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Country Commercial Guides
FY 2000: Czech Republic
CHAPTER V: LEADING SECTORS FOR U.S. EXPORTS AND INVESTMENTS
A. Best Prospects for Non-Agricultural Goods and Services
1. Telecommunications Services
2. Pollution Control Equipment
3. Electrical Power
4. Aircraft and Parts
5. InsuranceAll figures given are in millions USD, unless otherwise indicated; 1997 and 1998 figures are actual amounts, 1999 figures are estimates; exchange rates for 1997: $1 = 31.71 CZK, 1998: $1 = 33 CZK, 1999: $1 = 35 CZK.
Sector Rank: 1
Sector Name: Telecommunications Services (TES)
1997 1998 1999 A. Total sales 1,450 1,750 2,010 B. Sales by local firms 1,180 1,330 1,500 C. Sales by foreign owned firms 270 420 510 E. Sales by U.S. owned firms 60 90 140The rapid development of telecommunications services has followed the equally rapid development of the telecommunications infrastructure. There has been a massive investment into telecommunications since 1994. The number of main telephone lines reached 4 million in June 1999, and penetration grew from 20 to 37 lines per 100 inhabitants. The quality of the network has increased considerably and allowed implementation of new services.
The fast growth in services extends to mobile telephony. There are currently two GSM operators who offer their services to approximately 10% of the population, and their revenues reached almost $800 million by the end of 1998. In October 1999, a third mobile system operator, using DCS 1800, is expected to start operations, continuing the expansion of service.
Mobile phones have great appeal for the Czech population, particularly younger users, because they are easy to obtain, portable and often more affordable than a fixed-line phone supplied by SPT, the state monopoly phone service. Currently, waits of 4 to 6 months plus considerable bureaucratic paperwork are required to get a fixed-line phone installed by SPT. By comparison, a consumer can go to any one of many retail outlets, purchase a phone and a prepaid phone card to insert in the phone, and walk out online. As it requires no credit, billing, or permanent address, the prepaid phone card system has great appeal to students and young adults. Current aggressive advertising campaigns by the two license holders, Eurotel and Radio Mobil, target young users, positioning mobile phones under brand names such as "Go phone" and "Trip" as trendy lifestyle accessories.
Significant growth has been noted in data services. There are currently three trends in service development:
1. The share of data services is growing very fast, and, according to experts' estimation, data communication will account for most telecommunication traffic in the near future.
2. There is a fast development of IP networks hastened by Internet expansion and growth of managed IP networks.
3. New technologies are developing that enable high-speed transfer of large volumes of data.
The development of telecommunications services is accelerated by market liberalization. The market is fully open to competition in the following sectors: Leased lines, public and private data networks, value-added services, private networks including microwave, optical and metallic circuits, and VSATs (VSAT without interconnection to the public switched network), cable TV, and regional trunking networks. The monopoly for international and long distance telephone services held by SPT Telecom expires January 1, 2001. Local telephone services are partially opened to competition (there are currently 6 licenses issued for 16 regions), but the market has not developed, due to high interconnection fees required by the monopoly operator.
The Czech government is expected to pass a new telecommunications law in January 2000. The law will bring about changes in regulatory policy (an independent regulatory body will be established) and in tariff policy, and prepare the market for competition in 2001.
Sector Rank: 2
Sector Name: Pollution Control Equipment (POL)
1997 1998 1999 Total market size 690 720 1,000 Total local production 480 480 700 Total exports 10 20 30 Total imports 230 260 330 Imports from the U.S. 15 17 23(The above statistics are unofficial estimates in millions USD. Exchange rate used: $1 = 35 CZK.)The total cost to the Czech Republic to meet the requirements of the EU environmental limits has been estimated at more than $13 billion over a seven-year period.
Priorities include the following:
Water/Wastewater Management: The total Czech market for water pollution control and monitoring equipment is estimated at $830 million in 1999. The import market is estimated at $180 million in 1999, with imports from the United States reaching about $13 million. Because of an increasing demand for water pollution control and monitoring equipment, U.S. firms have the opportunity to penetrate the Czech market. The primary reason for the demand is the Czech Republic's harmonization of legislation with EU directives for wastewater treatment facilities in municipalities serving fewer than ten thousand inhabitants. In addition, within the next seven years, 10,000 small wastewater treatment facilities serving individual family houses will need to be built. Investment of about $5 billion will be required to comply fully with EU directives.
