T

Other useful information on the Czech Republic is at: www.czech.cz

The Czech Republic is situated in Central Europe, neighbouring the Federal Republic of Germany, Austria, Slovakia, and Poland.

BASIC DATAPopulation 10 424 926 (June 2008)Area 78 864 sq. kmThe capital city Praha (Prague)System of government a republicLanguage CzechHighest peak Sněžka (Snow) Mountain

(1 602 m above sea level)Time zone Central European Time GMT + 1,

summer time GMT + 2Monetary unit 1 Czech crown (Kč/CZK) = 100 halersInternet domain .cz The President of the Czech Republic is Václav Klaus.

MEMBERSHIP IN ORGANISATIONSThe Czech Republic is a member of the European Union, the United Nations, NATO, the WTO, the International Monetary Fund, the In-ternational Bank for Reconstruction and Development, the European Bank for Reconstruction and Development, the OECD, as well as many other organisations.

UNESCO WORLD HERIGAGEThe UNESCO World Heritage List includes the following cities and sites: Prague, Český Krumlov, Kutná Hora, the Litomyšl Chateau, Telč, the Lednice-Valtice area, Zelená Hora - St John of Nepomuk Church, Holašovice, Kroměříž (chateau and gardens), the Holy Trin-

USEFUL INFORMATION

ity Column in Olomouc, the Tugendhat Villa in Brno (designed by architect Ludwig Mies van der Rohe), and St Procopius Basilica and the Jewish Cemetery in Třebíč. For more informa-

tion, please see www.unesco-czech.cz.

PROMINENT FIGURESThe Czechs are described as a very cultural nation which has contributed to the world a large number of prominent fi gures. The most signifi cant rulers and heads of state include emperor Charles IV and presidents T. G. Masaryk, Ed-vard Beneš, and Václav Havel. Names of world renown include Jan Amos Komenský (Comenius) “the Teacher of Nations“, scientists Jaroslav Heyrovský

State Symbols of the Czech Republic

Large State

Coat of Arms State Flag

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Old Town Square in Prague

(Nobel Prize laureate for chemistry), Otto Wichterle, a Czech chemist who invented contact lenses, and Antonín Holý (professor of honour in medici-nal chemistry), who discovered drugs against AIDS. Famous people of culture include composers Bedřich Smetana, Leoš Janáček, Antonín Dvořák, and Bohuslav Martinů, writers Franz Kafka, Karel Čapek, Jaroslav Seifert (Nobel Prize laureate), Jaroslav Hašek, Bohumil Hrabal, and Milan Kundera. Winners of the American Academy Award are fi lm directors Miloš Forman (born in former Czechoslovakia), Jiří Menzel, Jan Svěrák, and the singer Markéta Irglová. Painters to be named are František Kup-ka and Alfons Mucha. Athletes of world renown include Emil Zátopek, Petr Čech, Jaromír Jágr, Dominik Hašek, Pavel Nedvěd, Jan Železný, Kateřina Neumannová, and many others. Martina Navrátilová and Ivan Lendl are also of Czech origin. The winners of gold medals at the 2008 Olympic Games in Beijing were Kateřina Emmons, Barbora Špotáková, and David Kostelecký.

PRACTICAL INFORMATIONCountry dialling code: +420. Details regarding phone numbers are available at the following website: www.zlatestranky.cz. Licences to operate mobile phone networks in the Czech Republic have been awarded to the following companies: Tel-

efónica O2 Czech Republic, a.s., T-Mobile Czech Republic a.s., Vodafone Czech Republic a.s., and MobilKom, a.s. The most commonly used credit cards in the Czech Republic are: Eurocard/MasterCard, Maestro, and Visa.

THE BIGGEST CITIES OF THE CZECH REPUBLICcity number of inhabitants

1. Praha 1 180 100 2. Brno 366 000 3. Ostrava 310 000 4. Plzeň 163 000 5. Olomouc 100 000 6. Liberec 98 000 7. České Budějovice 95 000 8. Ústí na Labem 95 000 9. Hradec Králové 94 000 10. Pardubice 88 000

2001 2002 2003 2004 2005 2006 2007 20087)

Gross Domestic Product (current prices) CZK, billion 2 352.2 2 464.4 2 577.1 2 814.8 2 983.6 3 215.6 3 530.2 3 705.7

Gross Domestic Product %, real, y/y 2.5 1.9 3.6 4.5 6.3 6.4 5.9 3.2

Gross Domestic Product in PPS 1) PPS/inhab. 13 891.0 14 419.0 15 215.0 16 257.0 17 058.0 18 504.0 19 966.0 n.a.

Overall productivity of labour %, y/y 2.2 1.6 4.7 4.1 5.4 4.8 4.6 2.4

Industrial production %, y/y 6.7 1.9 5.5 9.6 6.7 11.2 8.2 0.4

Unemployment 2) % 8.9 9.8 10.3 10.3 9.7 7.7 6.0 6.0

Infl ation (HICP 3)) %, average 4.5 1.4 -0.1 2.6 1.6 2.1 3 6.3

Infl ation 2) %, y/y 4.1 0.6 1.0 2.8 2.2 1.7 5.4 6.3

Year-on-year index of average nominal wages %, y/y 8.7 7.3 6.6 6.5 5.3 6.5 7.3 8.5

Year-on-year index of average real wages %, y/y 3.8 5.4 6.5 3.6 3.3 3.9 4.4 2.1

Exports 4),5) EUR, mil. 37 229.0 40 749.0 43 053.0 54 075.0 62 961.0 75 699.0 89 396.0 98 915.0

Exports 4),5) %, y/y 18.1 9.5 5.7 25.6 16.5 20.2 18.0 10.6

Imports 4),5) EUR, mil. 40 694.0 43 051.0 45 236.0 54 914.0 61 647.0 74 305.0 86 238.0 96 136.0

Imports 4),5) %, y/y 16.5 5.8 5.1 21.4 12.3 20.2 16.1 11.5

Balance of trade 4),5) EUR, mil. -3 465.0 -2 302.0 -2 183.0 -839.0 1 314.0 1 394.0 3 159.0 2 779.0

Foreign exchange reserves of CNB 2) EUR, billion 16.4 22.6 21.4 20.9 25.1 23.9 23.7 26.6

