Czech exports: not just machinery and glass

18-12-2003

When you ask about Czech exports, the most common answer will be beer, trams, cars, machinery, and glass. Few people would know about the less usual yet highly successful export items, such as wooden toys, paddles and oars, as well as for example police weapons such as truncheons, and granite and marble tombstones. In some cases, Czech products have a significant share of or dominate local markets in other countries.

The Czech economy is dependant on foreign trade, and exports account for over 60 percent of GDP. Every day, Czech companies export goods and services worth 140 million USD. However, the Czech Republic runs persistent foreign trade deficits.

In 2003, the foreign trade gap is expected to shrink to around 2.1 billion USD from 2.3 billion in 2002. That would be the most favourable foreign trade result since 1999. This comes at a time when Eurozone economies have stagnated or fallen in recession. The Czech Republic now has a positive trade balance with Germany, the country's biggest trade partner, but also with Great Britain, Austria and the Netherlands.

I spoke to Martin Tlapa, the general director of the Czech government's trade promotion agency, CzechTrade, and asked him what this tells about the competitiveness of Czech companies.

"It means that Czech companies are in a good shape for doing business. Czech companies can offer a good combination of quality and price and this is their big advantage. However, it is a temporary advantage, because the labour costs will increase in the future. But we are still profiting from the fact that in many areas, we are able to offer similar solutions and technologies as our competitors from the EU for a better price. This was also behind our success in exports to the EU. We have a trade surplus with most EU countries. In the first ten months of this year, the surplus increased by 70 billion CZK [2.3 billion USD]. There have been many inquiries coming to our office asking for information such as capacity of Czech companies. This is one factor. Another is a relatively stable macroeconomic situation, low inflation, low interest rates, as well as the exchange rate of the Czech koruna to the euro which has been more favourable for Czech exporters than last year."

But many are string using the euro as their main currency in foreign trade. Is this a factor, helping to eliminate exchange rate risks?

"You are absolutely right. There are more and more companies that are using euro as their main payment currency. This helps them avoid changes in the exchange rate. Their number is increasing day by day and we should not be surprised that although we will join euro in 2010, but unofficially, many businesses will be using euro before that. This is natural, because companies buy products from abroad and use euro as a payment instrument, they also use euro among themselves on the internal market and they use euro also in transactions with Russia in many cases. This is normal, it is a smart policy to avoid the exchange rate risks."

Mentioning Russia - Russia used to be the Czech Republic's great trade partner, then Czech companies abandoned the market... Are they returning now when Russia has stabilised and been developing?

"We still have a big deficit with Russia because we buy a lot of natural resources, so the balance is negative for Czech companies. ON the other hand, more and more companies are going to Russia looking for new clients. The future for Czech businesses is not only in exporting to Russia but they should also be ready to invest and to set up a business in Russia, to use local sources for the business. It is still important to check solvency of clients in Russia. On the other hand, I would suggest using different payment instruments, such as letter of credit instead of advance payment. It is a very demanding market which will definitely grow in the coming years and offers a big opportunity for Czech companies. It means though to be ready for long-term investment in Russia, not just selling the products."

The tertiary sector is becoming more and more important, in some countries it accounts for as much as 70 percent of GDP. Is there a trend of increasing exports of services from the Czech Republic?

"Yes, definitely. The share of services in exports has been increasing. There are new promising firms that export not products but services, such as IT solutions - it is a typical example. From my perspective, the share of services in exports is relatively small but I think it is going to increase in the future because we can add some value in many sectors by providing special services and knowledge due to the high level of technical education and knowledge in the Czech Republic."

When you say Czech exports, many people will imagine glass, beer, cars, trams... Are there any unusual successful Czech exports items?

"Yes, there are some unusual items, such as wooden toys that are increasingly popular in the United States and Ireland, for example. We have some other specific products, including small models of cars which we export to the Netherlands. One of the very important export items is blown-glass Christmas tree decorations that are becoming increasingly popular in the United States as well as many EU countries. So, it is not only cars and crystal glass, but also some, I would say, specific products that we are able to produce in the Czech Republic."

18-12-2003