COMMISSION STAFF WORKING DOCUMENT Country Report Czechia 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011
Date: 2020-02-26
Institutions: European Commission, Secretariat-General
Subjects: Czechia, economic situation, green economy, investment, labour market, macroeconomics, public finance, social policy, structural adjustment, tax system

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 26.2.2020  SWD(2020) 502 final  COMMISSION STAFF WORKING DOCUMENT Country Report Czechia 2020 Accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE EUROPEAN COUNCIL, THE COUNCIL, THE EUROPEAN CENTRAL BANK AND THE EUROGROUP 2020 European Semester: Assessment of progress on structural reforms, prevention and correction of macroeconomic imbalances, and results of in-depth reviews under Regulation (EU) No 1176/2011 {COM(2020) 150 final}  
 
 
CONTENTS 

Executive summary 

1.  Economic situation and outlook 

2.  Progress with country-specific recommendations 

3.  Reform priorities 

3.1.  Public finances and taxation 
3.2.  Financial sector 
3.3.  Labour market, education and social policies 
3.4.  Competitiveness, reforms and investment 
3.5.  Environmental sustainability 

Annex A: Overview table 

Annex B: Commission debt sustainability analysis and fiscal risks 

Annex C: Standard tables 

Annex D: Investment guidance on Just Transition Fund 2021-2027 for Czechia 

Annex E: Progress towards the Sustainable Development Goals (SDGs) 

References 

LIST OF TABLES 

Table 1.1: 
Table 2.1: 
Table C.1: 
Table C.2: 
Table C.3: 
Table C.4: 
Table C.5: 
Table C.6: 
Table E.1: 

Key economic and financial indicators - Czechia 

Assessment of the 2019 CSR implementation in Czechia (*) 

Financial market indicators 

Headline Social Scoreboard indicators 

Labour market and education indicators 

Social inclusion and health indicators 

Product market performance and policy indicators 

Green growth 

Indicators measuring Czechia’s progress towards the SDGs 

1 

3 

7 

14 

17 

17 
20 
23 
31 
44 

49 

56 

57 

63 

65 

70 

13 
15 
57 
58 
59 
60 
61 
62 
65 

 
 
 
 
LIST OF GRAPHS 

Gross National Income per person, in purchasing power standards (% of EU average) 

Potential GDP and drivers 

Evolution of labour productivity 

Unemployment and job vacancies 

Real GDP growth and its components 

Investment by sector as a share of GDP 

Breakdown on the nominal unit labour cost 

Private and public investment, quarterly profile 

Evolution of household debt and housing loans 

Overall multiannual implementation of 2011-2019 CSRs to date 

Graph 1.1: 
Graph 1.2: 
Graph 1.3: 
Graph 1.4: 
Graph 1.5: 
Graph 1.6: 
Graph 1.7: 
Graph 1.8: 
Graph 1.9: 
Graph 2.1: 
Graph 3.1.1:  Structure of environmental taxes (% of GDP) 
Graph 3.2.1:  Number of started and completed housing projects (12 month moving average) 
Graph 3.2.2:  Evolution of housing loans and mortgages 
Graph 3.3.1: 
Labour market developments 
Graph 3.3.2:  Evolution of labour shortages 
Graph 3.3.3:  Difference in reading scores between advantaged and disadvantages schools 
Graph 3.3.4:  Groups at risk of poverty or social exclusion 
Graph 3.4.1:  Composition of Czech exports, % of total 
Graph 3.4.2:  Venture Capital in 2018 as a share of GDP 
Graph 3.4.3:  Completed km of highways 
Graph 3.4.4:  Business churn in selected sectors in 2017 
Graph 3.4.5:  Regional Competitiveness Index 2019 
Graph 3.5.1:  Energy intensity in selected countries 
Graph 3.5.2:  Final energy consumption by sector and production by source 
Graph 3.5.3:  Greenhouse gas emissions per capita 
Graph 3.5.4:  Coal regions in Czechia 

LIST OF BOXES 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social Rights 

Box 3.4.3: The National Development Fund 

Box 3.4.4: Automation and Artificial Intelligence in Czechia 

Box 3.4.5: Investment challenges and reforms in Czechia 

2 

7 
7 
8 
8 
9 
9 
10 
10 
11 
14 
17 
21 
22 
23 
23 
27 
29 
32 
32 
36 
39 
39 
44 
45 
46 
48 

24 
33 
37 

24 

 
 
 
 
 
EXECUTIVE SUMMARY 

Czechia’s ability to diversify its economy will be 
crucial  for  maintaining  a  solid  catch-up  in 
(1).  The 
living  standards 
industry-intensive 
economy,  underpinned  by  trade  openness  and 
foreign investment has allowed Czechia to steadily 
catch  up  with  the  rest  of  the  EU.  However,  this 
growth  model  may  have  reached  its  limits.  The 
direction  of  the  economy  will  depend  on  its 
capacity to diversify and increase productivity and 
the value added of its products and services, while 
remaining an attractive destination for investment. 
Future growth also depends on Czechia’s ability to 
face  the  challenges  associated  with  population 
ageing, 
ensuring 
technological  change  and 
environmental  sustainability.  Factors  such  as:  (i) 
the  low investment in sustainable transport and in 
the  transition  to  low-carbon  energy  sources;  (ii)  a 
moderate  performance  in  domestic  research  and 
innovation;  and  (iii)  acute 
labour  and  skill 
shortages,  are  a  major  structural  obstacle  to  a 
transition. 
socio-economic 
successful 
Implementing  these  structural  reforms  would  help 
Czechia achieve further growth in living standards 
and ensure a sustainable development. 

in  2019 

Economic  growth  is  set  to  slow  down  in  the 
coming  years.  According  to  the  Commission’s 
Winter 2020 Forecast, real GDP growth continued 
to  2.5%,  reflecting 
to  slow  down 
international developments. A solid wage increase 
in  a  tight  labour  market  continues  to  support 
consumer  spending  as  the  main  driver  of  growth. 
The slowdown in foreign demand has led to a drop 
in private investment and a much lower increase in 
exports and imports. In the context of a stagnating 
industrial production, economic growth is expected 
to slow down further up to 2021. 

There are no short-term risks to public finances 
but  the  long-term  outlook  is  worsening  due  to 
ageing-related  costs.  In  the  short-term,  public 
finances are expected to remain in balance and the 
public  debt  is  expected  to  fall  to  around  30%  of 
GDP. On the other hand, a lack of concrete action 
to  deal  with  increasing  ageing-related  costs  puts 

(1)  This  report  assesses    Czechia’s  economy  in  light  of  the 
European  Commission’s  Annual  Sustainable  Growth 
Strategy,  published  on  17  December  2019.  In 
this 
document, the Commission sets out a new strategy on how 
to address not only the short-term economic challenges but 
also  the  economy's  longer-term  challenges.  This  new 
economic agenda of competitive sustainability rests on four 
dimensions:  environmental  sustainability,  productivity 
gains, fairness and macroeconomic stability.  

increasing pressure on the long-term sustainability 
of public finances. 

rate 

employment 

reached  80% 

The  labour  market  remains  strong,  but  labour 
and skills shortages and continuous increases in 
unit  labour  costs  may  hinder  further  growth. 
The 
and 
unemployment  is  at  a  record  low.  However, 
persistent labour shortages are a cause for concern. 
Low unemployment levels pushed wages upwards, 
increasing  the  unit  labour  costs  and  potentially 
reducing  overall  cost-competitiveness.  In 
the 
medium  term,  a  continuous  increase  of  wages 
above labour productivity growth could reduce the 
profitability  of  companies  and  adversely  affect 
investment.  Despite  some  improvements,  the  low 
skilled,  older  people  and  people  with  disabilities 
are still not fully integrated into the labour market, 
partly  because  active  labour  market  policies  are 
not well targeted and tailored. Female participation 
in  the  labour  market  is  hindered  by  the  lower 
availability of affordable childcare. The integration 
of foreign workers into the labour market is also a 
challenge.  

