Business News

In this week’s Business News: the slippery budget deficit; a David and Goliath fight over dividends; developing woes at Orco; boosting local cigarette production; and a novel call for performance related pay.

Politicians fail to grapple with budget deficit

The Czech budget deficit increasingly took on the appearance this week of a fat and slippery sumo wrestler who no-one wants to tackle. The weak caretaker government convened a meeting with the heads of the two main political parties in a bid to agree measures that would keep next year’s central government deficit to 5.0 percent of Gross Domestic Product. But the politicians expressed scepticism about embarking on any spending cuts before October’s elections. Without action, the 2010 deficit is now destined to rise to 7.0 percent of GDP. This has led to warnings that the country’s risk profile abroad will be damaged, payments to service the debt will be much higher and adoption of the euro will be put back.

Small shareholders in steelmaker to take fight to Brussels

A group of small Czech shareholders are taking their claims for justice against the country’s biggest steelmaker and world’s biggest steelmaking group to the European Commission in Brussels. Seven minority shareholders in ArcelorMittal Ostrava say they have been effectively refused their share of the profits in the local steelmaker during recent profitable years. They say that instead of paying out dividends to all shareholders, the company has channelled profits in the form of soft loans to mother company, ArcelorMittal. They say such practice amounts to an abuse of the major shareholder’s power and breaks European company rules calling for equal treatment of all shareholders.

Orco declares deeper than expected first half loss

The Czech Republic’s biggest real estate developer, Orco Property, has announced first half losses of almost 5.0 billion crowns or around 282 million dollars. The loss is around 14 times that for the first six months of 2008 and is worse than analysts’ expectations. Orco racked up heavy debts following a fast expansion and is now having trouble dealing with the downturn of the property market. It has been seeking to bring in a new investor and offload more assets to lighten its debt burden.

US tobacco multinational boosts Czech production

Philip Morris, the country’s biggest cigarette producer and seller, is to boost its Czech production capacity by around a third. The US-based multinational has started construction of new manufacturing facilities in the centre of the Czech Republic which could eventually allow it to produce around 32 billion cigarettes a year. While the number of Czech smokers has been falling, around half of local production is exported to more than 30 countries worldwide.

Performance related pay makes political breakthrough

And finally, an interesting proposal for performance related pay has been made by the right-wing Civic Democrats ahead of the upcoming general elections. They have suggested that the pay of ministers and legislators should be based on the country’s economic performance. The idea is that their pay would go up and down according to the performance of the public deficit as a proportion of Gross Domestic Product. With the deficit already snowballing but the economy showing hesitant signs of recovery, uncertain rewards would appear to be in store if the proposal was ever realised.