what we now know of the credit bubble, perhaps even this area might be considered a strength in retrospect. Strengths. Access to capital- whatever access remains- seems to have better potential in the Czech Republic than in other EU countries. Money market rates and the 3 month interest rate are much better than the EU average. This may be helped by credit monitoring through credit bureaux. 57,2% of the population is covered by these risk-lowering policy instruments, which is 28% higher than the EU average. Such coverage will play an accelerating function when credit starts flowing again. Weakness. The interest rate spread is dramatically higher than the EU average. However, these 2007 numbers may reflect a more realistic and traditional view of the banking business than existed in other markets. The one potential area of weakness over the coming years is exchange rate stability. A strong and weak crown has been a dominant influence on the economy in the past 18 months. Such instability adds to unpredictability, and enough unpredictability already exists without the currency sloshing around. Countries which have adopted the euro have had much less instability.
Survey
Policy Learning Points
• Access-to-credit policies have been good to date. The country’s traditional approach to banking may serve as a model for the new financial system. Of course, the current crisis may require more active intervention to ensure that this traditional approach provides enough credit to keep the economy functioning well. Over the past two years, the euro has been more stable than the crown. Whether this will hold true for the next decade has to be considered as a principle consdieration as we enter a period when predictability will be a more important competitive advantage than before.
Will maintaining an independent currency help or hurt the economy over the next five years? Is the government able to sustain the crown at a stable exchange rate against other major world currencies? Should the government focus solely on price stability as the basis of monetary policy? Should measures be taken to increase the Central Bank‘s independence? Is the country‘s rising public indebtedness a threat to economic competitiveness?
For the results of the survey go to page no. 30.
•
18
3
3
1
Fiscal Policy
Total Sum Total Score
Netherlands
11,60 1,66
Austria
11,25 1,61
Czech Republic
7,36 1,05
Hungary
4,20 0,60
Slovakia
8,84 1,26
Poland
7,02 1,00
Bulgaria
4,65 0,66
Fiscal Policy
Netherlands
National % EU avg.*
Austria
National % EU avg.*
Czech Republic
National % EU avg.*
Hungary
National % EU avg.*
Slovakia
National % EU avg.*
Poland
National % EU avg.*
Bulgaria
National % EU avg.*
ACCESS TO CAPITAL Interest Rate Spread, 2007 Yield 10 Year Government Bond, November 2008 Day to Day Money Market Rates, November 2008 3 month interest rate, November 2008 % Population covered by Public and Private Credit Bureaux Sum Score STABILITY Exchange Rate Stability, 2006-2008 HICP, December 2008 Sum Score 0,031 105,07 2,18 1,04 3,22 1,61 0,031 107,44 2,18 1,01 3,19 1,60 0,078 111,10 0,87 0,98 1,85 0,93 0,111 118,97 0,61 0,92 1,53 0,77 0,031 111,44 2,18 0,98 3,16 1,58 0,038 109,40 1,81 1,00 2,81 1,40 0,109 131,22 0,62 0,83 1,45 0,73 0,82 3,96 3,15 4,24 78,10% 2,89 1,11 1,31 1,33 1,74 8,38 1,68 0,67 4,67 3,15 4,24 41,90% 3,54 0,94 1,31 1,33 0,94 8,06 1,61 5,22 4,52 2,79 4,24 57,20% 0,45 0,97 1,48 1,33 1,28 5,51 1,10 2,28 9,41 10,71 8,95 6,90% 1,04 0,47 0,38 0,63 0,15 2,67 0,53 4,10 4,92 2,97 3,65 57,20% 0,58 0,89 1,39 1,55 1,28 5,69 1,14 3,00 6,23 5,60 6,74 51,50% 0,79 0,70 0,74 0,84 1,15 4,22 0,84 5,78 6,00 5,77 7,89 28,40% 0,41 0,73 0,71 0,71 0,63 3,19 0,64
* The percent of EU average is the index of the country‘s score against the average score for all EU countries. Source: National sources, Eurostat, IMF, European Central Bank.