Czechia  has  made 
addressing 
the 
recommendations. 

limited  progress 

in 
country-specific 

2019 

There has been some progress in: 

 

 

the 

removing 
the 
barriers 
development  of  a  fully  functioning  innovation 
ecosystem; 

hampering 

increasing  the  quality  and  inclusiveness  of  the 
education  and  training  systems,  including  by 
technical  and  digital  skills  and 
fostering 
promoting the teaching profession; 

  supporting  more  quality-based  competition  in 

public procurement. 

There has been limited progress in: 

 

focusing  investment-related  economic  policy 
on transport, notably on its sustainability digital 
infrastructure,  and  low  carbon  and  energy 
transition,  including  energy  efficiency,  taking 
into account regional disparities; 

  adopting pending anti-corruption measures; 

3 

 
 
                                                           
 

fostering  the  employment  of  women  with 
young children, including by improving access 
to  affordable  childcare,  and  of  disadvantaged 
groups; 

 

reducing 
investment. 

the 

administrative  burden  on 

There has been no progress in: 

 

improving long-term fiscal sustainability of the 
pension and health-care systems. 

Overall,  Czechia  performs  well  on  the  Social 
Scoreboard  supporting  the  European  Pillar  of 
Social Rights. The employment rate is among the 
highest in the EU and the unemployment rate is the 
lowest.  Yet,  there  is  still  scope  to  improve  access 
to  the  labour  market  for  women  and  vulnerable 
groups. The gender pay gap is also still one of the 
widest in the EU. While the share of people at risk 
of  poverty  or  social  exclusion  is  comparatively 
low,  poverty  remains  high  in  some  areas  and  for 
some  population  groups.  The  rate  of  early  school 
leaving  remains  below  the  EU  average.  While 
levels of basic digital skills are higher than the EU 
average,  further  efforts  to  promote  advanced 
digital  skills  will  be  needed  to  fully  capture  the 
benefits of the digital transformation. 

Czechia has met, or is on track to meet national 
targets  in  most  areas  under  the  Europe  2020 
strategy.  This  includes  targets  for  poverty,  social 
exclusion, 
energy, 
greenhouse  gas  emissions  and  higher  education. 
However, the targets for public R&D spending and 
for early school leaving have not yet been reached. 

employment, 

renewable 

Overall,  Czechia  is  making  progress  on  the 
United Nations Sustainable Development Goals. 
It has made at least moderate progress in all areas, 
particularly in eliminating poverty. However, more 
progress is needed on climate action (SDG 13) and 
gender equality (SDG 5) (2). 

(2)   Within the scope of its legal basis, the European Semester 
can help drive national economic and employment policies 
towards the achievement of the United Nations Sustainable 
Development  Goals  (SDGs)  by  monitoring  progress  and 
ensuring  closer  coordination  of  national  efforts.  The 
present report contains reinforced analysis and monitoring 
on the SDGs. A new annex (Annex E) presents a statistical 
assessment of trends in relation to SDGs in Czechia during 
the past 5 years, based on Eurostat’s EU SDG indicator set. 

4 

Key structural issues analysed in this report, which 
point 
for  Czechia’s 
economy, are the following: 

to  particular  challenges 

  There is a lack of action to ensure the long-
term sustainability of public finances. While 
the  authorities  acknowledge  that  long-term 
sustainability  is  an  increasing  problem  and 
while  they  have  discussed  pension  reform,  the 
government  recently  decided  not 
link 
expected  gains  in  life  expectancy  with  the 
statutory retirement age for the next 5 years or 
implement  alternative  measures.  The 
to 
projected  rise 
in  age-related  spending  on 
healthcare also puts the long-term sustainability 
of  public  finances  at  risk  and  there  may  be 
scope  to  increase  the  cost-effectiveness  of 
health and care services. 

to 

  Labour 

taxation 

remains  high  while 
taxes  are 
property  and  environmental 
among  the  lowest  in  the  EU.  Taxation  of 
labour is high, particularly for people with low 
and 
wages. 
low, 
taxes  have 
environmental 
despite the  significant increase in  house prices 
and the high carbon intensity of the economy. 

Conversely, 

remained 

property 

  Despite  slowing  down,  rising  house  prices 
are  making  housing  less  affordable.  Various 
indicators  suggest  that  the  housing  market  is 
overvalued by 10-20%.  Strong price  growth is 
due  to  supply  constraints  coupled  with  an 
increasing  demand  for  housing  in  large  cities. 
A  proposed  new  construction  code  may  help 
simplify  and  accelerate  construction-related 
procedures.  Although 
the 
housing  loan  stock  slowed  in  2019,  partly  due 
to  the  implementation  of  the  central  bank’s 
macroprudential 
rising 
property  prices  may  be  a  risk  to  financial 
stability in the medium term. 

recommendations, 

the  growth  of 

  The  social  protection  system  shows  some 
weaknesses.  Older  people,  the  unemployed, 
single parents, and people with disabilities, are 
at a higher risk of poverty or social  exclusion. 
Factors 
over-indebtedness, 
as 
homelessness  and  a  growing  number  of 
socially  excluded  areas  contribute  to  poverty 
and  inequality.  The  health,  social  and  long-

such 

 
 
                                                           
term  care  services  are  also  not  fully  prepared 
for an increasingly ageing population. 

  Educational 

are 

outcomes 

negatively 
affected  by  the  limited  attractiveness  of  the 
teaching  profession,  and  by  socio-economic 
inequalities  and  low  investment.  There  is  a 
shortage  of  teachers  due  to  low  job  prestige, 
limited  development  opportunities  and  lower 
wages compared to other professions of similar 
levels.  Public  spending  per 
qualification 
student  at  all  education 
remains 
comparatively low. While early school leaving 
declined  at 
regional 
disparities  further  increased.  Socio-economic 
status continues to affect educational outcomes 
and access to higher education. 

the  national 

levels 

level, 

  Progress 

in 

the 

is  below 

infrastructure 

transport 
improving 
infrastructure is sluggish, hampering private 
investment.  The  level  of  public  investment  in 
transport 
the  EU 
average  and,  therefore,  the  transport  network 
has  significant  gaps.  Uneven  development  and 
connectivity  primarily  affect  the  south  and  the 
northeast of the country. The recently unveiled 
National  Investment  Plan 
to 
address  some  of 
investment  gaps. 
these 
However, the plan does not sufficiently address 
increasing 
sustainable  mobility,  given 
the 
greenhouse  gas  emissions  from 
transport. 
There  are  plans 
innovative 
to  use  some 
including  public-private 
financing  options, 
partnerships, but, so far, the country has limited 
experience  in  using  this  type  of  financial 
instrument. 

is  supposed 

  Some  barriers  to  entrepreneurship  and 
competition point to a suboptimal allocation 
of  resources.  The 
regulatory  burden  on 
professional  services  and  professions  is  an 
to  growth  and  competitiveness. 
obstacle 
Business  dynamism  is  back  to  pre-crisis  level, 
but  remains  weak.  Fast-changing  legislation 
and  complex  administrative  procedures  are 
seen  by  most  firms  as  major  obstacles  to 
further 
less-
developed regions.  

investment,  particularly 

in 

  Domestic 

innovation 

for 
supporting  a  sustainable  economic  growth 
model.  Czechia  remains  a  moderate  innovator 

important 

is 

reforms 

improve 

at  EU  level,  despite  some  progress  in  recent 
years. Public investment is not underpinned by 
research 
systemic 
to 
the 
performance  and  cooperation  between 
private sector and academia. On the back of an 
insufficient  number  of  graduates  in  science, 
engineering  and  computing  as  well  as  skills 
innovation  performance  of 
shortages, 
domestic  firms  and  the  technology  transfer 
remain rather low.  

the 

  Support 

for 

innovative  domestic 

firms 
remains  limited.  The  promotion  and  support 
of  entrepreneurship  remains  low,  hampering 
productivity  growth.  Foreign  investment  has 
been  a  major  contributor  to  the  country’s 
growth  but  spillovers  to  the  domestic  firms 
have  been  limited.  Czech  firms  are  highly 
integrated  in  global  and  regional  value  chains 
but their main focus is still on low value added 
activities, particularly in manufacturing. While 
some  successful  innovative  initiatives  were 
brought  to  market,  venture  capital  and  equity 
capital  remain  very  low.  There  are  plans  to 
increase  financial  support  to  innovative  firms, 
particularly those delivering higher value added 
products 
the 
services. 
insolvency  framework  could  also  enhance 
economic efficiency. 

