Business News

Czech central government debt reaches nearly 20 percent of GDP. Retail sales continue to grow. PM says latest real wage growth unsustainable. Japan's Steel Europe Center to build a new plant in Humpolec. Lukoil not interested in Unipetrol, leaving Czech market. Small vendors of electric appliances unite to fight retail chains. Anglian Water seeks to sell stakes in Czech water utilities. Falkon Capital to lose contract for recovering Russian debt. Russia offers old trains to offset part of its debt to the Czech Republic. Foreigners employed in the Czech Republic to get more rights. Skoda Auto cuts output of Fabia sedans.

Business News

Czech central government debt reaches nearly 20 percent of GDP

Finance Minister, Bohuslav Sobotka, photo: CTK

Czech gross central government debt jumped to over 450 billion crowns at the end of June 2003, from 429 billion at the end of March, the Finance Ministry said on Tuesday. In proportion to the gross domestic product, the debt grew from 17,4 percent at the end of last year to 18,7 percent at the end of the first quarter and reached 19,5 percent in the second quarter. The state debt has been growing due to the government's deficit financing. Economic analyst David Marek from Patria Finance expects that the overall public debt will reach 590 billion crowns, which is 25 percent of the GDP, at the end of this year. If the government's attempts at a fiscal reform fail, the overall public debt could exceed 60 percent of GDP at the end of the decade. In Central European context, the Czech deficit is not exceptional, because Hungary and Poland show similarly poor data.

Retail sales continue to grow

Czech retail sales jumped by 6.4 percent year-on-year in July, slowing down from 7.5 percent in June but beating market forecasts of a faster cooling. The Czech Statistics Office said all segments apart from second-hand goods contributed to the rise. Household consumption continues to fuel economic growth. Higher consumer spending is primarily due to fast real wage growth, stagnant inflation and record-low interest rates.

PM says latest real wage growth unsustainable

According to Prime Minister Vladimir Spidla, the 7.2-percent real wage growth recorded in the first half of the year is unsustainable in the long run. He pointed out that the growth, considerably faster than that in labour productivity, deprives companies of competitive advantages. Besides, he criticised a slowdown in investment in fixed capital and the fact that economic growth is pulled by household consumption. Mr. Spidla made it clear that the government will increase wages in the public sector by a maximum of 3-3.5 percent next year, in order to avoid a so-called wage infection when a steep rise in wages in the state sector inspires private sector employees to demand similar growth however unsubstantiated.

Japan's Steel Europe Center to build a new plant in Humpolec

Steel Europe Center, a subsidiary of Japanese company Sumitomo, is planning to build a new plant worth 17 million USD in Humpolec, South Moravia, creating 50 new jobs in the initial stage. The plant for the production of car components should be completed in one year. Although the number of new jobs is not big, local representatives say they welcome the investment as it will help draw investor attention to the region. The town will provide utility networks and access roads, for which it will apply for a subsidy from EU funds. Another investor in the local industrial zone is Zexel Valeo, which is now launching serial production of car components there.

Lukoil not interested in Unipetrol, leaving Czech market

Russia's biggest oil company Lukoil is no longer interested in the privatisation of the Czech oil and chemical group Unipetrol and is planning to terminate its retail activities on the Czech fuel market, Lukoil President Vagit Alekperov told reporters. Lukoil owns several petrol stations in the Czech Republic. "We have decided not to take part in the privatisation of Unipetrol and we will no longer develop our retail activities on this market. We have been negotiating on an asset swap with large operators," Alekperov said. The Czech government will probably decide on the sale of its 63-percent stake in Unipetrol to a strategic investor by next spring. The most likely bidders include Polish PKN Orlen and Hungarian MOL, there has also been speculation about Russian companies Yukos, Lukoil and Rosneft.

