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Prague’s number one objective: to reduce dependence on western European markets

Schermata 2015-05-22 alle 11.39.30

The Czech Republic, a country that sells around two-thirds of its production abroad, believes it is important to decrease its dependency on EU markets in the next few years – where 83% of its exports are directed. The goal is to reduce this amount to 70% by the year 2020, as Martin Kocourek, the Minister of Industry and Trade, pointed out during his presentation on the national export strategy for the next few years.

The likely perils in the Eurozone, with the probable risk of a new recession in the EU, call for urgent actions. Prague is particularly worried about the expected German economic slowdown, due to the fact that a third of Czech exports are directed to Germany.

For the manufacturing sector of this country, it will entail, at least in part, carrying out a reverse process to that of the 1990s, when many Czech companies, after the end of the Warsaw Pact and the collapse of the Soviet empire, were forced to deal with Western markets. The challenge was by no means painless and, in some cases, even fatal. But there were also positive examples, such as that of the first car manufacturer Skoda Auto which succeeded in becoming part of the Volkswagen group.

Therefore, the key word that the Prague government will try to enforce on national firms, will be that of breaking into new markets, starting with those countries where once – when Prague and Bratislava were still part of the same federal state – the made in Czechoslovakia was commonplace, just as with Russia and all the states of the then Soviet Union. But there is also special interest for all the BRIC countries, especially China, India and Brazil.

The premise for a successful change of direction is in place. The Czech economic system has already shown, in recent years, that it is able to effectively withstand the crisis – and many industrial groups have taken this opportunity to carry out reorganization plans and invest in research and innovation. So far, all of this has led to a positive outcome and may prove to be the driving force to conquer new markets.

As for Russia and the former USSR countries, they are markets in which Made in Czech Republic still carries a high status.

As well as reducing dependence on EU markets, the Czech government aims to increase small and medium-sized companies which contribute to national exports and increase the number of productive sectors that are focused on foreign markets.
At present, over 50% of Czech exports derive from a limited circle made up of ten large companies and, on top of that, as much as 65% of exported goods come from the automotive sector. Economists, in fact, have repeatedly stressed the many risks associated with this additional form of unilateralism in national exports.
Once the objectives have been laid out, it clearly also a question of establishing how to go about achieving these goals.
The Czech government is counting on the effectiveness of its so-called “commercial diplomacy”. Even the Chamber of Commerce of the Czech Republic (hospodářská komora České republiky), has recently insisted on this point, calling for greater diplomatic missions so as to open new foreign markets. The big industrial groups will probably not need this type of structure, but all the same, these are of fundamental importance, particularly in certain countries, for smaller-size firms.

Also of great importance will be the work of two publicly-owned financial institutions, which support Czech companies who deal with new markets, that is to say: the Česká exportní banka (the bank that finances foreign trade operations) and EGAP (the export guarantee and credit insurance corporation).

To be assessed is also the cost of the new business strategy. Minister Kocurek spoke in optimistic terms: “the effect on the public budget will be equal to zero. It will be sufficient to organize the public administration a little better and coordinate their work agenda.”