19
Opinion Survey
Statistics give you hard numbers on how things have been. They can measure the outcomes of past decisions, and, at times, can predict trends. Numbers can also be misleading- as we have discovered to our dismay in the past six months. Furthermore, numbers only reflect part of what drives economic decisions. Emotions and opinions and judgement, especially those of business leaders, affect statistics as much as statistics influence decisions. To understand current currents of opinion is why we wanted to balance a statistical assessment with a sounding of business leaders’ views. What follows is a summary of those judgements. Business leaders give government credit. Two out of three confirm that economic policy has had a positive influence on economic development. They worry, however, that current policies, if continued, will not produce the same positive results. 83% urge a change to the current policy direction. Long-term policy change, executives believe, is not possible in the current policy environment. 82% think that there is no cross-party consensus that would allow policy continuity. Although these leaders credit policies for boosting the economy, they rate the performance of that policy as average (physical infrastructure, human resources, fiscal/monetary policy) to below average (legislative framework, public administration) in the five economic policy areas framed by our competitiveness report. Public administration did not rate poorly only in the statistical assessment. 13% of the executives labeled public administration a major competitive disadvantage. The waste, misuse or theft of the public budget is believed to be pervasive. 90% of the business leaders estimate that 10% or more of public funds are not properly used; one in four put the ineffective or misuse of funds at 30% or more of the public budget. Despite the common wisdom that Czech education is a cut above, executives are convinced it does little to prepare citizens for the workplace. 69% say it does not prepare graduates for life inside a company. As expected, most executive are baffled by the government’s attachment to the crown. 64% worry that maintaining an independent currency for the next five years will hurt the economy. 20
1. Company Information
1. Choose the description that best fits your company
Manufacturer Construction Professional Service (Law, Advisory, Tax) Logistics IT/Communication Real Estate Human Resource (including education) Tourism and Entertainment Health Care Other 18.7% 3.2% 19.6% 4.1% 8.8% 2.0% 9.1% 12.0% 2.6% 19.9%
2. My company employs
1-15 people 16-100 people 101-250 people 251 or more people 21.8% 34.4% 16.5% 27.4%
3. My company operates in
the Czech Republic only 1-5 countries in Europe more than 5 countries in Europe 24.4% 27.1% 48.5%
4. My company's local operation
exports does not export 40.5% 59.5%
2. General Perspective
1. Has the government's economic policy over the past 5 years contributed to economic growth?
Yes, it has significantly contributed. Yes, it has contributed marginally to growth. No, it has not. No, it has deterred growth marginally. No, it has signficantly deterred growth. 12.4% 54.4% 28.6% 3.5% 1.2%
2. Does the current economic policy need to be changed in order to sustain high levels of growth?
Yes. No, the current economic policy will contribute to continued high growth. No, economic policy has no impact on growth. 83.3% 11.3% 5.4%
3. Is there consensus on the basic principles of economic policy across all the major political parties?
Yes, there is a clear economic policy supported by all major parties. Yes, all major parties support some basic policy points. No, there is no economic policy continuity. 0.4% 17.6% 82.0%
4. How would you rate the following areas of economic policy compared to other EU countries? Insufficient
Legal Framework Public Administration Physical Infrastructure Human Resources Monetary Policy 19.6% 20.6% 6.3% 7.5% 8.3%
Below Average
42.4% 57.1% 32.4% 28.0% 26.5%
Average
34.9% 20.2% 48.2% 41.7% 40.3%
Above Average
3.1% 2.0% 12.6% 22.8% 22.9%
Superior
0.0% 0.0% 0.4% 0.0% 2.0%
5. Which competitive approach is most suitable as the basis for this country's mid-term economic policy?
Cost-based manufacturing and services which depends on technology transfer from abroad. A hybrid of cost-based manufacturing and services with the development of quality-based manufacturing and services with a significant research and development base. Full adoption of quality-based manufacturing and services that depends on their own innovation and research capacities. 4.8% 62.2% 32.9%
6. Should the country maintain and regular update a package of legislated investment incentives?
Yes. No, the government should offer incentives on a discretionary basis. No, the country does not need investment incentives. 62.6% 20.9% 16.5%