CZK/EUR 6) average 34.083 30.812 31.844 31.904 29.784 28.343 27.762 24.942

CZK/USD 6) average 38.038 32.736 28.227 25.701 23.947 22.609 20.308 17.035

Source: Czech Statistical Offi ce, Czech National Bank (CNB); General note: y/y shows year-on-year change in the indicator, n.a. = not available; 1) PPS - Purchasing Power Standard; 2) At the end of the period; 3) HICP = Harmonized Index of Consumer Prices; 4) Foreign trade data expressed in EUR are the sum of the diff erent monthly values in CZK calculated

by the average monthly exchange rate announced by the Czech National Bank; 5) 2008 - specifi ed data as of 27 February 2009; 6) Czech National Bank; 7) Preliminary data

M A C R O E C O N O M I C I N D I C AT O R S O F T H E C Z E C H R E P U B L I C

I

growth rate, despite a marked slow-down. GDP growth fell to the 4% level as a result of slower growth of consumer spending, a rapid year-on-year slowdown and subsequent decline in gross capital forma-tion despite continuing inflows of foreign direct investment, and, at the year-end, a fall in exports due to low external demand. The slow-ing economic growth, especially in the second half of 2008, affected the situation on the labour market, where year-on-year employment growth slowed, fewer new jobs were created, and the decline in the un-employment rate halted.The high inflation – above the inflation target – was due mainly to administrative factors, specifically regulated prices and tax changes, as direct taxes were lowered and indi-rect taxes were raised. To a lesser extent, the inflation was due also to prices of food and energy, despite the fact that the Czech crown was

In the Czech Republic as in most other countries, 2008 was marked by financial turbulence in world financial markets. The turmoil was caused primarily by unprecedented growth of the money supply in the USA and elsewhere, by an over-regulated and needlessly subsidised housing segment, and by excessive debt growth in the majority of countries at a time of economic prosperity and growing affluence. This left no room for in-vestment in sustainable areas and allowed a bubble to form, especially in the financial innovation area. In my view, it is not true to say that the financial crisis was caused by inadequate regulation. Quite the opposite, excess regulation, fragmentation of regulatory authorities and limited communication between them, and suppression of the market environment caused what is for many economic agents a highly opaque and unstable situ-ation.The first phase of the world economic crisis, which began in 2007, had minimal impacts on the Czech economy in the first half of 2008. The Czech financial sector was fairly resilient to the external crisis thanks mainly to the country’s sovereign monetary policy and the Czech currency. Other reasons includ-ed the limited involvement of domestic financial institutions in toxic assets and the good balance-sheet liquidity of the banking sector. The tendency of Czech banks not to grant foreign cur-rency housing loans to any great extent, as well as their certain level of independence from foreign markets used for hedging against exchange rate risk, also proved to be an advantage. The primary deposit to client loan ratio is more favourable in the Czech Republic than in other EU states and the banking sector has sufficient primary sources to lend and does not need to bor-row excessively in foreign markets.The second phase of the global crisis, which manifested itself in the second half of 2008, hit the Czech financial system prima-rily in terms of a decline in confidence, in particular a decline in customer confidence in the stability of financial institutions and growing risk aversion towards Central and Eastern Europe. In the financial markets, these uncertainties resulted in a fall in asset values and a temporary slowdown in the circulation of money and other financial instruments. The reaction of the Czech National Bank to the resulting situation and the accumu-lating anti-inflationary risks was immediate, taking the form of interest rate cuts and the introduction of other supply facilities on the money market, including the possibility of using govern-ment bonds in order to boost liquidity on the bond market. In the last two months of 2008, even larger interest rate cuts were made in reaction to the rapidly worsening external situation and unfavourable developments on the domestic interbank market.From the macroeconomic point of view, 2008 was marked by high inflation and slowing economic growth. In 2008, the Czech econ omy, which for the past almost three years had been growing at a rate of more than 6%, was still showing a high

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THE CZECH REPUBLIC FACES UP TO THE CRISIS

appreciating rapidly for most of the year. At the end of 2008, however, these effects started fading quickly and inflation converged towards the central bank’s target.As a result of the unfavourable external developments, a further slowdown of economic growth is to be expected in 2009, accompa-nied by lower exports and a fall in foreign direct investment inflow. In a situation of declining external demand, the main driver of growth will be domestic demand, specifi-cally household consumption. In my opinion, the solution to the current situation rests in clearly assessing the primary causes of the crisis, drawing unequivocal con-clusions, and applying the lessons learnt in econ omic policy. The cycli-cal behaviour of economies is a nat-

ural phenomenon and should not come as a surprise to anyone. On the other hand, the downward phase of the cycle will un-derstandably please no one. Nevertheless, it is inevitable, and in a way necessary for the sound functioning of economies. The opinion that any government or central bank can eliminate the cycle is not only utopian, but also devastating from the point of view of the sound functioning of the economy. Governments and central banks can help to smooth out unsound fluctuations within the cycle, but they should not try to shift the cyclical interval, artificially interfere with it or eliminate it altogether. The role of governments and central banks, and the application of their economic policies, is anti-cyclical, but not in the sense of eliminating the cycle. Rather, their role should be to create a more stable environment within the economic cycle. 2009 will therefore be a crucial year for the meaningful application of economic policies, a year of correct and rational application of existing regulatory measures in the financial markets, and a year when the regulatory and supervisory functions of central institutions should be clear and transparent and create minimal barriers in the economic environment. Because only a stable, transparent, and efficient economic environment, which does not complicate or restrict the lives of economic agents, has a chance of creating a favourable and stable climate stimulating the development of individual abilities and civic and economic freedoms.

PAV E L Ř E Ž Á B E K

Chief Executive Director and Member of the Bank Council of the Czech National Bank

Litomyšl – Monastery gardens

IIn January 2008, ten years passed since inflation targeting was introduced in the Czech Republic. During these ten years infla-tion expectations sparked by the currency turbulences of May 1997 have been anchored and inflation lowered to values characteristic of developed countries. Inflation targeting has thus proven an adequate currency regime for a small open economy such as the Czech Republic.

HIGH INFLATION, RECORD CZK EXCHANGE RATEIn 2008, however, inflation temporarily reached an unusually high level and for the majority of the year remained well above the tolerance band of the 3% inflation target. This exceptional rise in inflation is attributed in particular to one-off cost factors such as the prices of foodstuffs and energy and administrative influences, i.e. changes in regulated prices and indirect taxes. While these inflation impulses affected consumer prices, economic growth remained relatively high reaching approximately 3% for 2008. The key task of monetary policy in this situation was to stabilise inflation and inflation expectations close to the target value. In February, the Czech National Bank (CNB) thus increased its inter-est rates by 0.25 percentage points as another in a series of many similar steps taken in 2007. On the contrary, inflation was sup-pressed by the strengthening of the crown in the period between the beginning of the year until July 2008, when the crown was the most rapidly strengthening currency in the world. In the light of this situation, the CNB initiated, in April 2008, an agreement with the Government, which revised the strategy for dealing with exchange rate impacts of foreign currency revenues of the state.