Improving 

and 

  New 

to 

digital 

affected 

strongly 

technologies 

provide 
opportunities  for  the  economy  to  become 
more  innovative.  As  the  automotive  industry 
remains a backbone of the economy, Czechia is 
expected 
by 
be 
technological  change.  Driven  by 
foreign 
investment, robotisation is already a significant 
component  of  the  Czech  economy.  Recently, 
automation and artificial intelligence have also 
become  major  policy  priorities,  but  progress 
remains  to  be  seen.  Adequate,  efficient  and 
sustainable  investment  in  skills  is  needed  to 
support  and  reap  the  benefits  of  a  broader 
economic change.  

  Czech  regions  have  different  challenges. 
While  richer  regions  suffer  from  housing 
unaffordability  and  pressures  on  the  suburban 
transport  networks,  the  poorest  areas  face 
remoteness,  demographic  pressures,  social 
focus  on 
exclusion,  and  an 

insufficient 

5 

 
 
in 

low. 

them 

the  mining  sector 

away  from  coal  is  expected  to  impact  the 
regions  where 
is  still 
important. The use of low-carbon technologies 
can  ease  the  transition,  but  the  ambition  to 
invest 
Identifying 
remains 
investment  needs  in  green  technologies  and 
sustainable  solutions,  and  securing  adequate 
funding  will  be  key  to  deliver  on  the  climate 
and energy objectives and shape a new growth 
model.  The  Commission’s  proposal  for  a  Just 
Transition  Mechanism  under  the  next  multi-
annual  financial  framework  for  2021-2027, 
includes  a  Just  Transition  Fund,  a  dedicated 
just  transition  scheme  under  InvestEU,  and  a 
new  public  sector 
the 
European  Investment  Bank.  It  is  designed  to 
ensure  that  the  transition  towards  EU  climate 
neutrality  is  fair  by  helping  Czechia’s  most 
affected  regions  to  address  the  social  and 
economic  consequences.  The  Just  Transition 
Fund’s key priorities, set up as part of the Just 
Transition Mechanism, are set out in Annex D. 
They  build  on  the  analysis  of  the  transition 
challenges outlined in this report. 

loan  facility  with 

important  areas  such  as  energy 
innovation, and digitisation.  

transition 

the  civil  service, 

  Improving  the  performance  of  the  public 
sector  is  crucial  for  economic  change.  The 
professionalism  of 
the 
transparency  of  government  and  controlling 
corruption  all  fall  below  the  EU  average. 
Despite  significant  progress,  so  does  e-
government. Czechia also has one of the largest 
regional  variations  in  terms  of  quality  of 
governance.  Although  the  public  procurement 
framework is improving, it may warrant further 
fine-tuning. Some anti-corruption measures are 
still awaiting adoption.  

  Czechia  is  facing  difficulties  in  reaching 
climate  neutrality and in transitioning from 
solid  fossil  fuels.  The  country  still  relies 
heavily  on  solid  fossil  fuels  with  high  CO2 
emissions.  The  use  of  renewable  energy  is 
below  the  EU  average,  as  the  sector  lacks  the 
appropriate legal and institutional framework to 
support its further development.  The transition 

6 

 
 
 
1.  ECONOMIC SITUATION AND OUTLOOK 

Economic growth 

the  decelerating 

The  economy  continued  to  grow  at  a  more 
moderate pace than in 2018, reflecting external 
developments. In 2019, the economy is estimated 
to have grown at 2.5% (Commission Winter 2020 
Forecast),  continuing 
trend 
observed in 2018 (2.8%). Private consumption was 
the  main  driver  of  growth,  supported  by  a 
continuous  and  strong  wage  increase  in  a  tight 
labour market. By contrast, investment decelerated 
sharply in 2019. Net exports are estimated to have 
contributed  to  growth,  but  the  slowdown  in 
external demand and geopolitical uncertainties led 
to a lower increase in both imports and exports. 

Graph 1.1: 

Real GDP growth and its components 

reduce the demand from the main trading partners. 
This  is  particularly  relevant  for  a  small  open 
economy like Czechia. The tight labour market and 
the  resulting  high  wage  growth  can  pose  an 
increasing  risk  to  the  cost-competitiveness  of 
exports. With the lowest unemployment rate in the 
EU  and  the  highest  job  vacancy  rate,  the  labour 
market  risks  overheating.  The  increase  in  real 
wages (5.3% in 2018) and unit labour costs (6.3% 
in  2018)  and  the  subdued  growth  in  productivity 
(with  sector-specific  variations)  point  in  that 
direction. There were nevertheless signs of a slight 
ease in both  labour shortages and  wage  growth in 
the  first  half of 2019. Finally, the green transition 
for  a  highly  industrialised  and  carbon-intensive 
that  of  Czechia  may  require 
economy 
significant investment. 

like 

Graph 1.2:  Gross National Income per person, in 
purchasing power standards (% of EU 
average) 

Source: AMECO, Commission Winter 2020 Forecast 

An  economic  slowdown  is  expected  in  coming 
years,  mirroring developments in  main trading 
partners.  In  2020  and  2021,  the  economy  is 
projected to continue to  grow at a slower pace, at 
2.1%  and  2.2%  respectively  (Commission  Winter 
2020  forecast).  Domestic  demand  growth  will 
moderate  but  is  likely  to  remain  the  main  growth 
driver.  Investment  is  expected  to  decelerate  in 
2020. Czechia’s exports and imports will continue 
to  be  strongly 
the  economic 
influenced  by 
developments of its main trading partners.  

Global  developments,  trade  uncertainties,  a 
tight  labour  market  and  the  transition  to  a 
greener  economy  pose  challenges  to  growth. 
Ongoing  geopolitical  tensions  are  expected  to 

7 

Source: AMECO 

Economic convergence towards the EU average 
continues.  Foreign  direct  investment,  driven  by 
geographical proximity and wage competitiveness, 
and  the  inflow  of  EU  funds  has  been  boosting 
productivity  growth  and  employment  since  the 
2000s.  Convergence  halted  throughout  the  2009 
recession but since 2013 it has picked up again at 
relatively fast and constant rates, reaching 88%  of 
the  EU  average,  similar  to  some  older  Member 
States  (see  Graph  1.2).  Looking  ahead,  growth 
rates  are  forecast  to  be  around  one  percentage 

-8%-6%-4%-2%0%2%4%6%8%03040506070809101112131415161718192021InventoriesInvestment (GFCF)ConsumptionNet exportsReal GDP growthForecast4050607080901000001020304050607080910111213141516171819CzechiaHungaryPolandSlovakiaPortugalSpain 
 
     
        
1. Economic situation and outlook 

point (pp.) above the euro area average, continuing 
the convergence process. 

Graph 1.3: 

Potential GDP and drivers 

reflected  in  some  related  indexes.  Consumer 
confidence  remains  relatively  high  but  has  been 
decreasing since the beginning of 2019. Combined 
with  potentially  higher  interest  rates,  this  might 
encourage  households  to  reduce  consumption  and 
increase  precautionary  savings,  partly  offsetting 
the wage effect.  

Graph 1.4: 

Private and public investment, quarterly profile 

Source: European Commission 

Potential  output  is  set  to  slowly  decline  and 
converge  towards  real  GDP  growth.  After 
remaining  constant  in  2017  and  2018  at  2.9%, 
potential growth is expected to decline to 2.5% by 
2021,  due  to  labour  market  developments  (see 
Graph  1.3).  This  will  translate  into  the  closing  of 
the output gap from 1.4% in 2018 to 0.3% in 2021. 
Slower  employment  growth,  notably  in  terms  of 
hours  worked,  and  high  but  more  moderate  wage 
growth  suggest  that  the  business  cycle  may  have 
reached  its  peak.  This  should  reduce  inflationary 
pressures.  Looking  ahead,  population  ageing  will 
lead  to  a  continued  decline  in  the  working-age 
population, putting additional pressure on potential 
growth. In this context, a further deepening of the 
capital stock and  investments in intangible capital 
and  high  value-added 
technologies  can  help 
diversify  the  economy  and  improve  potential 
growth. 