- Water (wastewater/sewage treatment and potable water supply)
- Waste (packaging recycling and labeling, landfills, incineration, hazardous waste disposal)
- Air pollution (especially from mobile sources)
- Enforcement (needs to be unified according to international and EU standard integrated pollution prevention and control guidelines)
Best sales prospects include the following:
Waste Management: The total market for waste management equipment is estimated at $550 million in 1999, with imports from the United States about $40 million.
- Sludge sterilization systems
- Tertiary water purification systems for defosforization and denitrification
- Steering and regulation system
- Disinfecting technology (UV and ozone)
The Czech Environment Ministry recently announced a public tender for an advisor to help prepare the new waste law proposals. It is anticipated that the law will take effect in January 2001 at the latest. The Czech Republic will need to invest in effective technologies for waste separation, environmentally friendly technologies for waste disposal, waste minimization processes and hazardous waste incinerators. In addition to these technologies, basic changes will need to be made to guarantee sustainable environmentally friendly development. Around $4 billion is earmarked for cleanups.
Best sales prospects include the following:
Air Pollution: The Czech market for air pollution control equipment is estimated at $170 million in 1999. The Clean Air Act, fully effective since January 1, 1999, has initiated investment activities unlike anything ever seen in the modern history of the Czech industry. It is estimated that investments into modernization and retrofitting, such as desulfurization, denitrification, cogeneration, fluid beds, conversion into gas, and new technologies, totaled $5 billion within a six-year period (1992-1998). Fulfillment of provisions of the regulation in the given period led to a fundamental improvement in air quality. Dust particles and SO2 emissions were reduced by 90% (compared to 1992); NOX and CO emissions were reduced by 50% (compared to 1992).
- Hazardous sludge and sludge treatment
- Biodegradation
- Chemical technologies for soil cleanup
- Waste minimization technologies for petrochemical/chemical, pharmaceutical, automotive, and machinery industries
- On-site remediation technologies, such as vapor extraction, chemical extraction, electrokinetic remediation (these technologies will be needed for cleanup of polluted industrial sites, such as cokery plants, iron works, chemical works, refineries)
Best sales prospects include the following:
Competition: Companies from competing countries have been present in the market for many years. Either their proximity to the Czech market (Germany, Austria, Netherlands, France), which allows them frequent visits to meet end-users and to participate in exhibitions and conferences, or their proactive approach (Japan, Australia) are decisive factors for their successful bidding in public tenders.
- Systems for improving efficiency of small and mid-size power and heat plants
- Control system for combustion equipment and power and heat management
- Vehicles emission control systems, incl. monitoring and measuring devices
- Low-cost air pollution monitoring equipment
- Laboratory and information processing equipment
Sector Rank: 3
Sector Name: Electrical Power Sector (ELP)
1997 1998 1999 A. Total market size 1,986 2,440 2,550 B. Total local production 1,990 2,400 2,700 C. Total export 555 660 830 D. Total import 551 640 680 E. Import from USA 110 120 130The electrical power sector continues to be one of the most important sectors, offering significant opportunities for U.S. investors. The total sector growth is expected to reach approximately 3-4%. Opportunities will originate from expected sector privatization, market liberalization, modernization of existing power systems, and building new energy sources utilizing gas and renewable sources.
According to a framework energy policy recently approved by the Czech government aimed to harmonize the sector with EU standards, the following major steps are expected: The privatization of regional distribution companies should start in 1999 and should be finished by 2002; in 2000, the new energy law will be adopted; in 2001, the basic strategy for tariff and tax policies will be adopted, followed by price deregulation in 2002; and in 2002, the independent regulatory body will start its operation.
The privatization of state-owned shares in utilities has been postponed since 1995. The market value of the state portion in 16 regional distribution companies is approximately $1 billion. For strategic reasons, distribution companies have to be privatized, together with the 100% state-owned gas importer, Transgas, and the 67% state-owned major electricity producer, CEZ. The privatization process is expected to open opportunities for U.S. investors.
There are also opportunities in projects development. According to the energy policy, the share of gas utilization should increase from 19% to 25%. Several projects, such as the 220 MW combined cycle plant in Uzin, 160 MW single cycle CEZ reserve plant, and 100 MW combine cycle in Prazska teplarenska, are planned to be built between 2000 and 2002. There are also planned co-generation projects for several heating plants (such as Ervenice, Ceske Budejovice, Slezska Energetika) and for energy centers of large industrial plants (such as Deza, Unipetrol, Zdarske strojirny).
The Czech government is expected to increase attention to the use of renewable sources and energy-saving methods of production. The use of renewable sources should grow from the current 1.5% to 6% in 2010. The government plans to support such projects from the state budget, with an investment that will reach approximately $7 billion. Additional investment of $1.2 billion should come from private investors.