In the following months, a partial exchange rate correction led to a stop in the strengthening of the currency, following which the crown began to weaken.

CLOSE OF YEAR MARKED BY DROP IN INTEREST RATES

The escalation of the financial crisis and the related global economic re-cession began to impact on the Czech economy at the close of the year. So far, the Czech Republic has only felt indirect impacts of the crisis through the worsening of the situation in the countries of its main trading part-ners, which have lead to a slowing of growth in the Czech economy. At the same time, inflation pressures have decreased sharply with the threat of too great a drop in inflation. The Czech National Bank was among the first central banks to respond to this development by decreasing interest rates by 0.25 percentage points in August last year. At the close of 2008, the Czech National Bank, similarly to other central banks, rapidly reduced its interest rates, overall by 1.25 per-centage points. Transparency of monetary policy is an important feature of inflation target-ing. The Czech National Bank took further important steps in this area in 2008, when it began to publish a tra-jectory of interest rates consistent with forecasts in the form of a fan chart and started to reveal the voting by mem-bers of the bank board on changes in interest rates by individual names. In 2009, the CNB will further strengthen the transparency of its monetary policy by publishing a prognosis trajectory of the nominal exchange rate to the euro. The CNB will thus be the only central bank in the world to publish forecasts of the nominal exchange rate in relation to a specific currency and, in doing so, will achieve the peak of openness in the communication of its monetary policy.

CZECH MONETARY POLICY FACES NEW CHALLENGES

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THE CZECH REPUBLIC AND THE EUROIn autumn 2008, the CNB drafted another in a series of regular Analyses of the Degree of Economic Alignment of the Czech Republic with the Euro Area, which serves as a foundation for the Assessment of the Fulfilment of the Maastricht Convergence Criteria and of the Degree of Economic Align-ment of the Czech Republic with the Euro Area. This material shows the state of public finance is no longer the main obstacle to the fulfilment of criteria for euro adoption. As far as the alignment of the economy is concerned, in recent years the Czech Republic has gradually decreased the gap between the level of its economy and that of the Eurozone. In addition, a number of fractional improvements have also been achieved in the func-tioning of the Czech economy. The current global financial crisis, though, may be considered an unfavourable temporary factor in terms of future euro adoption: both the outlook for fulfilment of the exchange rate con-vergence criteria as well as the capac-ity to maintain and further increase the accomplished level of alignment with the Eurozone remain highly uncertain. In the light of this, the CNB and the Ministry of Finance have recommended the Czech Government not to fix the target date for the adop-tion of the euro yet. The Government has acted upon this recommendation.

CHALLENGES FOR 2009The challenge for the CNB for 2009 is to mitigate the impact of the global financial and economic crisis on the Czech financial market and economy and to stabilise inflation and inflation expectations around the new 2% in-flation target valid as of the beginning of 2010. The next important task will be to continue the CNB’s involvement in discussions on fixing a new target date for the adoption of the euro in the Czech Republic.

TO M Á Š H O LU B

Czech National Bank

e-mail: Tomas.Holub@cnb.cz

www.cnb.cz

1

2

3

4

5

Lombard Rate 2W Repo Rate Discount Rat

G R A P H 1 : B A S I C C N B I N T E R E S T R AT E S ( I N % )

14

16

18

20

22

24

26

28

CZK/EUR CZK/USD

G R A P H 2 : C Z K / E U R A N D C Z K / U S D E X C H A N G E R AT E S

0

1

2

3

4

5

6

7

8

inflation target

G R A P H 3 : Y E A R - O N - Y E A R I N F L AT I O N ( I N % )

IIn 2008, the Czech Republic’s foreign trade turnover1) showed the lowest growth since the country joined the European Union in 2004. For comparison, in 2007 its turnover rose by 10.9%2) (in 2007 the increase was 17.1% up on 2006), as a result of the lower growth of both exports and imports. The trade balance showed the second highest surplus (although EUR 0.4 billion down from 2007) since the establishment of the independent Czech Republic in 2003.

FOREIGN TRADE SHOWED A TWO-DIGIT GROWTHIn 2008, both exports and imports grew at a two-digit rate, but in comparison with 2007 (when exports rose by 18.1% and imports by 16.1% on a year-on-year basis) the rate was lower. The growth of exports and imports resulted in a 10.9% year-on-year turnover increase, an equivalent of EUR 19.2 billion, the turnover total-ling EUR 194.9 billion. This increase, however, was not evenly distributed. The massive growth of exports and imports in the 1st and 2nd quarters slowed down in the 3rd quarter and in the 4th quarter showed a marked year-on-year decline (on a year-on-year basis, exports dropped by 8.7% and imports by 3.6%). The trade balance surplus was EUR 0.4 billion lower and dropped to EUR 2.8 billion, reflecting the favourable trade balance values (al-though declining gradually) in the 1st to 3rd quarters and the trade deficit in the 4th quarter (EUR 0.6 billion).Territorially, most responsible for the Czech Republic’s trade bal-ance surplus, which rose by EUR 4.5 billion and amounted to EUR 19.7 billion, were the EU-27 member states. The country’s trade balance with states outside the EU-27, on the other hand, showed a deficit, which increased by EUR 4.9 billion and amounted to EUR 16.9 billion. In the commodity structure, the trade balance benefited from the higher surplus in machinery and equipment trading, which increased by EUR 1.9 billion, and from trading in manufactured goods classified chiefly by material, which grew by EUR 0.4 billion, as well from the lower deficit in agricultural and food materials and products trading, which declined by EUR 0.2 billion. On the other hand, the trade balance was adversely affected by trade in crude materials, inedible and mineral fuels, which dropped by EUR 2.3 billion, and in chemicals (-EUR 0.3 bil-lion), and by the lower surplus in general industrial machinery and equipment trading, which fell by EUR 0.3 billion.