Household  consumption  continues  to  be  the 
main  growth  driver,  but  is  set  to  slow  down  in 
coming  years.  High  employment  levels  coupled 
increase  of  real  wages  and  gross 
with  an 
disposable 
income  have  boosted  household 
consumption.  While  high  employment  and  wage 
increases  will  continue  to  support  consumption, 
trade 
global 
uncertainty are expected to have a negative impact 
on  production  and  confidence  indicators,  already 

developments 

increased 

and 

Source: Eurostat 

After  two  very  positive  years,  investment  was 
more  restrained  in  2019.  Following  a  growth  of 
3.7%  in  2017  and  7.6%  in  2018,  investment  is 
estimated to have increased by only 1.1% in 2019 
and is projected to grow by 1% in 2020 (European 
Commission  Autumn  2019  forecast).  Private 
investment  has  decreased  in  2018,  particularly  in 
machinery.  The  economic  slowdown  in  the  main 
trading  partners  and  the  global  trade  tensions 
translated  into  a  decreasing  number  of  orders  and 
very  weak 
The 
manufacturing Purchasing Managers’ Index (PMI) 
has  decreased  to  the  lowest  levels  in  the  last 
decade – from almost 60 points at the end of 2017, 
to below 45 at the end of 2019. Public investment, 
accounting  for  around  15%  of  total  investment, 
grew solidly in 2018 due to an inflow of EU funds, 
but  then  significantly  slowed  down  in  2019  (see 
Graph 1.4). 

confidence 

indicators. 

Investment  activity  remained  above  the  EU 
average  thanks  to  the  manufacturing  sector.  In 
2018,  investment  activity  remained  above  the  EU 
average:  25.5%  of  GDP  compared  to  20.9%  (see 
Graph  1.5).  It  increased  in  most  sectors,  but 

8 

-2.0-1.00.01.02.03.04.05.06.0070809101112131415161718192021222324Rate of change y-o-y (%)Capital Accumulation ContributionTFP ContributionTotal Labour (Hours) ContributionPF Potential Growth-12%-7%-2%3%8%13%10Q110Q311Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q317Q117Q318Q118Q319Q119Q3y-o-y %Public investmentPrivate investmentTotal investment 
     
     
1. Economic situation and outlook 

Commission  Autumn  2019  forecast  points  to  a 
gradual worsening of the export market share as of 
2019. At the same time, it predicts a slowdown in 
nominal wage growth to 5.2% in 2019 and 4.7% in 
2020  as  well  as  in  unit  labour  costs  (to  3.7%  in 
2019 and 1.1% in 2020).  

especially 
in  manufacturing  and  construction. 
Labour  shortages  and  wage  increases  have  made 
investment  in  automation  a  priority  for  firms, 
their 
particularly 
competitiveness  and  counter  the  demographic  and 
technological changes ahead.  

in  manufacturing, 

to  keep 

Graph 1.5: 

Investment by sector as a share of GDP 

Graph 1.6: 

Breakdown on the nominal unit labour cost 

Source: Eurostat 

Source: AMECO 

Competitiveness and productivity 

levels  pushed  wages 
Low  unemployment 
upwards,  potentially  reducing  overall  cost-
competitiveness.  Nominal  wages  per  employee 
increased by 8% in 2018 following a 6.3% growth 
in  2017,  significantly  above  the  EU  average  of 
2.7%. The minimum wage was further increased in 
2020 by CZK 1,250 to a total of CZK 14,600. As 
overall  productivity  growth  lagged  behind  wage 
growth,  unit  labour  costs  increased  by  6.3%  in 
2018,  up  from  3.6%  in  2017  (see  Graph  1.6), 
significantly  higher than the  EU average  of 2.5%. 
A  continuous  increase  of  wages  above  labour 
productivity  growth  could  reduce  the  profitability 
of companies, translating into higher consumer and 
export  prices,  and  affect 
investment 
behaviour in the medium term.  

their 

Increasing  labour  costs  have  not  yet  translated 
into  a  loss  of  export  market  share.  Until  2018, 
Czechia has managed to keep and even increase its 
export market share, partly due to worsening world 
exports compared with Czech exports. In absolute 
terms, the growth of Czech exports is estimated to 
in  2019.  The  European 
have  gone  down 

Labour  productivity  has  been  increasing  but 
the gap with other advanced economies persists.  
At 12.8%, the growth of the gross value added per 
hour  worked  between  2010  and  2018  has  been 
above  the  EU  average  (8%),  but  below  some 
neighbouring countries such as Poland (26.5%) or 
Slovakia  (17%)  More  broadly,  since  2000,  it 
increased by 55.9%, compared to 23.2% in the EU. 
This  equates  to  an  average  annual  growth  rate  of 
3.1%, significantly above the EU average of 1.2% 
(see  Graph  1.7).  The  productivity  gap  between 
Czechia  and  the  EU  decreased  from  59%  in  2000 
to  48%  in  2018.  Similarly  the  gap  to  Germany 
decreased from 69% to 59% but most of the catch-
up took place before 2009.  

The  contribution  of  manufacturing  to  the 
economy  remains  very  high.  With  one  of  the 
highest  contributions  of  manufacturing  to  GDP 
(23.1%),  Czechia  ranks  above  the  other  Visegrad 
countries  as  well  as  the  EU  average  (14.3%  of 
GDP). The automotive sector is the largest branch 
of the Czech industry in  terms of output. In 2017, 
it accounted for around 25% of gross total output, 
18%  of 
total 
employment  and  35%  of  total  exports  in  the 

total  value  added,  13%  of 

9 

051015202530TotalBusinessGovernmentHouseholds% GDPCzechiaEU-28V4-8-6-4-2024681004050607080910111213141516171819*20*21*Rate of change y-o-y (%)Inflation (GDP deflator growth)Real Compensation per EmployeeProductivity Contribution (negative sign)Nominal unit labour costULC in EU28 
         
     
1. Economic situation and outlook 

vacancy rate remains significantly high (see Graph 
1.8). The employment rate of the low skilled is still 
lagging  behind  that  of  the  medium  and  high 
skilled.  Furthermore,  gender  inequalities  in  pay 
and  employment  remain  high  and  there  is  further 
scope  to  improve  the  employment  outcomes  of 
people with disabilities. 

Graph 1.8: 

Unemployment and job vacancies 

Source: Eurostat 

Inflation and monetary policy 

Inflation  increased  in  2019 but  is  set  to  decline 
towards the 2% target by 2021. Consumer price 
inflation  reached  2.6%  in  2019.  The  increase, 
which took place mainly in the second half of the 
year, was mostly due to the rise in food prices and 
regulated prices. The trend is likely to continue in 
the  first  half  of  2020,  mainly  due  to  new  excise 
duties for alcohol and tobacco. In the second half it 
is  expected  to  ease  due  to  a  slower  growth  of 
prices  for  food,  electricity,  imported  goods  and 
services. As a result, inflation is forecast to drop to 
2.4%  in  2020  and  2.0%  in  2021  (Commission 
Winter 2020 Forecast). 