21
3. Legal Framework
1. Are the commercial laws of the country cohesive and clear?
Yes, the laws are well-integrated with each other and easy to interpret. No, the laws sometimes conflict with each other and are difficult to interpret. No, the laws often are in fundamental conflict with each other and extremely difficult to interpret. 6.3% 84.5% 9.2%
2. How would you describe the country's approach to regulation? More open, flexible and competitive than the average EU country. Similar to most EU countries. More restrictive to competitition than the average EU country. 17.3% 57.2% 25.5%
3. How would you rate the laws concerning the following areas Extremely Poor
Company Formation Competition Intellectual Property Consumer Rights Contractual Relations Labor Relations Product Liability Environmental Protection 6.8% 3.0% 5.3% 3.9% 3.1% 6.8% 2.2% 5.3%
Inadequate
37.4% 35.8% 37.4% 38.6% 41.9% 40.0% 26.8% 32.2%
Adequate
54.0% 60.3% 57.3% 55.8% 53.3% 48.1% 69.6% 56.4%
Superior to other European countries
1.7% 0.9% 0.0% 1.7% 1.7% 5.1% 1.3% 6.2%
4. Do the laws and regulations better enable the start-up, financing, and operations of an entrepreneurial venture than those of other countries?
Yes, the laws and regulations are attractive to entrepreneurism, and better than most EU countries. The laws and regulations are about average for an EU country. The laws and regulations are less attractive for entrepreneurism than other EU countries 4.3% 55.1% 40.6%
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4. Public Administration
1. In comparison with other EU countries, would you rate the public administration of the Czech Republic (ministries, agencies, courts, regions, municipalities) as: Superior: the public administration is one of the country's competitive advantages. Above average: The public administration helps business more than those of most other EU countries. Average: The public administration performs as well as in most EU countries.. Below Average: The public administration hurts business more than those in many other EU countries. Poor: The public administration is a major competitive disadvantage for business. 0.0% 0.0% 22.1% 64.6% 13.3%
2. What percentage of the public budget is wasted through inefficient, ineffective or corrupt management of government offices and programs? None 1-10% 11-20% 21-30% 30% or more. 0.5% 9.6% 33.0% 32.1% 24.8%
3. How would rank the country's tax policy in the following areas A competitive advantage Rates Number and Clarity of Deductions Consistency and Fairness of Enforcement 33.2% 5.5% 1.9% Average 53.1% 61.3% 59.7% A competitive disadvantage 13.7% 33.2% 38.4%
4. Do the courts administer the laws of the country in an efficient, consistent and fair manner? Mark for each choice if you agree. If you do not agree, please do not mark. Efficient Transaction contracts Labor Disputes Consumer Rights Intellectual Property Ownership Disputes Real Estate Titles 5.3% 11.0% 9.0% 6.9% 6.0% 10.6% Consistent 70.2% 69.7% 64.9% 68.3% 65.1% 70.2% Fair 39.4% 34.9% 38.7% 40.6% 39.8% 35.1%
5. Is the administration of public tenders by contracting authorities effective and transparent? Both effective and transparent Effective Transparent Neither effective nor transparent 1.9% 5.7% 2.4% 90.1%
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6. Does the enforcement of competition law promote fair and open competition?
Yes No 38.4% 61.6%
7. Does the government have clear and fair rules, transparent administration, and effective communication for public subsidy and aid programs?
Clear and Fair Rules National Programs EU Programs Regional Programs Municipal Programs 47.2% 52.1% 22.0% 19.6% Good Administration 60.4% 49.3% 58.0% 52.2% Effective Communication 26.4% 29.6% 36.0% 50.0%
8. Are public officials properly regulated?
Performance properly monitored Public Elected Official-national Publicly Elected Officials- regional and local State officials Regional officials Municipal officials Court officials 51.5% 41.2% 30.8% 29.6% 48.4% 41.3% Conflict of interest properly monitored 57.6% 67.6% 73.1% 74.1% 54.8% 65.2%
9. How effective are e-government programs?
Insufficient National government Regional government Municipal government 20.3% 21.9% 23.0% Below EU Average 50.0% 51.7% 49.4% Average for EU 26.4% 25.3% 25.8% Above EU average 3.3% 1.1% 1.7% Superior 0.0% 0.0% 0.0%
