4.3 Economic profile of the Czech Republic
4.3.4 Global competitive reports (GCR)
In the next few paragraphs, Czech competitiveness´s position will be described based on the analysis of the World Economic forum and its Global competitiveness report. It compares macroeconomic competitiveness based on multi-criteria index that combines hard data and soft data together. The Index has 12 pillars and analyzes country´s progress in every one and each pillar. The Czech Republic holds steadily its position around 30th most competitive country in the world. In 2019, the country ended up on 29th position.
Figure 4.8 CR and SR: Global Competitiveness Report, 2006-2007 Source: WEF. Global Competitiveness Report, 2006 – 2007.
0 2 4 6 Institution8
Infrastructure
Macroeconomy
Health and Primary…
Higher Education…
Market efficiency Technological…
Business…
Innovations
Global Competitiveness Report 2006 - 2007
Czech Republic Slovakia
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Figure 4.9 CR and SR: Global Competitiveness Report, 2017 – 2018 Source: WEF. Global Competitiveness Report, 2017-2018.
The two schemes present the progress that both countries made between 2006 and 2017. In 2006, the performance in respective pillars were very similar in both countries.
Both achieved very high score in health and primary education, but were falling behind their European neighbours in the fields of Innovation, Institutions and Infrastructure. In 2017-2018 report, the Czech Republic is performing better in most indicators. One can see great progress in macroeconomy, higher education, goods market efficiency and labour market. However, it would be fair to add that this scheme does not reflect structural changes made by Slovakia and the pace of their convergence to the EU that was very high.
0 2 4 6 Institution8
Infrastructure Macroeconomy
Health and Primary…
Higher Education…
Goods martet…
Labour market…
Financial Markets…
Technological…
Market size Business…
Innovation
Global Competitiveness Report 2017 - 2018
Czech Republic Slovakia
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Figure 4.10 Pillars value change between 2006-2007 and 2017-2018 Source: WEF. Global Competitiveness Reports 2006-7 and 2017-18.
Figure 4.10 summarizes changes in the respective pillars between 2006 and 2018.
Great progress can be seen in the macroeocnomic pillar. It confirms the results of the previous subchapter – which shows that the Czech Republic is doing very well in terms of growing international trade, GDP rate, National savings, Productivity, etc.
Another category that improved significantly is Technological readiness. This stands for the quantity of technologies that have been used during the production process. In this regard, it is worth mentioning the Industry 4.0 (Průmysl 4.0). This concept was introduced by Germany in Hanover in 2013 and it introduces the idea of 4th industrial revolution. It is step forward in industrial development that is built on the idea of turning current factories into smart factories. It should be achieved by using IoT, IA, smart technologies with the goal to completely modernize the entire production process. The goal is to achieve a strong customization of products under the conditions of highly flexible production. (MPO, 2016)
The Ministry of Industry and Trade prepared an analytical document that is trying to describe, analyze and summarize all advantages and impacts of introducing the new generation of production process in the Czech Republic. It is a long and very complex
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Institution Infrastructure Macroeconomy Health and Primary Education Higher Education and Trainin Technological Readiness Business Sophistication Innovations
1 2 3 4 5 7 8 9
Pillars change between 2006-2007 and
2017-2018
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analysis that predicts that full introduction of Industry 4.0 would be a game changer not only for Czech industry but for the entire society. The document mentions the Readiness index prepared by company Roland Berger that identifies the Czech Republic as “traditional”. It means that the country enjoys its solid industrial base but has not moved the industry into the new industrial era. The greatest advantage of this initiative would be increase of productivity. The downside would be probable rise of unemployment – as 24 % of all employed people in the Czech Republic work in industry (Ibis, 2016).
Another pillar that has improved (but remains problematic, though) over the past decade are institutions. Institution represents mainly state administration. The institutional environment is determined by the legal and administrative framework within which individuals, firms, and governments interact to generate wealth. The role of institutions goes beyond the legal framework. Global Competitiveness Report from 2017 – 2018 provide an insight into what areas are perceived as the most problematic:
Diversion of public funds, public trust in politicians, favorism in decisions of government officials, efficiency of government spending, burden of government regulation and finally efficiency of legal framework in challenging regulations.(Global Competitiveness Report, 2018) In the last couple of years, the Czech government has taken steps to modernize state administration and make it more interconnected. There are also projects for digitalization of strate administration, project for proceeding in e-Government and initiatives to reduce / eliminate corruption in the system.
Limited progress can be seen in the field of Infrastructure. Well-developed infrastructure reduces the effect on distance between regions, integrating the national market and connecting it at low cost to markets in other countries and regions.
Telecommunication network is also part of this pillar. High quality internet connection allows for a rapid and free flow of information which increases overall economic efficiency by helping to ensure that businesses can communicate, and decisions are made by economic actors who take into account all available relevant information. The progress in this pillar is given mainly by improved telecommunication networks coverage. As digital agenda is one the Europe 2020 flagship, the Czech government
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prepared a strategic initiative called Digital Czechia (Program Digitální Česko, 2019).
The goal of this program is not only achieving better digitalization of the country and proceed in the project called e-Government, but also define and articulate country´s position to various digital issues on EU level. The program is meant to be a cross-sectional document that will touch many areas and industries. All the initiatives seem to be right because institution and areas related to institutions have been subject of criticism, both on domestic and international level.
Figure 4.11 points directly to the most problematic factors for doing business in the Czech Republic. The biggest obstacle seems to be tax regulation. Taxation is often criticized for lacking simplicity and for being a subject of constant changes which can lead to additional costs for companies. Another negative factor is Inefficient government bureaucracy – factors such as quality of state administration, transparency in dealing with public property, speed of judicial process, open-business costs and time needed, etc. fall into this category. Another problematic factor is corruption. Most of these weaknesses belong under the institutions framework.
Figure 4.11 Most problematic factors of doing business
Source: Global competitive report 2018
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Figure 4.12 Competitiveness profile of the Czech Republic (compared with Europe and North America)
Source: Global Competitiveness Report 2018
This picture illustrates competitiveness profile of the Czech Republic compared with the average competitive performance of Europe and North America. Taking into consideration that Czech Republic is compared with the most developed region in the world, its performance seems to be very good. Macroeconomic environment and financial market are outstanding. On the other hand, pillars that falling behind the Europe and North America region are Innovations, Infrastructure, and Institutions
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