The  exchange  rate  has  remained  rather  stable 
after the marked appreciation throughout 2017. 
The  nominal  effective  exchange  rate  depreciated 
slightly  throughout  2018  and  the  beginning  of 
2019.  In  January  2020  it  witnessed  a  significant 
appreciation  to  the  highest  level  since  the  end  of 
the  exchange  rate  commitment.  The  real  effective 
exchange  rate  has  also  shown  a  similar  trend. 
currency 
There 

currently 

signs 

are 

of 

faces 

(Polish  Economic 

the  most  productive  sectors 
it 

industry 
Institute,  2019). 
Significant  inflows  of  foreign  investment  boosted 
productivity  growth  and  the  automotive  sector  is 
in 
now  among 
manufacturing.  However, 
several 
challenges,  including  global  trade  uncertainties, 
labour  shortages,  revised  CO2  standards  and 
increasing  global  demand  for  electric  cars.  While 
not  yet  reflected  in  exports,  which  remain  robust, 
these  challenges  place  the  industry  at  a  critical 
juncture,  calling 
for  strategic  changes  and 
investment  in  equipment  and  automation  to  keep 
the  sector  competitive  and/or  create  first-mover 
advantages. 

Graph 1.7: 

Evolution of labour productivity 

(1) calculated as GVA per hour worked in PPS 
Source: Eurostat 

Labour market 

the 

EU 

strong 

average 

labour  market  performance 
The 
continues  but  may  reach 
limits.  The 
its 
employment rate of those aged between 20 and 64 
reached 80.4% in Q3-2019, 6.3 pps above  the EU 
average.  The  activity  rate  (82.1%)  was  also  well 
above 
The 
unemployment rate dropped further to around 2%, 
making Czechia the best performer in the EU. The 
labour market expansion may have already reached 
its 
the 
surrounding  region.  Despite  slightly  easing  in 
2019,  the  shortage  of  skilled  labour  persists,  with 
many  firms  advancing  automation  and  relying  on 
their  vacancies.  The 
foreign  workers 

in  Prague  and 

in  particular 

(78.8%). 

to  fill 

limits, 

10 

0%10%20%30%40%50%60%70%10011012013014015016017018019000010203040506070809101112131415161718SlovakiaCzechiaHungaryPolandEUCzechia vs EU (rhs)Czechia vs Germany (rhs)05010015020025030035040045010Q110Q311Q111Q312Q112Q313Q113Q314Q114Q315Q115Q316Q116Q317Q117Q318Q118Q319Q119Q30.01.02.03.04.05.06.07.08.09.0Thousands% Unemployed persons (rhs)Total number of job vacancies (rhs)Quarterly unemployment rate (lhs) 
   
         
1. Economic situation and outlook 

undervaluation, considering fundamentals, and the 
real  effective  exchange  rate 
to 
appreciate further in the medium term, as incomes 
catch up with the rest of the EU (IMF, 2019). 

is  expected 

position without non-defaultable debt reached 32% 
of  GDP  in  Q3-2019,  4  pps  higher  than  in  2018, 
indicating 
that  Czechia  does  not  have  a 
problematic debt profile. 

The  policy  rate  was  raised 
to  2.25%, 
significantly  above  the  euro  area.  After  seven 
hikes between July 2017 and November 2018, the 
policy  rate  was  kept  rather  stable  in  2019,  with  a 
single hike to 2% in May 2019. Somewhat against 
market  expectations,  in  February  2020  it  was 
raised to 2.25%. The rate is likely to remain rather 
stable  in  the  coming  quarters,  but  its  movement 
will depend on future economic developments.  

External position 

Czechia’s trade balance remains high, despite a 
slight  contraction.  More  dependency  on  energy 
imports  and  a  lower  goods  surplus  led  to  a 
contraction of the trade balance surplus to 6.3% of 
GDP in 2018, 1.3 pps lower than in 2017. This left 
the current account balance at 0.3% of GDP in Q3-
2019, 0.2 pp above the fundamental benchmark (3). 
Weaker external demand, particularly in Germany 
and  in  other  euro  area  countries,  as  well  as 
geopolitical  uncertainties  and 
the  continued 
appreciation  of  the  real  effective  exchange  rate 
throughout 2018 were the main factors behind the 
slowdown  in  exports.  On  the  other  hand,  strong 
domestic  demand  led  to  an  increase  of  imports  of 
more  than  5%  (compared  to  the  4.4%  increase  in 
exports), further reducing the balance. Imports are 
nevertheless  expected  to  drop  significantly  in  the 
coming years due to a slowdown in production and 
investment, maintaining a positive external balance 
until 2021 (Commission Autumn 2019 forecast).  

Housing market and private indebtedness 

Housing  prices  continue  to  grow,  reducing 
affordability.  Supply  constraints  and  strong 
demand  have been pushing  house prices upwards, 
particularly  in  the  biggest  cities.  Although  price 
growth  flattened  off  in  2019,  it  remains  above 
wage  growth,  reducing  affordability.  Burdensome 
planning  procedures  continue  to  limit  housing 
supply,  which  is  not  expected  to  meet  demand  in 
the near future, despite an increase in construction 
(see Section 3.2). 

Graph 1.9: 

Evolution of household debt and housing loans 

Source: European Central Bank and European Commission 

international 

The  net 
investment  position 
continued to improve. It reached -19% of GDP in 
Q3-2019,  well  above  the  prudential  benchmark  (-
57%).  It  increased  by  5.2%  year-on-year,  mainly 
due  to  nominal  GDP  growth  and  an  improvement 
of 
liabilities  from  banks.  This 
represents a sizeable increase compared to 2011 (-
45% of GDP), largely driven by growth in reserve 
assets. External liabilities comprise mostly foreign 
direct  investment  (-50%).  The  net  investment 

the  external 

(3)  The  benchmark  is  derived  from  reduced-form  regressions 
capturing  the  main  determinants  of  the  saving-investment 
balance, 
(e.g. 
demography, resources), policy factors and global financial 
conditions. See also Coutinho, Turrini and Zeugner (2018). 

fundamental  determinants 

including 

to  61.4% 

in  2018,  but 

Household  debt  is  increasing  but  does  not  yet 
pose  a  systemic  risk  to  the  banking  sector. 
Household  debt  as  a  share  of  disposable  income 
remains 
increased 
significantly  below  the  EU  average  (100.6%). 
Similarly, household debt to GDP remained below 
both  the  fundamental  benchmark  (44%)  and  the  
prudential  threshold  (70%),  reaching  32%  in  the 
first  half  of  2019,  significantly  below  the  EU 
average  (53%) (4).  The  total  value  of  loans  for 

(4)  Fundamentals-based  benchmarks 

from 
regressions  capturing  the  main  determinants  of  credit 
growth and taking into account a given initial stock of debt. 
Prudential  thresholds  represent  the  debt  threshold  beyond 
which the probability of a banking crisis is relatively high. 

are  derived 

11 

05,00010,00015,00020,00025,00030,00035,00040,00045,00050,000010203040506070020304050607080910111213141516171819*mill EUR% GDPLoans for house purchase (rhs)Household debt to GDPPrudential threshold (HH debt to GDP)Fundamental benchmark (HH debt to GDP) 
                                                           
        
                                                           
1. Economic situation and outlook 

Public finances 

in 

from 

the  short 

Public  finances  are  expected  to  remain  in 
balance 
term.  The  general 
government balance has been in surplus since 2016 
due to a steady increase  in revenues,  mostly from 
indirect  taxes.  Value-added  tax  (VAT)  collection, 
in  particular,  has  benefited 
improved 
compliance. New revenue measures are also likely 
to  be  put  in  place  in  the  next  years  (see  Section 
3.1).  Nonetheless,  public  expenditure  is  expected 
to grow more rapidly, mostly due to the continuous 
increase  in public  wages and  pensions. Growth in 
public  investment  is  also  likely  to  remain  robust, 
as  the  current  programming  period  for  EU  funds 
enters  its  final  years.  In  line  with  the  shrinking 
general balance, the structural balance is expected 
to  move  into  negative  territory.  By  contrast,  the 
debt-to-GDP  ratio  will  continue 
to  decrease, 
reaching  around  30%  of  GDP  by  2021 
(Commission Autumn 2019 forecast). 

is 

to 

risk 

the  main 

The  long-term  sustainability  of  public  finances 
remains  a  concern.  The  increase  in  pension 
expenditure 
long-term 
sustainability.  Measures  taken  in  recent  years  and 
changes 
have 
worsened 
long-term  budgetary  outlook. 
Despite  these  concerns,  the  government  recently 
decided not to increase the retirement age above 65 
years  or  to  link  the  retirement  age  with  life 
expectancy gains (see Section 3.1). 

