The Czech Republic was created in 1993 when Czechoslovakia split into two countries, the other being Slovakia. The Czech Republic joined the European Union (EU) in 2004 and is considered to be part of the EU8 which consists of eight Central European and Baltic countries who recently acceded into the EU. Many democratic and economic developments occurred in the mid-90s as a result of the split and earlier collapse of the Soviet Union, including the 1992 Czech National Council Act No 299 that supports the creation of small and medium-sized enterprises. The accession into the EU looks to provide new opportunities.

Converging to a Euro based currency will require the Czech Republic to meet a set of criteria defined under the Maastricht Treaty which includes reducing their budget deficit to no more than 3% of GDP. As a result, the Czech government is encouraged to reduce its debt through various programs including further privatization. Additional requirements of the Maastricht Treaty, such as controlled inflation and reduction of national debt, create prime opportunities for entrepreneurs who can take over the government’s role in business and social programs. Joining the EU will facilitate the adoption of trade standards accepted by other EU countries (i.e. ISO9000, labeling practices, licensing, etc), moving them towards economic integration.

However, the government may institute other programs to reduce debt, such as in increase in the value-added tax, which is 19% on most goods.

The country maintains a free market and a generally open economy with little barriers to trade and investment and is a member of the Central European Free Trade Association (CEFTA). The Czech Republic experienced 4.4% growth in their GDP in 2004, and the first quarter of 2005 ended with 4.3% growth. This growth is largely a result of their strong foreign trade, although exports and imports fell during the most recent quarter. Foreign Direct Investment (FDI) almost doubled in 2004 with nearly CZK 115 billion ($4.6 billion) flowing into the country. The Czech Republic is one of the most entrepreneurially active European nations, and the prospects for new business opportunity continue to improve.

Early-stage entrepreneurial activity in the Czech Republic is 7.85%, a high rate among European countries, though low compared to emerging economies in regions such as Latin America (GEM Consortium, 2006).

The government is taking measures to simplify new business creation and legislation governing business while improving access to information concerning statistics and financing opportunities. Additionally, well known organizations such as The Kauffman Foundation offer a wealth of information and analysis to assist current and potential business owners interested in the Czech Republic.

Economic Conditions
The Czech Republic GDP growth rate has ranged from 1-2% in 2007-08. As with many countries during this time period, the Czech Republic is experiencing an economic slowdown and resulting reduced consumption. Private consumption had been growing by 5-6% per year, and is projected to slow to less than 3% for 2008-1020. The good news that this slow-down will help reduce inflation, particularly as energy costs decline. (OECD Economic Outlook). The nation’s major economic partner is Germany, both for export and supply. Economic conditions in Germany impact the Czech Republic, as do currency fluctuations between the Koruna and the Euro.

Monetary Policy
The Czech Republic plans to work towards moving currency to the Euro as part of the nation’s economic strategy, with the earliest possible entry in 2012. Joining the EU currency will limit exchange rate risk for entrepreneurs, and improve comparability to other firms thereby increasing the availability of investment capital for the nation. However, there are risks associated with moving to the Euro. Larger economies in the EU (such as France and Germany) will have a greater influence on the currency, and as such the value can become disconnected from local economic conditions, impacting inflation and international competitiveness.

Government
Recent focused changes in regulatory policy were designed to encourage entrepreneurship. In 2006, major reform was begun to simplify the laws affecting small and medium sized enterprises. The first step was to simplify the registration process, which can now take place in one day, requires one form, and a fairly low fee. The government continues to work on simplifying the labor code to encourage economic openness.

The government actively encourages entrepreneurship, has created policies to facilitate business creation, and makes statistical and funding information widely available. One such source is the Entrepreneur’s Guide to the Operational Programme Enterprise.

Important Resources