Project development is closely related to the tariff policy and market climate. As stated in the energy policy, the Czech market should be gradually liberalized, with the goal to adopt the TPA (third party access) model in the electricity market and so-called negotiated TPA model in the gas market.
Sector Rank: 4
Sector Name: Aircraft and Parts (AIR)
1997 1998 1999 Total market size 166 90 190 Total local production 89 70 180 Total exports 32 92 218 Total imports 109 112 228 Imports from the U.S. 92 94 190The Czech aerospace industry experienced significant consolidation and downsizing over the last year:
In April 1998, a 35% stake of Aero Vodochody, a designer and manufacturer of light combat aircraft, was sold to Boeing.
In September 1998, a 100% stake of the company Technometra Radotin, a manufacturer of hydraulics, landing equipment and landing gears was sold to Aero Vodochody.
In October 1998, a 93.3% stake of LET Kunovice, a designer and manufacturer of turboprop commuters and training gliders, was sold to the Albany, GA-based Ayres Corporation. Ayres is a diversified aerospace company that manufactures Turbo Thrush agricultural aircraft.
The public tender for a 79% stake in the company Walter Jinonice, a designer and manufacturer of turboprop engines, was opened in November 1998. It is expected that results will be announced on or before July 31, 1999. A shortlist includes two U.S. companies.
The Czech Ministry of Defense is seeking to purchase 36 new supersonic fighters to replace outdated Russian aircraft. In April 1999, a letter expressing the Czech Republic's interest was sent to potential suppliers. Contenders include the Boeing F/A-18, Lockheed Martin F-16, French Mirage 2000-5, European Fighter Aircraft (EFA) and British Aerospace/Saab JAS-39 Grippen. The choice of a supplier will depend largely on the offset opportunities offered. The cost of new fighters is estimated at up to $2 billion. It should be noted, however, that current Czech law prohibits direct purchasing by the Ministry of Defense, which is obligated to deal with a third-party Czech agent. This law is presently under consideration to be modified to allow direct government purchasing.
In 1998, the official Czech air carrier Czech Airlines (CSA) planes transported over 1.8 million passengers and 11,800 tons of cargo, and CSA's revenues stood at $400 million. CSA purchased 17 Boeing 737s; 15 have been delivered to date, with 2 more scheduled for arrival in 2000. CSA has signed code-sharing agreements with KLM, Alitalia, Air France, and Malev. A broad alliance cooperation has been signed with U.S. Continental Airlines that covers ground handling, reservations, and TCI (through check-in).
Another Czech air carrier, the private company Fischer Air, operates 3 Boeing 737s, with the third one purchased in May 1999.
The current U.S. share of total imports amounts to 85 percent. Competition comes mainly from Germany, the U.K., Israel, Canada, and France.
Sector Rank: 5
Sector Name: Insurance (INS)$million in premiums written:
1997 1998 1999 A. Total market 1,333.9 1,532.4 1,762.3 Life insurance 352.5 419.8 482.8 Non-life insurance 980.4 1,112.6 1,279.5 B. Total local production 1,133.1 1,285.5 1,478.4 C. Total exports 1,133.1 1,285.5 1,478.4 D. Total imports 199.8 246.9 253.7 E. Imports from United States 18.9 21.8 25.0The insurance sector is developing very dynamically, with high growth rates of 17-20% reached during the last years. In 1998, the insurance market continued to grow despite the current economic recession and pulled in a total of $1.5 billion in premiums, up 16% from 1997. Non-life insurance accounted for 73% of the insurance sector in 1998, with industrial and business risks making up 40.3% out of total premiums. The written premiums in non-life insurance reached $1.1 billion, a 14.7% growth over 1997. Life insurance accounted only for 27% of all insurance sectors in 1998, which is very low compared to the 50% average in EU countries. However, so far life insurance has grown more rapidly than non-life insurance since 1992. In 1998, the written premiums in life insurance reached $419.45 million, a 19.1% growth over 1997.
By Western standards, the Czech Republic is still extremely under insured. The insurance penetration (premiums to GDP ratio) was 2.9% in 1997, far below the EU average of 7.3%. The low level of coverage can be attributed to the high underestimation of the insurance sector during the communist regime. Many Czechs still understand insurance as a service or even an optional luxury, not a necessity. A considerable market still exists for newcomers with a strategy that includes persuading people of the importance of insurance. The market is changing rapidly and is expected to maintain its high-growth dynamics, especially in life insurance. Czech insurance companies predict the dynamics of the sector to be higher than in other European countries, reaching a 13-20% rise in coming years.