TERRITORIAL STRUCTURE OF FOREIGN TRADEExports experienced a below-average growth in trade with all ter-ritorial groupings, except CIS3), which grew by 28.7%, and the group of “other states”4), which declined by 0.2%. Slightly below-average was the growth of exports to EU-27 member states (by 10.4%), with

exports to other territorial groupings growing at lower rates (to developing economies by 8.5%, European transi-tion economies by 3.6%, EFTA states by 3.5%, and other developed market economies by 1.4%). Czech imports from all territories grew at a highly above-average rate, except from EU-27 member states (by 5.5%) and other de-veloped market economies (by 9.1%). Imports from CIS states rose by 48.9%, from European transition economies by 37.1%, from “other states” by 25.7%, EFTA states by 25.3%, and developing economies by 16.6%.The trade balance surplus was in-fluenced by the favourable balance with EU-27 member states and the deficit with states outside the EU-27, specifically by deficits in trade with “other states”, CIS, “other developed market economies”, and develop-ing econ omies. Trade with European transition economies and EFTA states partly softened the unfavourable trade balance with states outside the EU-27 with their surplus.

FOREIGN TRADE COMMODITY STRUCTURE

The movements in the commodity structure of foreign trade in 2008 were marked primarily by lower growth rates in both exports and imports in most SITC classes in comparison with 2007, especially in machinery and transport equipment.Machinery and transport equipment, as well as manufactured goods classi-fied chiefly by material, reduced their share in total exports, while agricul-tural and food materials and prod-ucts, chemicals and related products, miscellaneous manufactured articles, crude materials, inedible and mineral fuels strengthened their position. Machinery and transport equipment, manufactured goods classified chiefly

FOREIGN TRADE GREW, BUT AT A LOWER RATE THAN IN 2007

2005 2006 2007 2008 Year-on-year change

EUR million %

Exports 62 784 75 699 89 396 98 828 9 432 10.6

Imports 61 499 74 305 86 238 96 022 9 784 11.3

Trade balance 1 285 1 394 3 158 2 806 - 352 .

T A B L E 1 : F O R E I G N T R A D E O F T H E C Z E C H R E P U B L I C

by material and chemicals and related products weakened their position in total imports. Miscellaneous manu-factured articles, and especially crude materials, inedible, and mineral fuels strengthened their role, while the share of agricultural and food mate-rials and products remained on the 2007 level.

CHIEF DEVELOPMENT FACTORSThe 2008 trade balance was influ-enced by three main factors: low growth of industrial production, un-favourable development of exchange relations, and considerable weakening of foreign demand.

1. In 2008, industrial development was adversely affected by a massive decline in the 4th quarter of the year, which practically cancelled out the fa-vourable results achieved in previous years. The slowdown in the growth of production in comparison with 2007 affected a number of manufac-turing sectors, many of which even showed a decline in production (e.g. transport vehicles). The situation in the manufacturing industry had an

Territorial groupings

Percentage shares of total

exports imports

2007 2008 2007 2008

EU27 85.2 85.1 70.8 67.1

EFTA 2.0 1.9 1.6 1.8

Other developed market economies 3.8 3.5 6.9 6.8

Developing economies 3.4 3.4 5.8 6.0

European transition economies 1.1 1.0 0.3 0.3

Commonwealth of Independent States 3.7 4.3 6.6 8.8

Other states 0.6 0.6 8.0 9.0

T A B L E 2 : T E R R I TO R I A L S T R U C T U R E O F E X P O RTS A N D I M P O RTS I N 2007 A N D 2008

adverse impact on total exports, as products of the manufactur-ing sectors account for the highest share of total exports (96.1% in 2008). The strongest position in the export trade of the manu-facturing industry in 2008, as in previous years, was held by the machinery and transport equipmment sector with a share of 53.4%, of which road vehicles accounted for 15.6%, followed by electrical machinery, apparatus, and appliances (9.1%), computer technology (6.9%), general industrial machinery and equipment (6.8%) and telecommunications equipment (6.6%). In the road vehicles category, which weakened its position in total exports by 1.0% in comparison with 2007 (as a result of a 3.8% year-on-year decline in the growth of exports) the strongest export items were motor cars and parts and accessories of motor vehicles (account-ing for 7.4% as against 8.3% in 2007) with the same 6.9% share

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as in 2007. In 2008, as in previous years, the road vehicles trade surplus was the highest of all SITC classes, but remained on ap-proximately the 2007 level (EUR 7.4 billion), of which the surplus in motor car trading dropped to EUR 5.1 billion from EUR 5.5 billion in 2007 and that in parts and accessories of motor vehicles rose from EUR 2.4 billion to EUR 2.9 billion in the same period. The second highest surplus (EUR 1.9 billion), EUR 0.5 billion up on the previous year, in engineering goods trading (and at the same time in total foreign trade) was shown by trade in general industrial machinery and equipment. The highest year-on-year surplus increase (from EUR 0.4 billion to EUR 1.0 billion) was recorded by telecommunications equipment;

2. In 2008, export prices dropped by 4.6% and import prices by 3.3% on an average in comparison with 2007. The terms of trade showed a negative value of 98.7. The movement of prices was influenced by price movements on the world market and the move-ment of the CZK/EUR and CZK/USD exchange rates. The world prices5) of industrial crude materials and food in 2008 were, in sum, 37.1% higher than in 2007, of which, for example, the world prices of Brent crude were up by 35.8%, those of natural gas by 55.3% and food and oils by 25.9%. In 2008, in comparison with 2007, the Czech crown strengthened by 11.3% in relation to the euro and by 19.2% in relation to the US dollar on an average.

3. Trade was largely affected by slackening foreign demand as a result of the world crisis, especially in the latter half of 2008. The economies of the EU-27 member states showed a slowdown already in the 2nd quarter (GDP grew by 1.7% on a year-on-year basis), in contrast to the 1st quarter, when they recorded a 2.3% year-on-year growth. In the 3rd quarter, the slowing down of eco-nomic growth in the EU-27 continued with even greater intensity,

the year-on-year growth rate being a mere 0.8%. The downward trend persisted also in the 4th quarter (according to the first Eurostat6) estimate, gross domestic product of the EU-27 member states declined by 1.1% on a year-on-year basis. The unfavourable economic development in EU member states (especially in Germany), with its slackening de-mand, became strongly projected into the Czech Republic’s foreign trade. The worsened external conditions in 2008 resulted in the slower growth (by 10.4% as against 17.5% in 2007) of its exports to EU-27 member states (in the 4th quarter, Czech exports to those states even showed a year-on-year decline, by 9.4%).