10. Is corruption a major obstacle to competitiveness?
Yes, corruption is a significant competitive disadvantage in comparison to other EU countries. Yes, corruption is a minor competitive disadvantage in comparison to other EU countries. No, corruption is about average for an EU country and is therefore neither a competitive advantage or disadvantage. No, corruption in the Czech Republic is lower than in other EU countries. 52.3% 37.5% 9.7% 0.5%
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5. Physical Infrastructure
1. How would you rate the country's infrastructure:
Insufficient Transport Energy Industrial Sites Commercial Space Housing Health Care Water Communication/IT 14.8% 1.9% 1.0% 0.5% 2.4% 5.7% 0.5% 1.9% Below EU average 45.7% 15.2% 20.0% 10.1% 35.6% 33.5% 10.6% 18.3% Average for EU 33.3% 61.0% 59.0% 63.9% 54.8% 43.1% 61.8% 62.0% Above EU Average 5.2% 19.5% 20.0% 25.0% 7.2% 15.8% 20.3% 16.3% Superior 1.0% 2.4% 0.0% 0.5% 0.0% 1.9% 6.8% 1.4%
2. Does the Czech government need to focus its transport investment into
Road Rail Water Air 69.8% 27.0% 1.9% 1.4%
3. How has government ownership stakes in electricity influenced the competitiveness of economy?
Significantly helped economic competitiveness Somewhat helped economic competitiveness No impact Somewhat reduced economic competitiveness Significantly reduced economic competitiveness 2.5% 13.7% 38.2% 31.9% 13.7%
4. Should the government develop private sector incentives and make substantial public investment into alternative energy sources?
Yes Private Sector Incentives Public Sector Investment 82.0% 70.9% No 18.0% 29.1%
5. Does the current health care policy deliver:
Yes High Quality Care A good quality-cost ratio Equal Treatment and Coverage for all Patients Incentives for Healthy Lifestyle 36.0% 50.2% 44.7% 14.6% No 64.0% 49.8% 55.3% 85.4%
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6. Has government housing policy encouraged the building of affordable homes for working families?
Yes No No, and the government should not be responsible for such incentives. 29.3% 40.4% 30.3%
7. Does the government have a policy which will ensure a sufficient future supply of water?
Yes No No, and it is not a problem. 36.9% 37.4% 25.7%
8. Has the government's regulation of communication made the country more competitive?
Yes No 25.7% 74.3%
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6. Human Resource
1. Does the educational system adequately prepare individuals to compete in the international labor force?
Yes No 31.0% 69.0%
Individual Comments:
There is lack of practical preparation during education. No middle management and still too much the view of the big unknown in companies. Government should more actively promote enterpreneurship. The whole education system needs to be modernised including retraining answering to today‘s needs. Universities are poor. Language skills missing. Lack of English competence even in younger generation. Language skills inadequate. Very theoretic, focused onto knowing, not working with information, lack of practical applicability, politicking permeting the public university sector, lack of assessment of university teachers performance. No English schools unless private. Universities should restructure "White Book". Foreign Languages education is a problem, the requirements are sometimes too low . Schools are poorly equipped, most universities are in a shameful state. Need to link education system with real world requirements. In other words we need to build theory based upon practical world experience and requirements. I consider Education area as the major competitiveness barier and inhibitor. Poor foreign language education quality and quantity. Needs to focus on Business MBA programs. Ossified, too many incompetent teachers and administrators on all levels. Focus on memorizing, not marketable skills. Too theoretically and individualistically directed. More practical and teamwork excersizes needed. Underestimation of study of technical sciences. Teachers have no clue how to do any career coaching. We need an apprenticeship system throughout various businesses including a technical & theoretical knowledge conducted by professionals. Example: 3 years apprenticeship for kitchen, service or hotel schooling program including practical parts. Steps should be taken to attract more students into technically oriented curriculum and more attention should be given to the teaching of foreign languages. Poor University Education. Strengthen soft skills and language training! Insufficiency in languages, self-presentation, self-confidence, other soft skills. No differentiation, too old staff and low paid, we need fees for better support of good schools and we need more private sector in this area with special incentives. Skill of craftsmanship is not good. Old approach to education system-not developing creative thinking and responsibility, lack of professional education for standart level of workforce. The system produces thousands of graduates with insufficient opportunity for employment in their specialization. More support should be given to technical and IT studies. This should be the highest priority for government. Insufficient: language skills, social skills, problems solving. Top talented students prefer top foreign universities. The number of factually illiterate person is increasing. Lack in language and managerial skills.
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2. How would you describe the education policy of the government?