Small vendors of electric appliances to face retail chains

Small Czech vendors of household electric appliances are considering setting up an alliance to be able to face the aggressive marketing policies of large retail chains. The number of independent vendors of electric appliances has been decreasing steadily. In 1998, there were over 2000 such retailers, but at the end of 2001, the number was down to 1700. On the other hand, retail chains specialising in this type of goods had 25 trading outlets in 1997, while now there 66 of them across the country. According to a recent survey, about a half of consumers buy electric appliances and electronics in small stone shops.

Anglian Water seeks to sell stakes in Czech water utilities

The British company Anglian Water is considering selling off its controlling stakes in Czech water utilities, the weekly Euro writes this week. Anglian Water's parent company AWG, which last year decided to sell off its international operations, is busy finding a buyer. It aims to complete the deal by the end of this year and is assessing bids at the moment. Anglian Water controls around 10 percent of the Czech water market. According to the weekly, at least two companies active in the Czech Republic submitted their bids - the Czech investment group PPF and French company Ondeo Services. Ondeo's traditional rival on the Czech market, French company Veolia Water (formerly Vivendi), is not interested in the offer. Anglian Water had originally intended to sell all its foreign operations to one buyer but failed and decided to sell them separately.

Falkon Capital to lose contract for recovering Russian debt

The company Falkon Capital, which the previous Czech government of Milos Zeman charged with recovering part of Russia's outstanding debt to the Czech Republic, will lose the contract. Czech Deputy Finance Minister Ladislav Zelinka was quoted in the press as saying the Russians do not want private firms to assist in settling past debts between Russia and the Czech Republic. Russian based Falkon was selected for the task in 2001 despite warnings by Czech secret services of its dubious background. Russia originally owed the Czech Republic 3.6 billion USD. Falkon Capital acquired a 2.5-billion claim from the Czech government for some 22 percent of its face value, which critics said was less than a cheap deal.

Russia offers old trains to offset part of its debt to Czech Republic

Russia has offered about 40 old railcars to wipe out part of its debt to the Czech Republic. The Czech public TV reported that Russia has offered a discount on the trains whose price is estimated at tens of millions of US dollars. The trains strongly resemble the first underground trains that have been used in Prague since 1974, as both come from the same manufacturer. A spokesman for the Czech rail operator, Czech Railways, said it was not the latest technology, but that it would help upgrade the company's fleet to a certain extent. Czech Railways wants to use these trains on regional lines to replace trains that are as much as 50 years old. Experts warn though that the Russian trains are too heavy and will cause an excessive wear of the tracks.

Foreigners employed in Czech Republic to get more rights

Photo: European Commission

The Labour and Social Affairs Ministry is planning to give more rights to foreigners living and working in the Czech Republic. One of the proposed changes would introduce incremental rights of foreign employees based on the number of years they work in the Czech Republic. Under the current legislation, foreign employees have the same restricted rights however long they have been working in the country. They are not allowed to change their original employer or profession, and if they lose their jobs, they must instantly leave the country without having the chance to look for a new one. The latter requirement in particular has been strongly criticised because it prevents foreigners from being able to apply for permanent residence, which requires ten years of uninterrupted residence in the Czech Republic. According to human rights groups, this leads to a situation when some employees are virtually held hostage by their employers, who often withhold much of their wages. The Labour and Social Affairs Ministry has recently drafted a plan to soften the conditions and improve the foreigners' rights. The draft is yet to be discussed by Parliament.

Skoda Auto cuts output of Fabia sedans

The well-known Czech car manufacture Skoda Auto, a unit of Volkswagen, has cut daily production of its Fabia sedans from 80 to 66 units as of this week in reaction to weaker sales, but said the move should not affect the workforce in any way. At a recent press conference, board chairman Vratislav Kulhanek admitted troubles in the sales of this smallest Skoda car. In the first half of this year, Skoda sold 14,000 Fabias, compared with over 18,500 in the same period a year ago. By contrast, sales of Fabia Combi have been on the rise. Over 56,000 of them were sold in the first half, up from 48,000 a year ago. Skoda Auto launched Fabia in spring 2001.