Czech exporters could be hard hit by Ukrainian crisis

Photo: Tomáš Adamec

The crisis in Ukraine continues to fill the front pages of Czech dailies and in addition to the political implications of Russia’s aggressive policy in the region, there are growing economic concerns for Czech producers who do business on eastern markets. The country’s annual exports to Ukraine are worth 33.5 billion and its exports to Russia, which have grown tenfold in the past decade, now reach 116 billion crowns annually. I spoke to the vice-president of the Confederation of Industry of the Czech Republic Radek Špicar to find out how the crisis has impacted Czech exporters.

Radek Špicar,  photo: Matěj Pálka
“The situation is getting quite serious and Czech exporters are already feeling the impacts. First of all, there are problems with new projects because export financing is difficult to get. Secondly, there are problems with already existing facilities in Ukraine, like for instance when they have to deal with the state authorities which basically stopped working in a number of cities and a number of regions and, lastly, there is a problem with dropping domestic demand for certain products –some Czech companies producing for example cars have had to limit their production accordingly.”

What goods do we export to these destinations – Ukraine and Russia – how much and what are the implications?

“Ukraine and Russia are both quite important export destinations for the Czech economy. Of course Czech exporters are mostly dependent on the EU –more that 80 percent of Czech exports go to the EU – but when it comes to so-called third countries Russia is definitely number 1 and Ukraine is among the top 5. So these are both important destinations and, as concerns the products we export there, it is automotive spare parts, cars, equipment for the mining industry and so on. So the situation now is getting very dramatic.”

What kind of losses have we suffered so far?

“At the moment we do not know of any companies which are leaving Ukraine or shutting down their production because of the crisis, but we know of a number of companies which had to limit their production because of dropping demand for their goods. But if the situation escalates we might see even more dramatic developments of course. “

How many companies are we talking about here?

Photo: archive of Škoda Auto
“Tens of companies are affected, including some of the biggest in the Czech Republic. For example one of the big exporters focusing on Ukraine and Russia is Skoda Auto –the biggest private company in the Czech Republic –and besides China and India, Russia and Ukraine are the most important markets for this company – so as I said, these are important export destinations for Czech companies.”

What is the worst-case scenario?

“The worst-case scenario at the moment is the possibility of sanctions imposed by the EU on Russia and similar steps implemented by Russia against Ukraine which could complicate mutual trade in a significant way. One of the possible negative scenarios is also the collapse of Ukraine in economic and political terms which could of course stop some of the new projects in Ukraine and possibly even lead to a drain of exporters and investors from the country. So at the moment the situation is serious, not too dramatic but things might change in the future.”

The Czech trade ministry has said it is prepared to try to help Czech exporters –what kind of assistance would they give you and what kind of assistance do you need at this point?

“Well, the most important assistance is in export financing because in these territories – Ukraine, Russia –it is very difficult to do any deals without export loans and export guarantees. These have been stopped and we hope that if the situation gets more stable then these channels will be reopened and Czech investors will be able to use them. That would be the most significant help. And besides that, it would of course be useful if Czech companies and Czech investors both in Ukraine and Russia were informed first-hand about what is going on in Russia and Ukraine, what may be the next steps taken by the EU because to have information of this kind first-hand at an early stage could help companies to adapt to the new situation and prepare for what might come in the future. “

What do you say to calls from two government ministers for the Russian bidder to be excluded from the Temelín tender for the completion of the nuclear power plant in southern Bohemia?

Temelín nuclear power plant,  photo: Filip Jandourek
“All we are saying is that we support the construction of two more reactors because we think that the Czech economy will need this source of energy in the future. As for the rest - there is a tender, a professional transparent one, there are two bidders and it will be up to ČEZ to analyze the best offer and let the best offer win – that’s all we can say at the moment.”

The Czech government, as well as the Czech president, have made it a priority to help Czech exporters find new markets outside the EU. Are you seeing tangible efforts – or even tangible results – in this respect?

“It is important that they really do it. We have been telling them for a long time that it is great to be dependent on the EU, we are glad that our exporters are so successful within the EU but our dependence on this one territory is too high and it is risky to be dependent on a territory which is not growing too much, which is the case of the EU in the last couple of years. So we have to go outside the EU and look for new opportunities in the so-called third countries and we have been telling the government to help us in this respect for a long time now. It seems that the new government is taking it seriously –this was implemented into a number of strategies approved by the government be it the export strategy or economic strategy of the Czech Republic. So now we will have to wait and see if this was just rhetorical support or also practical support. I hope that the Czech government will take it seriously and will help us in this respect. And as concerns the most interesting territories for us – the third countries – it is definitely Russia, China, India, Latin America and maybe Northern Africa.”

What kind of assistance do Czech producers need most?

Photo: Tomáš Adamec
“I would say three forms of assistance are the most important. The first one –without any doubt – is financial support. You cannot do much without financial support in the third countries. So we need sufficient support from the Czech Export Bank when it comes to export loans, then we need sufficient support from EGAP which is export guarantees without which it would be very difficult to do any kind of business outside of the EU. So those are the main priorities. Secondly –and that’s important especially for small and medium-sized companies – we need support from CzechInvest and CzechTrade, the export-promotion agencies which were not working too well in the past - so hopefully that will change - and thirdly, we need our constitutional representatives –our president, prime minister and all the ministers – to travel to destinations like China, India, Russia, Latin America and when they go there they should take on board representatives of Czech companies and Czech businesses and they should help them open doors to interesting and big tenders in these destinations because when exporters have this kind of government support it can be very useful. “