Good policy framework with effective implementation and sufficient funding. Good policy framework without the funding to be implemented well. Good policy framework with sufficient funding, but poor implementation. Poor policy framework. 3.6% 29.4% 25.3% 41.8%
3. What type of quality labor force is hardest to find?
with elementary education from vocational schools from specialized high schools with university degree in the humanities, finance or economics with university degree in engineering or science 5.7% 10.4% 29.2% 17.7% 37.0%
4. How would you rank the education of individuals in the following areas?
World class Math Science Information Technology Social Sciences Languages Theoretical Knowledge Creativity Problem-Solving Social Skills Logic and Reasoning 4.8% 5.4% 2.7% 0.0% 0.0% 2.7% 3.1% 1.0% 0.0% 1.0% Above Average 46.8% 34.6% 36.2% 11.5% 16.6% 30.8% 15.2% 11.5% 6.3% 14.6% Average 40.4% 47.6% 47.3% 62.6% 30.1% 54.1% 22.0% 27.2% 36.5% 54.2% Below Average 8.0% 11.9% 13.8% 24.2% 40.9% 11.4% 44.5% 40.8% 44.8% 25.5% Insufficient 0.0% 0.5% 0.0% 1.6% 12.4% 1.1% 15.2% 19.4% 12.5% 4.7%
5. Does the government‘s research and development policy effectively allocate public funds to projects with good potential economic benefit?
Yes Yes, but more incentives are needed for fully commercial or public-private projects. No No, and the government should not allocate any funds because it does not help economic competitiveness. 2.8% 30.9% 58.0% 8.3%
6. What are the most important steps the government has to make in order to support research and development in the private sphere?
Targeted tax reliefs for companies implementing research and development. Systematic solution motivating private and academic spheres to cooperate. Simplified administration. The support of applied or commercially-based research and development based on SME needs. Improving of business climate and enforcement of legislation. Whole-life education support. 19.9% 36.7% 14.8% 7.7% 15.8% 5.1%
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7. What is the main issue facing your company in the area of human resources?
Lack of qualified workers in the sector Social costs of workers Labor Code, sickness insurance and other rules Union rights Inadequate public transport to deliver workers to site. 62.2% 20.2% 16.1% 0.5% 1.0%
Individual Comments:
Why do doctors to avoid responsibility always tell people to stay home 2 weeks? The schools and training centers need to work more closely with industry and vice versa. There is still a lack of sufficient work ethics. If I could I would tick all the issues above - all are seriously restricting our business activites, especially the union rights are extreme. Combination of technical and social skills plus foreign language competency. Lack of qualified HR people as customers. Social costs of workers. No problem, stable team. Lack of management skills. People need to have an educational business program when leaving the high school entering on practical basis into the various businesses. The university is not always an answer for specialist to gain their experience. Some are intelectually not able to follow university but are very well in learning on the job-field complemented by a theoretical scholarship. Low productivity. High absence rate. Social net promoting absence of low income employees. Tax plus social and health payments - competitive disadvantage compared to other CEE countries. Lack of qualified economy people. Labour unions.
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7. Monetary Policy
1. Will maintaining an independent currency help or hurt the economy over the next five years?
Help significantly Help marginally Hurt marginally Hurt significantly It will have no effect 6.1% 23.5% 27.6% 36.2% 6.6%
2. Is the government able to sustain the crown at a stable exchange rate against other major world currencies?
Yes Not with the current economic policy. No, the government is not able to defend the currency against speculation and major movements of currency markets. 16.8% 20.9% 62.2%
3. Should the government focus solely on price stability as the basis of monetary policy?
Yes. No. 42.8% 57.2%
4. Should measures be taken to increase the Central Bank's independence?
Yes. No,the current laws protect the Central Bank's independence. No, the Central Bank needs to be less independent. 27.5% 69.8% 2.6%
5. Is the country's rising public indebtedness a threat to economic competitiveness?
Yes No 72.0% 28.0%
6. Is the government using public finance to make the investment in physical infrastructure and education necessary to sustain solid economic growth?
