Czech Republic Overseas business risk

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1. Political and economic The Czech Republic is amongst the most stable and prosperous markets in Central Europe.

GDP per capita (PPP) stood at £36,700 in 2021, one of the highest in Central and Eastern Europe. Over 80% of Czech exports go to the EU, with Germany alone accounting for around one third of all exports. The UK is the Czech Republic’s fifth largest export market, and its exports to the UK were worth roughly 156 billion CZK (around £5.2 billion) in 2020, dominated by Skoda cars and other manufactured goods.

The Czech economy grew by 2.4% GDP in 2022 and predictions for 2023 economic growth are around zero. Unemployment remains the lowest in the EU. Inflation is expected to have culminated in the first quarter of 2023 and should start falling. The Czech National Bank expects return to the 2% inflation target in 2024.

Czech infrastructure development has not kept pace with the country’s economic growth or indeed the growth in transit traffic. Improvements are coming through but slowly and new investment will take time to show results.

The country has been successful at attracting foreign direct investment (FDI) in recent years. It stands as regional champion in terms of total inward FDI stock, much of it in the financial services sector and automotive industry. The primary sectors for investment are manufacturing, financial institutions, real estate, transport and communication.

The country was the UK’s 29th largest trading partner in the four quarters to the end of Q2 2020 accounting for 0.6% of total UK trade. The outward stock of foreign direct investment (FDI) from the UK in the Czech Republic was £2.1 billion accounting for 0.1% of the total UK outward FDI stock.

UK companies with major operations here include Vodafone, Tesco, John Crane, GSK, Mott MacDonald, Brush SEM, Ricardo, Astra Zeneca and others. A range of high-street names are also present, often through franchises (e.g. Body Shop). The UK is also represented in the financial services sector (e.g. Provident Financial, HSBC and Barclays), and most of the UK’s major law firms have offices here, for example Allen & Overy, Bird & Bird or CMS. Companies such as BAE Systems and Marks & Spencer run their Central and Eastern European operations from Prague.

While most UK companies generally find the legal-business climate conducive, some issues are frequently raised, such as a slow judicial system, complex bureaucracy, ongoing changes to the tax system, and the language barrier. Public procurement is usually done in Czech, so help from local agents could be needed to undergo the process and submit relevant documentation.

Following general elections, the current government was appointed on 17 December 2021 under Prime Minister Fiala of the Civic Democrats (ODS) leading a coalition government with four other parties - TOP09, Christian Democrats, Mayors & Independents (‘STAN’) and the Pirates, all previously in opposition. The government is committed to fiscal responsibility, aiming to slow down the pace of public debt growth caused by the previous government (but the size of public debt itself is not a concern), is in favour of free trade, and EU-oriented.

In summary, the Czech Republic remains an attractive market for UK exports and investment. The Department for Business and Trade (DBT) team at the British Embassy in Prague stands ready to help.