JIŘINA SEMANOVÁ

Czech Statistical Office

e-mail: jirina.semanova@czso.cz

www.czso.cz

1) 2007 CSO data are final as at the 28 August

2008 closing date; 2008 data are estimates as

at the 29 January 2009 closing date.2) As a result of the strengthening of the Czech

crown in relation to the euro, trading in euros

showed greater growth in comparison with

trading in Czech crowns. When calculated in

Czech crowns, the 2008 trade turnover was

0.3% down on 2007, of which exports were

down by 0.7% and imports were up by 0.1%.3) Commonwealth of Independent States4) China, Democratic People’s Republic of

Korea, Cuba, Laos, Mongolia, Vietnam.5) Czech Statistical Office indices of the world

prices of industrial crude materials and food

for December 2008.6) Eurostat, 13 February 2009 – Newsrelease: Flash

estimates GDP for the fourth quarter of 2008.

EU-272007 2008

Non-EU-272007 2008

EUR million EUR million

Germany 3 317 4 728 China - 6 203 - 7 910

Slovakia 3 138 3 791 Russia - 2 028 - 3 435

United Kingdom 2 202 2 418 Japan -2 436 - 2 807

France 900 1 381 Azerbaijan - 704 - 987

Austria 816 1 136 Taiwan - 858 - 822

Romania 758 993 Korea - 607 - 818

Sweden 625 818 United States of America - 215 - 256

T A B L E 4 : T R A D E B A L A N C E W I T H S E L E C T E D S T AT E S

Territorial groupings2007 2008

EUR million

EU27 15 170 19 727

ESVO 473 195

Other developed market economies - 2 558 - 3 053

Developing economies - 1 915 - 2 483

European transition economies 711 658

Commonwealth of Independent States - 2 357 - 4 185

Other states - 6 282 - 8 047

T A B L E 3 : T R A D E B A L A N C E W I T H T E R R I TO R I A L G R O U P I N G S O F S TAT E S I N 2007 A N D 2008

CINDUSTRY: FLUCTUATIONS WITH A DOWNWARD TRENDLast year was a dramatic one for Czech industry – not only calendar variations, but particularly the West European recession and weakening domestic demand in the last months of the year are the best explanation of the ups and downs in industrial production.

Czech industrial production showed extreme fl uctuations in 2008 – its growth was the highest in April (+12%) on a year-on-year basis, with a massive fall in Octo-ber (-8%) and further decline in the last months of the year. In December, industry plummeted by 14.6% in comparison with the same period in 2007. Industry, a key sector of the Czech economy, continued its downward trend in the fi rst three quar-ters of 2008 – production increases were distinctly smaller than in periods, when the economic boom in the Czech Republic was at its highest. The trend curve of industrial production eliminating seasonal effects and showing real values adjusted for seasonal variations started on its downward path already in mid-2006 (Graph 1). This is further evidence that Czech industry is the dominant sector in the country’s economic structure determining its growth poten-tial – a GDP review made by the Czech Statistical Offi ce in the second half of 2008 revealed that the economic growth of the Czech Republic culminated already in 2006, when Czech industry was still grow-ing at a two-digit rate. The growth curve dropped below the ten-per-cent year-on-year growth margin as late as mid-2007. What are the causes of the slower growth of Czech industry?

INDUSTRY LEADERS IN TROUBLEUnfortunately, sectors which were most severely hit by declining foreign demand, the key factor of the loss of the growth potential of the Czech economy, were those which formerly showed the highest growth rates, i.e. car making and electrical engi-neering (the manufacture of electric and optical machines and equipment, however, does not show a marked decline despite the weaker demand), leaders of Czech industry for many years. The automotive industry partly compen sated the loss of export orders by higher domestic sales (e.g. in September 2008, when the sale of new cars in Germany and Spain fell dramatically, on the Czech market the sale of cars grew by 10% on a year-on-year basis). During the whole of 2008, the sale of new cars in the Czech Republic rose by 8.4%. However, here, too, a decline is to be expected, as in

response to the unfavourable expectations, households will reduce their pur-chases – in the business sphere, utility van sales showed a decline already in 2008 (-3.3%).

AT FIRST FLUCTUATION, LATER MASSIVE DECLINENearly all the main industry indicators showed a downturn in year-on-year growth rates already in the fi rst quarter of 2008, the only increases being recorded in the number of workers and nominal wages in comparison with previous quarters. Already at that time, however, foreign orders were on the level of less than four-fi fths of the growth rate in comparison with the same period in 2007 and in terms of volume they even showed a year-on-year decline. The growth of revenues from direct exports dropped by nearly 12 percentage points and the revenues of companies under foreign control by just under 11 percentage points.While the fi rst quarter of 2008 only saw a slowdown in the growth of all the main indicators with the exception of foreign orders, which at that time were already down from the previous year, the second quarter, in addition, wit-nessed a decline in total orders. The only industry indicator which showed faster year-on-year growth was average nominal wages. In general, the decline in the year-on-year growth rates was not so massive as in the fi rst quarter, one reason being the lower comparable base of the same period in 2007, when production grew by 5.8%, i.e. not so massively as the year before (+9.3%), but more than in the fi rst quarter (+5.7%). Revenues of companies under foreign control even grew faster (+7% as against 5.4%) and owing to the export weight of those companies, revenues from direct exports grew as well (+8.7% as against +5.9%).In the 4th quarter, foreign demand fell by 27.9% (foreign orders declined by 3.2% already in the 3rd quarter). The nominal value of total orders, too, was much lower in the last three months of the year (-26.4%). It is apparent,

-10

-5

0

5

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15

20

I-03 I-04 I-05 I-06 I-07 I-08

Seasonally non-adjusted growth rates in industrial production

trend

GRAPH 1: INDUSTRIAL PRODUCTION, YEAR-ON-YEAR PERCENTAGE CHANGES

however, that the greatest loss was witnessed by foreign orders. Nominal wages in industry grew faster than in 2007 (+8.2% to CZK 22 780, an equiv-alent of EUR 913, calculated by the average CZK/EUR conversion rate), but at the same time the number of employed people declined, signalling a cooling down of the economy. The greater prudence of banks provoked by the global fi nancial crisis and fears of inadequate fi nancial safety and sound-ness of debtor companies in the Czech Republic worsened access to fi nancial sources, despite the dramatic cut by the Czech National Bank of basic inter-est rates. As a result, certain glass companies went bankrupt.

DISMISSALS AND PRODUCTIVITYEmployment in industry followed a downward trend throughout 2008. While in the fi rst quarter the average number of people working in industry increased by 2.5%, in the third quarter employment in the sector dropped by 0.6% and in the fourth quarter by as much as 3.5%. In response to declin-ing production in the last months of the year, companies began to dismiss workers hired from labour agencies (in the order of tens of thousands, most of them foreign workers). On the annual average, employment in 2008 declined by a mere 0.1%, to 1.162 million workers. This, however, does not show the year-on-year fall occurred at the end of the year, when in Decem-

ber the number of people working in indus-try dropped by 56 000, or 4.7%.In 2008, productivity of labour (Graph 2) was stagnant (+0.2% on a year-on-year ba-sis as against +7.3% in 2007). The relative-ly good results for the fi rst three quarters of the year were offset by a massive decline in the fourth quarter (-9.3%).