demographic 

projections 

in 
the 

Progress with Sustainable Development Goals 

Overall,  Czechia  performs  well  with  regard  to 
the  United  Nations’  Sustainable  Development 
Goals. In the past 5 years it showed at least some 
moderate progress in all areas (Annex E). It is one 
of the top performing Member States in areas such 
as  eliminating  poverty  (SDG  1)  and  reducing 
inequalities (SDG 10). The share of people at risk 
of  poverty  is  significantly  below  the  EU  average, 
while the level of inequality (measured by the Gini 
coefficient)  is  among  the  lowest.  The  country  is 
still  lagging  behind  in  terms  of  gender  equality 
(SDG 5), as the gender gap in employment and pay 
is  among  the  highest  in  the  EU.  Despite  some 
progress in the past 5 years, Czechia also struggles 
in reaching the targets on climate (SDG 13), as its 
energy-intensive  economy continues to emit some 
of the highest greenhouse gas emissions per capita 
in the EU. 

house  purchase,  which  represent  around  three 
quarters  of  all  loans  to  households,  continued  to 
increase  throughout  2018  and  the  first  half  of 
2019. However, the volume of new mortgages saw 
a marked decrease in 2019 (-16.9%), as a result of 
limited  housing  supply,  reduced  affordability,  and 
the  new  macro-prudential  recommendations  put 
forward  by  the  central  bank  (see  Section  3.2). 
Rising property prices and the non-legally binding 
nature  of 
the  central  bank  macroprudential 
recommendations may still pose a risk to financial 
stability in the medium term. 

Social developments 

While  the  overall  risk  of  poverty  is  low,  some 
challenges  remain.  12.2%  of  the  population  was 
at risk of poverty or social exclusion in 2018 (EU 
average  21.9%).  Overall  income  inequality  has 
remained 
recent  years. 
Nonetheless,  there  are  some  concerns  about  the 
affordability of housing, personal indebtedness and 
homelessness  of  certain  population  groups. 
Inequalities  of  opportunities  for  children  persist 
(see Section 3.3). 

low  and  stable 

in 

Regional disparities  

Regional  disparities  indicate  a  clear  division 
between  Prague  and  the  rest  of  the  country. 
Prague  is  a  highly  developed  region  whose  GDP 
per capita is 187% of the EU average. Six regions 
are  considered  as  moderately  developed  (between 
73%  and  84%  of  EU  average),  while  one  region 
(Severozápad) stands out as being poorer (63% of 
the  EU  average).  While  the  growth  rate  in  most 
regions  has  been  above  the  EU  average,  the  GDP 
per  capita  in  Severozápad  grew  by  only  0.16% 
between 2010 and 2017.  

Productivity is converging to the EU average at 
different  speeds.  While  productivity  in  Prague  is 
around  50%  higher  than  the  national  average,  in 
Severozápad  it  is  23%  lower.  In  all  regions  but 
Prague  and  Střední  Čechy,  labour  productivity  is 
the  EU  average.  While, 
less 
productivity  growth  has  been  above  the  EU 
average 
in  Severozápad  and 
Moravskoslezsko  the  increase  was  more  marginal 
(see Section 3.4). 

in  all  regions, 

than  half  of 

Methodologies  and  proposals  for  updates  are  described  in 
European Commission (2017 and 2018). 

12 

 
                                                                                   
1. Economic situation and outlook 

Table 1.1: 

Key economic and financial indicators - Czechia 

(1) Domestic banking groups and stand-alone banks, EU and non-EU foreign-controlled subsidiaries and EU and non-EU 
foreign-controlled branches. 
(2) NIIP excluding direct investment and portfolio equity shares. 
(3) The tax-to-GDP indicator includes imputed social contributions and hence differs from the tax-to-GDP indicator used in the 
Section on taxation. 
(4) Defined as the income tax on gross wage earnings plus the employee's social security contributions less universal cash 
benefits, expressed as a percentage of gross wage earnings. 
Source:  Eurostat and ECB as of 4-2-2020, where available; European Commission for forecast figures (Winter forecast 2020 for 
real GDP and HICP, Autumn forecast 2019 otherwise) 

13 

2004-072008-122013-1620172018201920202021Real GDP (y-o-y)6.00.22.54.42.82.52.12.2Potential growth (y-o-y)4.51.62.02.92.92.82.72.5Private consumption (y-o-y)3.70.52.44.33.2...Public consumption (y-o-y)0.1-0.22.01.33.4...Gross fixed capital formation (y-o-y)7.4-1.82.03.77.6...Exports of goods and services (y-o-y)18.14.24.86.74.4...Imports of goods and services (y-o-y) 15.72.94.95.95.9...Contribution to GDP growth:Domestic demand (y-o-y)3.9-0.32.13.24.0...Inventories (y-o-y)0.7-0.50.20.1-0.4...Net exports (y-o-y)1.41.00.21.1-0.8...Contribution to potential GDP growth:Total Labour (hours) (y-o-y)0.5-0.10.71.11.00.90.70.5Capital accumulation (y-o-y)1.00.70.50.60.70.70.70.7Total factor productivity (y-o-y)3.11.10.91.21.21.21.31.3Output gap3.3-0.4-1.41.31.41.10.60.3Unemployment rate7.26.45.62.92.22.12.22.3GDP deflator (y-o-y)2.00.91.61.42.62.62.31.8Harmonised index of consumer prices (HICP, y-o-y)2.32.70.72.42.02.62.42.0Nominal compensation per employee (y-o-y)6.02.32.36.48.05.24.74.4Labour productivity (real, person employed, y-o-y)4.60.31.52.81.5...Unit labour costs (ULC, whole economy, y-o-y)1.32.00.83.66.53.73.02.8Real unit labour costs (y-o-y)-0.71.0-0.82.13.81.10.70.9Real effective exchange rate (ULC, y-o-y)3.71.8-2.05.88.00.41.30.8Real effective exchange rate (HICP, y-o-y)3.12.1-1.53.94.30.40.90.1Net savings rate of households (net saving as percentage of net disposable income)6.46.96.44.46.0...Private credit flow, consolidated (% of GDP)7.03.52.74.25.3...Private sector debt, consolidated (% of GDP)51.367.370.567.370.8...of which household debt, consolidated (% of GDP)18.228.831.029.732.3...of which non-financial corporate debt, consolidated (% of GDP)33.138.539.637.638.4...Gross non-performing debt (% of total debt instruments and total loans and advances) (2)...2.51.9...Corporations, net lending (+) or net borrowing (-) (% of GDP)-3.1-1.2-0.3-1.1-1.6-1.1-0.7-0.7Corporations, gross operating surplus (% of GDP)29.128.930.229.928.027.927.727.6Households, net lending (+) or net borrowing (-) (% of GDP)1.62.32.00.31.41.92.63.1Deflated house price index (y-o-y)4.7-1.03.89.16.2...Residential investment (% of GDP)3.63.83.53.94.0...Current account balance (% of GDP), balance of payments-3.2-2.30.41.70.30.50.91.1Trade balance (% of GDP), balance of payments1.83.56.37.76.3...Terms of trade of goods and services (y-o-y)-0.5-0.71.0-1.00.0-0.20.20.2Capital account balance (% of GDP)0.30.91.50.80.3...Net international investment position (% of GDP)-27.9-43.8-34.4-25.0-23.5...NENDI - NIIP excluding non-defaultable instruments (% of GDP) (1)17.98.720.727.028.3...IIP liabilities excluding non-defaultable instruments (% of GDP) (1)30.742.253.470.668.2...Export performance vs. advanced countries (% change over 5 years)77.230.0-1.05.69.7...Export market share, goods and services (y-o-y)10.0-0.91.71.61.70.9-1.2-1.3Net FDI flows (% of GDP)-4.8-1.7-1.1-0.9-1.7...General government balance (% of GDP)-2.0-3.7-0.81.61.10.2-0.1-0.3Structural budget balance (% of GDP)..-0.11.10.5-0.3-0.4-0.4General government gross debt (% of GDP)27.936.741.034.732.631.530.730.1Tax-to-GDP ratio (%) (3)34.433.234.435.436.236.436.737.0Tax rate for a single person earning the average wage (%) (4)23.322.923.324.224.6...Tax rate for a single person earning 50% of the average wage (%) (4)18.714.315.417.218.2...forecast 
 
  
 
2.  PROGRESS WITH COUNTRY-SPECIFIC RECOMMENDATIONS 

of 

all 

59% 

Since  the  start  of  the  European  Semester  in 
2011, 
country-specific 
recommendations (CSRs) addressed to Czechia 
have  recorded  at  least  ‘some  progress’  (5). 
‘Limited’ or ‘no progress’ has been made on 41% 
of  the  CSRs  (see  graph  2.1).  In  several  areas 
Czechia  made  ‘substantial  progress’  or  reached 
‘full implementation’. For example, there has been 
substantial progress in fighting against tax evasion 
and strengthening the fiscal framework. 

