HN: Czech companies looking to export outside EU to cut costs

Prague, July 11 (CTK) - Czech firms want to export outside the EU and decrease costs amid the economic crisis, but former central bank vice-governor Ludek Niedermayer says the effort to penetrate other markets may not be the driving engine of the economy, daily Hospodarske noviny (HN) writes yesterday.

"The effort to penetrate other markets is useful, but it cannot be the driving force of the economy. The model of the economy relying on a relatively cheap workforce may have been outlived and we are slowed down by the unreformed university education or oligopolies in certain branches where there are several big firms with high prices," Niedermayer, who now works with Deloitte firm, said.

Employees' real wages will not grow next year and firms will rather lay off employees, HN writes referring to a survey the Confederation of Industry (SPD), the biggest employer organisation in the country, and the CNB central bank carried out among businesspeople in mid-year.

According to the survey, wages will grow by 1.67 percent this year and by only 1.41 percent next year.

The Czech Banking Association released on Tuesday an outlook predicting inflation at 3.3 percent this year and at 2.4 percent next year, which lowers people's purchasing power, HN writes.

"Firms are decreasing their costs and trying to raise productivity of labour. Domestic demand is declining and there are signals of a dropping demand in the European Union that is of key importance for us," HN quotes Radek Spicar, SPD vice-president, as saying.

Czech businessmen are bothered about the crisis in the euro zone, China's slower growth, the failure to fill the state budget as planned, possible further austerity measures as well as the rising prices of raw materials, HN writes.

Spicar said, however, none of the 200 firms included in the survey plans cuts in investments this year and in 2013.

The use of production capacities is above the EU level and close to Germany's. However, trust in further economic development among Czech businesspeople as well as consumers is lower than in the EU as a whole and in the country's neighbours - Austria, Germany, Poland and Slovakia, Spicar said.

"To keep fast growth of industry is difficult, but the slowing down of economic growth and the situation that is worse than in the neighbouring countries are bad pieces of news. The government should start to be serious about it," Niedermayer said.

"We may have only started to economise earlier (than others) and we may eventually profit from this. It is, however, more probable that the decreasing of the deficit is not proceeding well, it is not economically effective and affects too much pro-growth factors. Consumers, depressed by decreasing incomes and uncertainty, are restricting their purchases," Niedermayer said.

Besides, the Czech Republic ceases to be attractive for foreign investors. The U.N. Conference on Trade and Industry (UNCTAD) announced on Tuesday that the volume of direct investments dropped by 26 percent in 2011 year-on-year, HN writes.

That is why employers as well as trade unions call for pro-growth measures to be taken. "The government has been talking about them for months, but we have seen no concrete steps," Spicar said, adding that the Confederation of Industry has therefore sent its own proposals to the government.

Employers want universities to more cooperate with firms and to be rewarded for this by the state. The SPD also calls for loosening the environment protection legislation that they say is too strict, HN writes.

The SPD also wants the rules for employment of foreigners, particularly designers and engineers with top qualification, to be less strict, and more investment, particularly with the help of European funds, to be made in roads and railways, the paper writes.

"We support the government and its effort to keep public finances under control, but it must not stop at this. Firms are capable of better coping with the current situation when no one puts obstacles in their way. And it need not cost billions of crowns," Spicar said.

The unions have also sent their proposal for reinforcing the Czech economy in which they agree with the SPD in some parts, HN writes.

The unions propose investment in education with regard for industry, encouragement of innovations or investment in infrastructure, HN writes.

But at the same time they want fewer austerity measures, higher taxes for firms and self-employed people and higher welfare benefits, HN writes.

It says the opposition Social Democrats (CSSD) speak similarly.

The government has rejected the unions' proposals and it has not commented on the SPD's document, HN writes.

It quotes the Finance Ministry's spokesman Ondrej Jakob as saying it is ineffective to promote domestic demand, while it is possible to support exports with advantageous credits or state guarantees, for instance.

The government has approved the Strategy of International Competitiveness worked out by the Industry and Trade Ministry and it wants to support the Czech exports' reorientation towards countries outside the EU, HN writes.

"We will focus on three key regions: South America, India and the Middle East," HN quotes Eva Kijonkova, spokeswoman for Vitkovice Holding, as saying.

($1=20.698 crowns)