GOOD TIMES VERSUS AN UNCERTAIN FUTURE

Industry experiences bad times in practically all Europe. In 2008, produc-tion dropped most massively in Estonia (-17.4%), Spain (-15.1%), and Latvia (-13%). France witnessed a 10.7% decline and Germany a decline of 6.6%. Only Norway and Ireland showed a moderate growth of industry, with Austria and Cyprus remain-ing stagnant.The decline in industrial orders in other countries, and especially continuing un-favourable expectations for the economic development in the Euro Zone according to forecast indicators, do not inspire much optimism in the export-oriented sectors of industry in the Czech Republic and their sup pliers. Considering the entwinement of industry with the service sectors, mainly transport, the downward trend may prove contagious and lead to a slowdown also in the tertiary sector of the Czech economy.

DRAHOMÍRA DUBSKÁ

Czech Statistical Offi ce

e-mail: drahomira.dubska@czso.cz

www.czso.cz

2006 2007 2008 Diff erence in points

4q 2008/4q 2007 1st Q 2nd Q 3rd Q 4th Q 1st Q 2nd Q 3rd Q 4th Q 1st Q 2nd Q 3rd Q 4th Q

Industrial production index 15.5 9.3 9.7 10.4 11.3 9.3 6.9 8.4 5.6 6.1 4.2 -13.2 -21.6

Revenues from industrial activity, constant prices

16.4 9.5 9.4 11.6 12.8 11 9.4 9.9 4.9 6.2 4 -13.4 -23.3

Revenues from direct exports, constant prices

16.2 8.9 11.6 16.2 17.4 14.5 10.8 11.4 6.5 9.9 7.6 -13.8 -25.2

Revenues of enterprises under foreign control, constant prices

26.7 16.6 16.6 19.3 16 13.6 11.4 11.3 5.6 7.3 4.4 -15 -26.3

Average number of employed persons* 1.6 1.5 2.1 1.6 2.3 2.4 2.6 2.7 2.5 1.3 -0.6 -3.5 -6.2

Average monthly nominal wages 6.3 6.4 5.2 6 8.1 7.5 7.4 6.9 11.6 8.7 7.5 5.8 -1.1

Total orders, current prices 23.7 20 16.3 18.7 13.7 8.8 14 11.3 2.4 2.7 -1.3 -26.4 -37.7

Foreign orders, current prices 19.7 12.7 15.8 21.9 17.2 15.1 16 7.4 -2.7 0 -3.2 -27.9 -35.3

* year 2006 – average registered number of employees

P R O D U C T I O N, R E V E N U E S, A N D O R D E R S S H O W E D A D O W N WA R D T R E N D ( S E L E C T E D C Z E C H I N D U S T RY I N D I C ATO R S, P E R C E N TAG E C H A N G E S A S AG A I N S T T H E F O U RT H Q UA RT E R O F T H E P R E V I O U S Y E A R, D I F F E R E N C E I N P E R C E N TAG E P O I N TS )

0

2

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16

1st q

06

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q 6

4sq

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3rd

q08

Average monthly nominal wage

Productivity of la

GRAPH 2: NOMINAL WAGES IN INDUSTRY GREW FASTER THAN PRODUC TIVIT Y (percentage changes as against the same quar ter of the previous year)

TDIRECT INVESTMENTS: CZECH REPUBLIC STILL POPULAR The total net amount of direct foreign investments fl owing into the Czech economy looks impressive – the Czech Republic received almost CZK 2 000 billion (EUR 80.2 billion) during 1993-2007. Together with the infl ow for the three quarters of 2008 in the amount of CZK 138.3 billion (EUR 5.5 billion), the sum of all capital inputs, reinvested profi ts, and other capital (loans and supplier credits between investors and capital participations) exceeded CZK 2 100 billion (EUR 84.2 billion).

The processing industry received al-most one-third of this amount in the years 1993-2007, one-third of which went to machine production. Three-fourths of the capital came from West Europe, and 7.5% from the USA, Canada, and Japan.

DIRECT INVESTMENTS AND GDPDuring the years 1995-2007, the an-nual inflow of direct foreign invest-ments fluctuated in relation to the economical output of the country be-tween 2.3% of the nominal GDP (1996 and 1997) and 11.3% in 2002. The year 2002 was, however, extraordi-

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nary because of an immense investment into the Czech gas indus-try by RWE Transgas, and also because the growth of the economy was relatively slow. The annual capital inflow was on average 6.2% of the nominal GDP in 1995-2007. However, not only the capital

invested in a given year constitutes the GDP, but also the direct in-vestments accumulated so far. From this point of view, the share of the amount of the direct foreign investments in the GDP rose from 7.6% in 1995 to 56.4% of the nominal GDP in 2007.

FOREIGN CONTROLLED FIRMSUp to this point, the assessment has only been related to the amount of capital in the form of direct investments into the Czech economy. But what have companies controlled by foreign own-ers contributed to production and the generation of added value? When it comes to gross added value in the economy, foreign controlled firms contributed to its generation with 39.3% in 2006 (latest available data) and only 8.5% in 1995.

DIRECT INVESTMENTS AND EXPORTSThe great multiplication effect with which the direct investments in the Czech Republic catapulted the export capability of the Czech economy through extensive investment related imports in the beginning of the decade is also apparent from the changes in

the share of these investments in the amount of goods and services export. Graph 1 shows the strong wave of investment in 1999-2002, also associ-ated with the sale of state shares, which was accompanied by the investment imports with the intention to equip acquired production ca-pacities. If the ratio of direct foreign investment to export from the Czech Republic was only 15.1% in 1995, it exceeded four-fifths (81.9%) in 2002, and gradually decreased from 78.1% in 2005 to 70.3% in 2007 during the culminating economic conjuncture.