Graph 2.1:  Overall multiannual implementation of 2011-

2019 CSRs to date 

(1) The overall assessment of the country-specific 
recommendations related to fiscal policy excludes 
compliance with the Stability and Growth Pact. 
(2) 2011-2012: Different CSR assessment categories. 
(3) The multiannual CSR assessment looks at the 
implementation since the CSRs were first adopted until the 
February 2020 Country Report. 
Source: European Commission 

to 

ensure 

adequacy  but 
long-term 

In a multiannual assessment, Czechia has made 
limited  progress  in  improving  the  long-term 
sustainability  of  public  finances.  Most  measures 
lacked 
focused  on  pension 
safeguards 
fiscal 
sustainability.  The  Czech  authorities  now  expect 
that  public  expenditure  on  pensions  will  increase 
up  to  14.5%  of  GDP  in  2059.  The  projected 
increase  in  age-related  public  expenditure  on 
healthcare  also  puts  pressure  on  the  country’s 
long-term  fiscal  sustainability.  Still,  a  number  of 
initiatives 
the 
healthcare system.  

the  efficiency  of 

improved 

Some  progress  has  been  made  in  increasing 
labour 
for 
underrepresented  groups.  The  number  of 

participation 

market 

(5)  For  the  assessment  of  other  reforms  implemented  in  the 

past, see in particular Section 3. 

childcare  facilities  increased  thanks  to  EU  funds, 
supporting  women’s  labour  market  participation. 
Due  to  ineffective  targeting  and  a  lack  of  tailored 
measures,  progress  in  improving  the  effectiveness 
of  active  labour  market  policies  was  limited, 
preventing 
the  underrepresented  groups  from 
benefiting  from  the  favourable  conditions  of  the 
labour market. 

limited  progress  (6) 

Czechia  has  made 
in 
addressing the 2019 CSRs.  No progress has been 
made  in improving the long-term sustainability of 
public  finances.  Still,  some  limited  progress  in 
improving  the  health-care  system  was  noticed. 
Progress  with 
anti-corruption 
measures has been limited as some of the pending 
measures were not yet adopted by the government 
or  approved  by  the  Parliament.  There  was  also 
limited  progress  in  supporting  the  employment  of 
women  with  young children and of disadvantaged 
groups.  

adopting 

the 

of 

contracting 

There has been some progress in addressing the 
recommendations  related  to  education,  public 
procurement  and  innovation.  Efforts  to  support 
quality-based competition have intensified and the 
agencies 
professionalisation 
Innovation 
increased.  The 
the 
Strategy  aims 
development 
innovation 
ecosystem  but  progress  remains  to  be  seen. 
Automation  and  artificial  intelligence  have  also 
become policy priorities for the government. Some 
progress  was  achieved  on  education,  in  particular 
in  promoting  the  teaching  profession  and  digital 
skills. 

recently  adopted 
to 

remove  barriers 
functioning 

of 

to 

a 

on 

focusing 

Progress 
investment-related 
economic policy and on reducing administrative 
burden was more limited. The recently approved 
National  Investment  Plan  for  2020-2050  allocates 
a significant amount of investment to road and rail 
transport infrastructure. Investments in low carbon 
and  energy 
low. 
transition  are  still 
Administrative burden remains a barrier but a new 
construction  law  is  being  developed  and  expected 
to become effective as of 2021. 

rather 

(6)  Information  on  the  level  of  progress  and  actions  taken  to 
address the policy advice in each respective subpart of the 
CSRs is presented in the Overview Table in the Annex A. 
This overall assessment does not include an assessment of 
compliance with the Stability and Growth Pact. 

14 

No Progress7%Limited Progress34%Some Progress32%Substantial Progress20%Full Implementation7% 
   
                                                           
                                                           
2. Progress with country-specific recommendations 

Table 2.1: 

Assessment of the 2019 CSR implementation in Czechia (*) 

Source: European Commission 

(*) The assessment of CSR 3 does not take into account the contribution of the EU 2021-2027 cohesion policy funds. The 
regulatory framework underpinning the programming of the 2021-2027 EU cohesion policy funds has not yet been adopted 
by the co-legislators, pending inter alia an agreement on the multiannual financial framework (MFF). 

Upon  request  from  a  Member  State,  the 
Commission  can  provide  tailor-made  expertise 
via the Structural Reform Support Programme 
implement  growth-
to  help  design  and 
enhancing reforms. Since 2016, such support has 
been provided to Czechia for 30 projects. In 2019, 
several projects have been delivered on the ground. 
the 
The  Commission, 
authorities  in  simplifying  the  permit  process  in 

for  example,  assisted 

order  to  accelerate  the  building  of  the  Trans-
European Transport Network infrastructure, in the 
preparation  of  the  SMEs  Support  Strategy  2021+, 
and  in  improving  the  administrative  capacity  for 
tax  collection  though  e-services.  In  2019,  work 
started  on 
in 
education outcomes, on increasing the affordability 
of  housing  across  regions  and  on  defining  a 
national strategy for the Circular Economy. 

regional  disparities 

reducing 

15 

Czechia Overall assessment of progress with the 2019 CSRs: Limited progress  CSR 1: Improve long-term fiscal sustainability of the pension and health-care systems. Adopt pending anti-corruption measures.       Limited progress  No progress in improving long-term fiscal sustainability of the pension and health-care systems.  Limited progress in adopting pending anti-corruption measures.  CSR 2: Foster the employment of women with young children, including by improving access to affordable childcare, and of disadvantaged groups. Increase the quality and inclusiveness of the education and training systems, including by fostering technical and digital skills and promoting the teaching profession.       Limited progress  Limited progress in fostering the employment of women with young children, including by improving access to affordable childcare, and of disadvantaged groups.  Some progress on increasing the quality and inclusiveness of the education and training systems, including by fostering technical and digital skills and promoting the teaching profession.  CSR 3: Focus investment-related economic policy on transport, notably on its sustainability, digital infrastructure, and low carbon and energy transition, including energy efficiency, taking into account regional disparities. Reduce the administrative burden on investment and support more quality-based competition in public procurement. Remove the barriers hampering the development of a fully functioning innovation ecosystem.       Some progress  Limited progress on focusing investment-related economic policy on transport, notably on its sustainability, taking into account regional disparities.  Limited progress on focusing investment-related economic policy on digital infrastructure, taking into account regional disparities.  Limited progress on focusing investment-related economic policy on low carbon and energy transition, including energy efficiency, taking into account regional disparities.  Limited progress on reducing the administrative burden on investment.  Some progress on supporting more quality-based competition in public procurement.  Some progress on removing the barriers hampering the development of a fully functioning innovation ecosystem.   
  
