13. 1. 201514:07

Eurocentrum seminar: What economic model does the Czech Republic need?

The last Eurocentrum Praha seminar of the year 2014 was held in the European House on Monday 15th December. The topic and also the goal of the seminar was to find the best economic model for the Czech republic with particular emphasis on foreign investment. The two invited speakers were Mr. Ales Chmelar, the Chief Economist at the European Section of the Czech Office of Government, and Mr. Jan Drahokoupil from the European Trade Union Institute.

Mr. Ales Chmelar presented various forecasts of economic development, which echoed since 1989, and stated that reality brought a much slower pace. The development of the Czech economy was primarily influenced, in addition to cyclical factors, by inflow of foreign investment. The inflow peaked around the time of the entry into the EU. However, after the last economic crisis broke out, steep fall of the Czech economy followed in 2008. Mr. Chmelar says that the biggest problem of the Czech economy is, that the Czech Republic doesn’t have significant mineral reserves and isn’t a tax haven. That’s why the FDI were, at least until now, the major stimulus of the GDP growth. “If our country is unable to adapt to the new situation, in which FDI inflow is declining, we may not ever be able to catch up to the EU average.” Mr. Chmelar warned.

The Czech Republic should not depend on FDI only

The Czech Republic was besides the foreign money also the recipient of foreign know-how. In the educational sector, where the know-how is created, the Czech Republic ranks the 23rd of the 28 EU Member States.

In the future, we need to focus on the number of created jobs and to ensure fair competition in the sub-sectors. Mr. Chmelar explained that “…according to the research, the outflow of FDI revenues affects those economic sectors, which are often criticised for insufficient level of competition.” It is also necessary to pay attention to the interdependence of the various sectors of the economy and institutional framework.

Reform of the educational system needed

Acording to Jan Drahokoupil it is necessary to see the decline of direct foreign investments to the Czech Republic in the context of Europe-wide economic decline caused by the cycle factors. The Czech Republic and Slovakia are not less attractive for foreign investors, he argued, just the project that are implemented are less costly. Moreover, the nature of FDI has changed as well. Whereas few years ago whole factories with all the production were transferred to the Central and East European countries, now the service centres are concerned (i. e. call centres, IT support centres etc.) which are not so money and manpower demanding.

“At the time of economic transformation in Central and Eastern Europe the Czech Republic and Slovenia were the most developed countries. Therefore they are not rising economically so fast as Slovakia or Poland,” argues Mr. Drahokoupil. To achieve the economic growth, it is important to focus not only on the exchange rate or cost of labour, as it was the case in former era. “It is crucial to improve the institutional framework and sufficient number of high qualified workers,” claims Mr. Drahokoupil.