The insurance sector has proven its maturity coping with the disastrous floods, which affected one third of the country in 1997. In 1998, the sector was stabilized and insurance companies accumulated a profit of nearly $55.6 million, the best result in 1990s. Total assets of the insurance companies reached $500 million, a 30% rise over 1997. The competition is growing, represented by the increasing number of products offered (over 200 in 1998). In 1998, out of 31 insurance companies operating on the Czech market, 17 were of foreign origin. Ceska Pojistovna, the major Czech insurer, still represents 59% of the market, but its share is gradually decreasing as new insurers penetrate the market. US First American-Czech Insurance Company-AIG, operating in the market for only 6 years, became the ninth largest insurer in the Czech Republic in 1998 and the sixth largest provider of life insurance.
The Czech Parliament is expected to pass an important and long awaited amendment to the insurance law in 1999. It will strengthen state control over the financial stability of insurance companies, leading to the increasing solvency of the insurance market. Under the new law, universal insurers will be divided into separate life and non-life insurers.
New opportunities for insurance companies will be available under a bill recently passed by the Czech Parliament. It will permit private companies to offer compulsory third-party auto liability insurance, effective January 1, 2000. To date, state-owned Ceska Pojistovna has held a monopoly on this type of insurance. The new law will permit the entry of other insurance companies into the market. Access to the owners of the country's 5.8 million private and commercial vehicles, who are required to purchase this coverage, provides brokers with an opportunity to offer other types of insurance products as well. It is a great opportunity for cross selling. There are many opportunities for U.S. insurance companies to enter the Czech market, especially those offering a wide variety of insurance products, including products new to the Czech Republic.
B. Best Prospects for Agricultural Products
1. Soybean Meal
2. Rice
3. Pulses
4. Almonds1. Sector Name: Soybean Meal (HTS Number 230400)
1997 1998 1999 TMT* $million TMT $million TMT $million A. Total market 364 103 440 98 390 70 Size B. Total local 0 0 0 0 0 0 production C. Total exports 0.1 0.1 1 0.4 0 0 D. Total imports 365 103 441 98 390 70 E. U.S. Imports 0 0 22 6 45 8 *Thousand metric tonsClimatic conditions do not favor the production of soybean meal in the Czech Republic, which imports this staple of feed mixtures. As a supplier of soymeal, the United States is expected to gain on its major competitors, Argentina and Brazil, as a result of changes in South American production policies and enhanced relationships between U.S. and Czech traders.
2. Sector Name: Rice (HTS Number 100610-100640)
1997 1998 1999 TMT* $million TMT $million TMT $million A. Total market 43 15 46 17 55 19 Size B. Total local 0 0 0 0 0 0 production C. Total exports 13 5 16 6 10 3 D. Total imports 56 17 62 21 65 22 E. U.S. Imports 7 2 3 1 3 1Imports of rice into the Czech Republic are difficult to track by origin because of transshipment and repackaging. Imports have grown steadily over the past few years and will most likely continue to strengthen in the future due to rising incomes. Per capita consumption of rice in the Czech Republic has been growing during the last several years and is expected to increase this year as well. Czech companies import bulk quantities of rice, which they package domestically. Examples of the wide variety of Czech-packaged rice products include wild rice and rice mixes. Major suppliers of rice are India, Vietnam, Thailand, the United States and Egypt.
3. Sector Name: Pulses -- Peas, Chickpeas, Beans, Lentils (HTS Number 071310-40)
1997 1998 1999 TMT* $million TMT $million TMT $million A. Total market 31 3 36 3 41 5 Size B. Total local 90 9 81 8 78 8 production C. Total exports 73 14 61 12 55 9 D. Total imports 14 6 16 7 18 7 E. U.S. Imports 0.2 0.1 0.1 0.1 0.2 0.1Imports of dry beans, peas and lentils into the Czech Republic are difficult to track by origin because of transshipment and repackaging. Imports have grown steadily over the past few years and will most likely continue to rise in the future due to higher consumption. Attention from the U.S. Dry Bean and Lentils Association and the National Dry Bean Council will be needed to promote the high quality of U.S. pulses in the face of stiff competition from other sources.
4. Name of Sector: Almonds (HTS Number 080211, 080212)
1997 1998 1999 TMT* $million TMT $million TMT $million A. Total market 1 5 1 4 1 3 Size B. Total local 0 0 0 0 0 0 production C. Total exports 0.04 0.2 0.1 0.4 0.1 0.3 D. Total imports 1 5 1 5 1 4 E U.S. Imports 0.9 4 0.8 4 0.9 3Almonds are mostly imported from California, and this year's lower international prices are expected to boost imports of this commodity from the United States.
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Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
