Exports held Czech economy, most are intra-EU

Published by ČT on 2 March 2024.

The solid production of companies for foreign markets slowed down the decline of the domestic economy. According to analysts, without it, the Czech economy would have declined by more than 0.4 percent last year, as reported by the Czech Statistical Office on Friday. Unlike household spending, the export of Czech goods did not decrease; quite the contrary, actually, it slightly strengthened.

The greatest interest abroad is in Czech engineering, IT technologies, cars, as well as pharmaceuticals and cosmetics. Last year, companies exported products worth CZK 4.432 trillion. The vast majority of Czech businesses export their goods to European Union countries, but they also explore other territories on the Arabian Peninsula, in Africa, or Southeast Asia. Conversely, they have withdrawn from Russia, which two years ago initiated a full-scale war against Ukraine.

The current strategy of Czech exports is meant to be symbolised by new ideas, regions or opportunities. This is the approach taken by the domestic cosmetics company Dermacol, whose cosmetics first went abroad half a century ago. The company still sells in the United States today, exporting just under a third of its products abroad overall.

However, the current management aims to expand. According to the company's director for strategy and development, Vera Komarova, Japan is a target in the current business scope. "You won't meet a woman – not even on the subway – without wearing makeup there. It's not just women who wear makeup, but also men," she explains.

While the company is still finding its way into the Japanese market, it has already found its clientele on the Arabian Peninsula. Higher consumption is also influenced by religious customs – women there remove makeup for prayers and reapply it later.

Saudi Arabia, in particular, is one of the countries where the government agency CzechTrade is opening its office. "Within two months (...), several dozen Czech companies across various industries has approached us," explains the director of the foreign network section. The interest reportedly comes from the construction, healthcare, cybersecurity, and water management sectors.

Apart from the Arabian Peninsula, traders also consider the Far East, Southeast Asia, or Africa as promising, and they expect an increase in exports to the United States, Brazil or Ukraine. Nevertheless, the majority of goods and services are still exported from the Czech Republic to European Union countries.

This also applies to flypaper produced by the Moravian paper company Moudry. Two and a half million of their products went to Spain last year and millions of traps went to Italy, Germany or France. This year, they plan to increase production by ten percent. "We export to more than fifty countries worldwide; 95 percent of our production goes to export," clarified Libor Moudry, the company's CEO.

Just two years ago, more than half of their flypaper ended up in Russia and Belarus. Although these products are not on sanction lists, according to the owners, exports have decreased due to problematic transportation and payments. Therefore, the paper company is looking for new territories, such as Africa.

The weak Czech crown could also help new exports. According to Ladislav Mincic of the Czech Chamber of Commerce, the weak crown is more of an incentive for domestic exports. "I consider it a non-starter that it'd go back to the twenty-four-crown level," he says about the exchange rate of the domestic currency.

Last year, the foreign trade of the Czech Republic ended with a surplus of almost CZK 123 billion, and this year's numbers are expected to be even better – thanks to the weak crown. However, people facing increased costs, such as for holiday, are not happy about it.

"The Ministry of Finance, as do we, expect export growth next year which should contribute to the recovery of mild economic growth," said Minister of Industry and Trade Jozef Síkela (STAN). According to the deputy chairman of ANO, Karel Havlicek, it is more important to monitor the profitability of companies, be it in Germany, China, the United States, or Ukraine.

Domestic exports up since joining EU

The entry of Czech companies into Western markets was facilitated almost twenty years ago by joining the European Union. The Czech economy has gradually approached Western economies in other aspects as well – in 2005, for example, the average annual net income in the Czech Republic was over CZK 154,000, or one-third of the EU average. According to current Eurostat data, two years ago, it was already two-thirds – almost CZK 350,000.

However, prices are also approaching normal values as goods become more expensive. Just ten years ago, the price level in the Czech Republic was at 65 percent of the EU average; two years ago, it was at 84 percent.

In general, incomes are increasing slightly faster, and the purchasing power of Czech citizens is slowly approaching the EU average. According to the latest data, it is at ninety percent relative to the average, similar to Slovenia. Other countries from the former Eastern Bloc fare worse. However, compared to Germany, Czechs can still buy only two-thirds of what residents of the Federal Republic can afford.