INDUSTRY AND EXPORTS The dependency of foreign control-led firms on the demand in export territories is high because the struc-ture of exported goods is sensitive to conjuncture fluctuations. With the decline of revenues in car companies (-30.3%) and metallurgy firms (-22.6%), the year-on-year revenues of the industry in real terms de-creased by more then one fifth (-21%). Despite the fact that foreign control-led firms are responsible for 58.2% of overall industry revenues (they first exceeded 50% in 2002). All this while the export represents full three-quar-ters (74.9%) of revenues for foreign controlled firms.The share of foreign investors in over-all industry export is very high in the Czech Republic – it exceeded 70% in 2004 and has been growing moder-ately since (Graph 2). The declining share of foreign controlled firms in overall industry revenues (over 15 percentage points down to 46.4% during 2003-2008) supports the fact that the slowdown of domestic indus-trial firms from the past period was overcome. This was, to a considerable extent, by virtue of collaboration with foreign controlled firms because many domestic firms established sup-ply links with them.

DRAHOMÍRA DUBSKÁ

Czech Statistical Office

e-mail: drahomira.dubska@czso.cz

www.czso.cz

0

500

1 000

1 500

2 000

2 500

3 000

3 500

4 000

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

direct investment in the CR (accumulation of net flows)

GDP in current prices

direct investment in the CR (net annual flows)

G R A P H 1 : D I R E C T F O R E I G N I N V E S T M E N T S A N D G D P I N T H E C R ( I N C Z K B I L L I O N )

30

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45

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80

2002 200 2004 2005 2006 07 2008

share in revenues from direct exports of industrial enterprises

share in total revenues of the industry

G R A P H 2 : F O R E I G N C O N T R O L L E D C O M PA N I E S I N C Z E C H I N D U S T R Y ( S H A R E I N % )

TRURAL DEVELOPMENT PROGRAMMEThe Rural Development Programme is one of the most important tools in the implementation of the EU Common Agricultural Policy. The Czech Republic and Sweden were

the first member states to have their Rural Development Programmes approved by the European Commis-sion as early as May 2007. In the 2007-2013 programme period, Czech farmers can thus acquire more than CZK 100 billion (EUR 4 billion).A great interest was evident already in the first round of the submission of applications in 2007, when the requested financial amounts were higher than the resources earmarked for these purposes. After four rounds for the submission of applications, the amount of CZK 10 billion (EUR 0.4 billion) was com-mitted for projects accepted in 2008. Most of the money is intended for the modernisation of agricultural enterprises (CZK 2.9 billion - EUR 0.12 billion), for the establishment of new farms, support for young farmers’ activities, diversification of activities and programmes for rural regeneration and rural areas devel-opment, and for the preservation of stability in rural areas.In 2007 and 2008, grant applications for a total of CZK 5 billion (EUR 0.20 billion) were accepted within the Axis III of Rural Development Programme projects. The money was mainly designed for the devel-opment of water mains and sewage systems and for the construction and improvements of sewage treatment plants. Considerable amounts were also allocated to the support of busi-ness activities which are important for the sustainability of life in rural areas. Almost all the resources com-mitted for these purposes were used.The last two rounds for the submis-sion of applications enabled support for more than 700 small enterprises, primarily family farms. Preference

was given to applications which will help to improve life in rural areas by providing services, organising cultural activities, creat-ing jobs, etc.Much needed support for local farms as well as local governments in the Czech Republic is provided by agricultural agencies and in-formation and consultation centres. Experienced teams of agency employees help to distribute information about the system of pay-ments to promote rural development. This new service promises a further improvement in the use of resources from the European Funds for the creation of interesting and viable quality projects. Over 2 billion CZK (EUR 0.08 billion) were earmarked for the 6th round of the submission of applications in February 2009. These allotments are to be used mainly for investment in agricultural property, for the development of new products and diversifica-tion of farm activities. Other areas to receive support will include mainly rural tourism and the activities of young farmers. February 2009 is considered a landmark also in the calendar of Czech fishermen, because the third stage of the submission of applications was prepared under the Operational Programme for Fisheries. Untapped possibilities also exist under the LEADER programme.The future of Czech agriculture rests not only on the use of progressive technologies in both sectors, crop and livestock production, but also in the possibilities to build on tradition and con tinue with time-tested procedures. In land management, em-phasis is placed on a sensible and prudent approach. The Czech Republic regards the Common Agricultural Policy as a policy for the countryside. In future, the Common Agricultural Policy will make it possible to gain resources from agricultural products and services. The Czech Presidency wants to motivate the member states to discuss the instruments of the Common Agricultural Policy that will help improve the quality of life and development of rural areas within the EU. An emphasis will be placed on the development of business activities for young people in rural areas, on the development of education and research, on the diversification of non-agricultural activities and the creation of infrastructure while using local energy sources.The importance of the European Funds for the further develop-ment of Czech rural areas is obvious. However, a large share of responsibility for the preparation of projects, for obtaining Euro-pean money and its effective use for the Czech countryside rests with the farmers themselves.

COMMUNICATION DEPARTMENT

Ministry of Agriculture

www.mze.cz

CZK were converted into EUR by the average exchange rate of the Czech

National Bank for 2008: EUR 1 = CZK 24.94

IIt is possible to say that research and development in the Czech Repub-lic has a high standard as a whole. The state and the private sector are investing considerable resources in it. The total amounts of the fund-ing, and its share in the gross domestic product (GDP), have been ris-ing continuously. In 2007, for example, money that went into research and development from the state budget represented 0.61% of GDP. Research capacities are not distributed evenly in the Czech Repub-lic. 75% of people employed in research and development work in three regions – Prague, the Central Bohemia Region, and the South Moravia Region. Eliminating this disproportion is one of the tasks of the Czech Republic’s research policy for the period 2007-2013. A significant instrument of its implementation is to be the Operational Programme Research and Development for Innova-tion, which is being carried out under the auspices of the Ministry of Education, Youth, and Sports (www.msmt.cz).

INDUSTRIAL RESEARCH AND DEVELOPMENTIndustrial research and development has a high share in the fi nancing of research and development from the state budget. In 2008, the Ministry of Industry and Trade (www.mpo.cz; hereinafter MIT) supported indus-trial research and development projects from its part of the state budget with CZK 2.481 billion (approx. EUR 99.5 million1)), of which CZK 1.123 billion (EUR 45.024 million1)) went to small and medium-sized enter-prises (SME), and the amount of CZK 3. 235 billion (approx. EUR 119.1 million2)) is already earmarked in the budget approved for 2009.