Yes No 53.2% 46.8%
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Useful links:
Eurostat OECD World Bank European Central Bank IMF US Bureau of Economic Analysis European Travel Commission Austrian Statistical Office Austrian Central Bank Vienna Convention Bureau Bulgarian Statistical Office Bulgarian National Bank Czech Statistical Office Czech National Bank Hungarian Statistical Office Hungarian National Bank Netherlands Statistical Office Netherlands National Bank Polish Statistical Office Polish National Bank Polish Convention Bureau Slovak Statistical Office Slovak National Bank epp.eurostat.ec.europa.eu www.oecd.org www.doingbusiness.org www.ecb.int www.imf.org www.bea.gov www.etc-corporate.org www.statistik.at www.oenb.at www.vienna.convention.at www.nsi.bg www.bnb.bg www.czso.cz www.cnb.cz www.ksh.hu www.mnb.hu www.cbs.nl www.dnb.nl www.stat.gov.pl www.nbp.pl www.poland-convention.pl portal.statistics.sk www.nbs.sk
Contacts:
American Chamber of Commerce in the Czech Republic Dušní 10 110 00 Prague 1 E-mail: amcham@amcham.cz www.amcham.cz www.czechmarketplace.cz
Advisors on Legal Framework:
Advokátska kancelária JUDr. Jaroslav Ružička in association with CMS Cameron McKenna v.o.s., Slovakia | www.ccsconsulting.sk AKD Prinsen Van Wijmen B.V.B.A., Bruxelles | www.akd.eu Allen & Overy (Czech Republic) LLP, organizační složka | www.allenovery.com Allen & Overy LLP, The Netherlands | www.allenovery.com Baker & McKenzie Amsterdam N.V. , The Netherlands | www.bakernet.com Becker & Poliakoff, Czech Republic | www.becker-poliakoff.cz Bogsch & Partners, Attorneys at Law, Hungary | www.bogsch-partners.hu Bohumil Havel, Právnická fakulta ZČU v Plzni bpv Braun Haškovcová s.r.o. , Czech Republic | www.bpv-bh.com CMS Cameron McKenna v.o.s, Czech Republic | www.law-now.com CMS Reich-Rohrwig Hainz, Austria | www.cms-rrh.com Dinova & Rusev Law Firm / PI Partners Bulgaria | www.pipartners.eu DLA Piper Weiss Tessbach, Bulgaria | www.dlapiper.com DLA PIPER WEISS-TESSBACH Rechtsanwälte GmbH, Slovakia | www.dlapiper.com Ernst & Young, k.s., Slovak Republic | www.ey.com/sk GLATZOVA & Co., v.o.s., Czech Republic | www.glatzova.com Gleiss Lutz Warszawa, Poland | www.gleisslutz.com HAVEL & HOLÁSEK s.r.o., Advokátní kancelář, Czech Republic | www.havelholasek.cz HOGAN & HARTSON JAMKA SP.K., Poland | http://www.hhlaw.com KPMG Tanácsadó Kft., Hungary | www.kpmg.hu loebl&loebl, Czech Republic | www.loebl2.me Matzner et al, advokátní kancelář, Czech Republic | www.matzner.cz Ormai es Tarsai CMS Cameron McKenna LLP, Hungary | www.law-now.com PricewaterhouseCoopers Kft., Hungary | www.pwc.com/hu PricewaterhouseCoopers Tax k.s, Slovakia | www.pwc.com/sk Red group s.r.o., Czech Republic | www.redgroup.cz Salans Europe LLP, Slovak Republic | www.salans.com Schönherr Rechtsanwälte GmbH, Austria | www.schoenherr.eu Schönherr, Pietrzak Siekierzyński Bogen Sp.k. TACOMA Consulting a.s., Česká republika | www.tacoma.eu Tsvetkova Bebov & Partners, Attorneys-at-Law Landwell Bulgaria | www.landwellglobal.com/bg Wardyński i Wspólnicy sp.k. , Poland | www.wardynski.com.pl Weinhold Legal, Czech Republic | www.weinholdlegal.com White & Case, advokátní kancelář , Czech Republic | www.whitecase.com Wierzbowski Eversheds , POLAND | www.wierzbowski.pl WOLF THEISS Bulgaria | www.wolftheiss.com Zukalová - Advokátska kancelária s.r.o., Slovakia | www.zukalova.com
British Chamber of Commerce in the Czech Republic Pobřežní 3 186 00 Prague 8 E-mail: britcham@britcham.cz www.britcham.cz
Deutsch-Tschechische Industrie- und Handelskammer Václavské nám. 40 110 00 Prague 1 E-mail: info@dtihk.cz www.dtihk.cz
Netherlands-Czech Chamber of Commerce Zlatý Anděl Nádražní 25 150 00 Prague 5 - Smíchov E-mail: nlchamber@nlchamber.cz www.nccc.cz
Nordic Chamber of Commerce in the Czech Republic Václavské náměstí 51 110 00 Prague 1 E-mail: info@nordicchamber.cz www.nordicchamber.cz 31
Council on Czech Competitiveness
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