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Economy And Privatisation


The Czech economy has improved steadily since the fall of Communism in 1989. It leads all former Soviet satellite states in economic growth. The largest component of the Czech Republic's economy is manufacturing followed by services; these sectors account for approximately 40 and 35 percent of GDP respectively. The construction and energy sectors each generate roughly 10 percent of GDP while the smaller agricultural sector accounts for approximately 5 percent. Tourism is one of the most rapidly developing sectors of the Czech economy.

The Czech Republic has become an increasingly popular tourist destinations in Europe. The most frequently visited place is Prague, followed by the West Bohemian spa triangle, which includes Karlovy Vary, Marianske Lázně, and Františkovy Lázně. The many historical castles and chateaux across the country are also popular with tourists. In 1998, over 100 million tourists visited the Czech Republic.

According to the Wall Street Journal's Index of Economic Freedom, the Czech Republic has one of Europe's most open markets. It ranks well ahead of all other former Soviet satellite states. Since the breakup of the Warsaw Pact in 1989, the Czech Republic has pursued extensive economic liberalization, trading mainly with the European Union (EU) and countries of the former Soviet Union. Today, more than one third of its trade is with Germany. The Czech Republic become member of EU on May 1, 2004. It is also a member of the OECD and World Trade Organization.

The public sector consumes about 19 percent of GDP. In 1990, the government initiated a massive privatization program, and has pursued an anti-inflationary monetary policy since 1992. These efforts have allowed the private sector to grow to a point where it now generates between 70 percent and 80 percent of GDP.

All sectors of the economy are open to foreign investment. Currently, in order, Germany, the Netherlands and the United States are the largest investors in the Czech Republic. According to the US Department of Commerce, "An open investment climate has been a key element of the Czech Republic's economic transition. The country's investment grade ratings from the international credit rating agencies and its membership in the prestigious OECD testify to its positive economic fundamentals."

Competition in the Czech Republic's banking system is increasing because there are few barriers to opening either a foreign or domestic bank. Banks also are open to foreign participation; a foreign bank may establish a wholly owned bank, buy into an existing bank, or open a branch.

The market sets most wages and prices; however, the prices of many utilities, rail and bus transport, and rent paid on government-owned housing are still controlled. The Czech Republic imposes few regulations on businesses, and most companies do not need a license to begin operation. In addition, the government is planning to reduce even further its regulations on business activity in order to encourage economic growth.

The Czech Republic traditionally ranks highly among developed industrial nations, with an intensive agriculture industry and a highly qualified labor force. Some of the country's most important industries involve machinery, food processing (including its world-famous beer, special meat products, and quality dairy products), chemicals, steel, electrical engineering and electronics. The textile, footwear, glass and ceramics industries also have a long tradition. Within the context of Central Europe, agriculture contributes relatively little to the GDP, but commodities like pork, beef, poultry, wheat, sugar beet, barley, potatoes, rye, corn, vegetables, hops, and grapes are vital to both domestic and foreign markets.


There was essentially no private sector economy in the Czech Republic during Communist rule, which ended in 1989. The first important step in its development was the restitution of previously nationalized property. In 1990, small-scale businesses, stores and service outlets began to be sold by public auction under the Act on Small Privatization. In addition to these auctions and other traditional methods of privatization such as tenders and public offerings, a unique method of coupon privatization was applied to 1,664 joint-stock companies and to property worth CZK 350 billion- this coupon privatization created about 6 million new individual or corporate shareholders. As a result of these efforts, more than three quarters of the country's GDP is now generated by the private sector.