COOPERATION BETWEEN UNIVERSITIES AND ENTERPRISES IS EXTENSIVE

Basic research in the Czech Republic is mostly conducted at univer-sities and the Academy of Sciences (www.cas.cz). University establish-ments, however, do not focus only on primary research. A number of them have a high professional level and at the same time cooperate very well with industrial enterprises. These include the Czech Techni-

cal University in Prague (www.cvut.cz; CTU), the Brno University of Technol-ogy (www.vutbr.cz; BUT) and the VŠB – Technical University of Ostrava (www.vsb.cz; VŠB-TU).Specialised technology centres which provide services to companies in the area of technology transfer, and science and technology parks, including business incubators that support the establish-ment of new innovative fi rms and their development in the initial phase, are being formed at universities. Examples of a quality science and technology park can be the VŠB-TU Business Incuba-tor, which offers start-up businesses an area of 2 265 sq. m, including laborato-ries and pilot facilities, or the Mstětice Science and Technology Park, which works together with the CTU Faculty of Transportation Sciences in providing space and services to innovative enter-prises specialising in transport control and safety equipment, nanotechnologies, and biotechnologies. Both projects have been implemented with support from EU Structural Funds. Examples of model technology centres are the Aerospace Re-search Centre at the BUT in Brno, which plays a crucial role in the development of this branch in the Czech Republic, and the technology centre of the Mercedes company which closely cooperates with the University of West Bohemia in Plzeň.

INNOVATION ACROSS SECTORSIndustrial research is the main factor of the innovation process in the Czech Republic. It is being conducted in most branches, but research in high and medium-high-technology sectors is of crucial importance. These include, for example, the automobile and aircraft industries, information and communica-tion technology, biotechnology, etc. It is gratifying that research and develop-ment is undertaken by companies re-gardless of size, from small enterprises of no more than 50 employees up to the subsidiaries of transnational concerns based in the Czech Republic.

THE CZECH REPUBLIC RANKS RESEARCH AND DEVELOPMENT AMONG ITS PRIORITIES

MAJOR INFORMATION SOURCES:www.czechrtd.info – a website providing information on research and development in the Czech Republic with the aim to help researchers from abroad to fi nd partners in the CR ; it seeks to promote development in the European Research Area and the EU 7th Framework Programme (FP7). www.vyzkum.cz –a website providing various important information on R & D in the CR (documents, legislative issues, information databases, international cooperation, etc.)www.avo.cz – offi cial website of the Association of Research Organisations www.techprofi l.cz – a database of companies and other entities engaged in innovation enterprisewww. svtp.cz - Science and Technology Parks Association CR

Research and development has been fundamentally transformed, due to structural changes in the Czech economy and major changes in the system of fi nancing, which rested in the transition from the central control and full state funding of research tasks to project fi nancing that respects European laws.

INDUSTRIAL RESEARCH AND DEVELOPMENT PROGRAMMES

For a number of years, the Minis-try of Industry and Trade has been announcing industrial research and development programmes. The com-mon features of the projects being implemented within the programmes is the involvement of universities in the project consortiums, the benefi-cial effect of the projects on the qual-ity of life, the high added value of the products being developed, etc.For the period up to 2013, the MIT has prepared a new industrial research and development programme, TIP. This programme, which is not limited to any sector, supports research and develop-ment of new products, materials, tech-nologies, and information technologies. The output of the supported projects is to be a concrete prototype, pilot plant, or sample of a new material. The pro-gramme was approved by the European Commission – DG for Competition in December 2008, and its fi rst year was launched in January 2009. The MIT programmes are open to all entities registered in the Czech Re-public, regardless of size and owner. This equal approach thus enables also entities with majority or 100% foreign capital participation to apply.Support for industrial research and development infrastructure is provided within the Operational Programme Enterprise and Innovation, co-fi nanced from EU Structural Funds. This involves especially support to the establish-ment and development of science and technology parks, business incubators and technology transfer centres within the PROSPERITY programme (PROS-PERITA), support to the establishment and promotion of enterprise research and development centres within the PO-TENTIAL programme (POTENCIÁL), and support to the establishment and development of innovation groups, CO-OPERATION (SPOLUPRÁCE). These programmes are aimed at improving cooperation between industrial enter-prises, especially SMEs, and university research facilities, the Academy of Sci-

ences, and other research and development organisations. Besides the construction and equipment of the facilities, support is also provided for staffi ng, especially by university graduates.2009 is the year of the second call for proposals under the POTENTIAL programme. Entrepreneurs have shown great interest in this pro-gramme and quite a number of projects of a very good quality are cur-rently being implemented. To list one example for many: The EXBIO research and technology centre, established by the company EXBIO Praha at Vestec near Prague, will create infrastructure for the develop-ment of human medicines, especially antibodies. This unique facility, making use of biotechnologies, is involved in a number of research projects on the national and European levels. The project has received a CZK 65 million (EUR 2.61 million1) grant. Another example is the establishment of a research and development centre for nanofi bre ma-terials and technologies, NanospiderTM“, by the company ELMARCO in Liberec.

INTEGRATION INTO THE EUROPEAN RESEARCH AREAThe Czech Republic has become successfully involved in the Euro-pean Research Area and research and development in the country is of a European standard. Compared for example with Japan and the USA, and similarly to EU countries, basic and partly also applied research and development have the same fundamental problem - an insuffi cient degree of commercial use of the output from the research. Too many research plans and projects still do not fi nd applications in the form of products, technologies or licences, although they could. The level of patenting in the Czech Republic is also insuffi cient, and the number of European patents submitted to the United States Pat-ent and Trademark Offi ce, and also triadic patenting (i.e. simultane-ous patenting in the EU, the USA, and Japan), is particularly low. To boost the manufacture of newly developed products, materials and technologies, the MIT is running the INNOVATION pro-gramme (INOVACE), which continues in the period 2007-2013, with the use of money from EU Structural Funds. The programme helps more extensive use of the output of research and develop-ment in the manufacturing industry. From 2008, the INNOVA-TION programme can be used also to support patenting activities, mainly by SMEs and universities. It can be said that the Czech Republic already has a comprehensive system of support for research, development, and innovation, which assists not only innovative ideas from their birth to final implementation, but also the start-up of innovative enterprises and their research and development capacities. This system does not discriminate against any entities, provides ever larger financial amounts, and is also successfully lowering administrative burdens connected with applications for project support. There is no doubt that research and development in the Czech Republic is successfully and dynamically developing, and it is advantageous for foreign investors to undertake their research and development projects in the Czech Republic, use the Czech re-search and development infrastructure, and cooperate with Czech entities.

PETR PORÁK

Ministry of Industry and Trade

e-mail: porak@mpo.cz

www.mpo.cz

Note: 1) EUR 1 = CZK 24.94, 2008 average annual exchange rate determined by the

Czech National Bank,2) EUR 1 = CZK 27.169, average monthly exchange rate determined by the CNB for

January 2009