 
 
2. Progress with country-specific recommendations 

16 

Box 2.1: EU Funds and programmes to address structural challenges and to foster growth and competitiveness in CzechiaCzechia is one of the countries that benefits most from EU support. The financial allocation from the EU Cohesion Policy funds (1) amounts to around €29 billion in the current Multiannual Financial Framework, equivalent to 2.2% of annual GDP. By the end of 2019, €23.8 bn (82% of the total amount planned) was allocated to specific projects, while €10.7 bn was reported to have been spent on the selected projects (2), showing a level of implementation below average. Current programmes allocated €4.3 bn for smart growth, €10.9 bn for sustainable growth and transport and €5.6 bn for inclusive growth. Following a performance review in 2019 (3), an additional €1.5 bn was made available for priority areas. While reducing economic, social and territorial disparities to ensure a more even economic development, EU Cohesion Policy funding is helping to transform the Czech economy. European Regional Development Fund (ERDF) and Cohesion Fund (CF) projects promote growth and employment through investments in research, technological development and innovation, competitiveness of business, sustainable transport, employment and labour mobility. By 2019, a total of 1,082 km of roads were built or modernised at regional level and connected to the TEN-T network. 2,705 businesses, including 46 start-ups, received support, leading to the creation of 1,817 new jobs. The funds also helped reduce greenhouse gas emissions by over 76,000 tons of CO2. European Social Fund (ESF) projects helped create social enterprises and increased labour market participation of the long-term unemployed and low-skilled people, including around 8,900 people belonging to minorities such as Roma and 8,000 people with disabilities. It also triggered structural reforms by providing childcare for 18,000 children up to the age of 6 and inclusive education in 6,000 participating schools. Agricultural and fisheries funds and other EU funds and programmes also help address the country’s investment needs. Alongside the €3.8 billion allocation from the European Agricultural Fund for Rural Development (EARDF) and the €41 million from the European Maritime and Fisheries Fund (EMFF), Czechia receives funding from various other EU programmes. The Connecting Europe Facility allocated €970 million to projects focused on strategic transport networks, while through the Horizon 2020 programme the country received funding totalling €341 million, including €51 m for 137 SMEs. EU funding helps mobilise considerable private investment. The programmes under the European Structural and Investment Funds (4) mobilised additional capital, by allocating about €490 million in the form of loans, guarantees and equity.  EU funds already invest substantial amounts on actions to meet the Sustainable Development Goals (SDGs). In Czechia, European Structural and Investment Funds support 13 out of the 17 SDGs and up to 96% of the expenditure is contributing to those.                                                            (1) European Regional Development Fund, Cohesion Fund, European Social Fund, Youth Employment Initiative, including national co-financing. (2) https://cohesiondata.ec.europa.eu/countries/CZ (3) The performance review is regulated by Article 22 of the Regulation (EU) No 1303/2013, whereby 5-7% of overall resources allocated are released to performing priority axes of the operational programmes (the amount includes national co-financing). (4) European Regional Development Fund, Cohesion Fund, European Social Fund, European Agricultural Fund for Rural Development Fund and European Maritime and Fisheries Fund.  
 
 
 
 
  
 
 
3.  REFORM PRIORITIES 

3.1.  PUBLIC FINANCES AND TAXATION 

Taxation 

Public  finances  remain  in  balance  and  the 
public  debt  continues  to  decrease.  Due  to  the 
robust  economic  growth,  2019  is  estimated  to  be 
the fourth consecutive year with a positive general 
government balance. However, the general balance 
is  expected  to  turn  slightly  negative  as  of  2020. 
The general debt as a share of GDP has dropped to 
almost 30% - one of the lowest in the EU. 

Tax  revenues  reached  a  new  high  in  2018  but 
remain  below  the  EU  average.  Their  level 
increased from 35.4% of GDP in 2017 to 36.1% in 
2018.  While  the  figure  remains  3.1  percentage 
points  (pps)  below  the  EU  average,  the  gap  has 
narrowed  (5  pps  in  2009).  Nonetheless,  Czechia 
continues to have one of the EU’s lowest shares of 
tax revenues as a share of GDP. The Commission 
Autumn  2019  forecast  projects  only  a  slight 
increase  in  tax  revenues  by  2021,  pending  the 
adoption of some new measures.  

The  contribution  of  direct  taxes  to  total 
revenues  remains  significantly  below  the  EU 
average.  Whereas  direct  taxes  in  the  EU  in  2018 
accounted  for  13.4%  of  GDP  and  34.3%  of  total 
tax  revenue,  in  Czechia  they  only  amounted  to 
8.0%  of  GDP  and  22.2%  of  total  tax  revenue. 
Receipts  from personal income  tax are among the 
lowest in the EU, accounting for only 12% of total 
tax  revenue  (vs  24.2%  in  the  EU  in  2018),  while 
receipts  from  corporate  income  tax  (around  3.5% 
of  GDP)  are  among  the  highest  in  the  EU  (EU 
average  2.7%  of  GDP).  A  possible  personal 
income tax reform has been put on hold.  

since 

increased 

VAT  collection  has 
the 
electronic  registration  of  sales  was  introduced. 
At  7.7%,  the  share  of  VAT  receipts  in  GDP  was 
above  the  EU  average  of  7.1%  in  2018  and  1  pp 
higher than in 2010. Tax evasion, as measured by 
the  VAT  compliance  gap,  is  estimated  to  have 
declined  to  around  12%  in  2018,  7 pps  below  the 
2013  estimates  and  roughly  in  line  with  the 
unweighted  EU  average  (Center  for  Social  and 
Economic Research, 2019). The rollout of the final 
two phases of the electronic registration of sales in 
2020  is  expected  to  further  boost  the  VAT 
revenue. In 2019, Czechia was authorised to apply 

the  generalised  reverse  charge  mechanism  for 
VAT  between  2020  and  2022  for  transactions 
above €17,500. 

to 

to 

apply 

corporations 

The  authorities  plan  to  introduce  a  new  digital 
services  tax.  Pending  Parliament  approval,  the 
proposed  7%  tax  on  selected  digital  services  is 
supposed 
that 
cumulatively  have  a  global  turnover  of  over  €750 
million, a turnover on the Czech market of over €4 
million  and  more  than  200,000  user  accounts  in 
Czechia.  The 
include 
advertisement  campaigns,  the  use  of  multi-sided 
digital  interfaces  and  the  sale  of  user  data.  
According  to  the  authorities,  it  is  a  transitional 
measure to be applied until a general agreement on 
digital taxation at the global or  European level is 
reached.  

taxable  services  will 

Graph 3.1.1:  Structure of environmental taxes (% of GDP) 

Source: Eurostat 

Receipts from environmental taxes are very low 
and  have  been  decreasing.  Only  €25  million  in 
pollution  and  resources  taxes  were  collected  in 
2018,  one  of  the  lowest  amounts  in  the  EU  and 
only  about  half  of  the  amount  collected  in  2010. 
Most  receipts  were  from  energy  taxes,  although 
these have seen a decrease in the share of GDP in 
the  past  10  years  (see  Graph  3.1.1).  Transport 
taxes  are  also  very  low  and  vehicle  taxes  is  not 
based on CO2 emissions. Despite the  high carbon 
intensity  of  the  economy,  there  are  no  concrete 
plans to increase environmental taxes. 

17 

0.000.501.001.502.002.503.00CZEU-28CZEU-2820082018Energy taxesTransport taxesPollution/Resources taxes 
    
3.1. Public finances and taxation 

side  effect,  increase  the  time  needed  to  comply 
with  consumption  tax  rules.  In  addition,  some 
measures to be implemented in 2020, such as VAT 
exemptions for intra-community supplies of goods 
and, to a lesser extent, a lower VAT rate for certain 
goods and services, may also drive up compliance 
costs.  It  is  nevertheless  possible  that  these  effects 
will  be  reabsorbed  once  businesses  learn  how  to 
best deal with the new requirements. 

Debt sustainability analysis and fiscal risks  

The Czech Fiscal Council issued two reports on 
long-term  sustainability  and  on  compliance 
with the rules of budgetary responsibility. Based 
on an assessment done by the Ministry of Finance, 
local 
the  Fiscal  Council 
governments  are  compliant  with 
the  debt 
management 
in  2017.  Three 
imposed 
municipalities  did  not  meet  their  obligation  but 
remedied the situation within the given timeline.  

concluded 

rules 

that 

Short-  and  medium-term  fiscal  sustainability 
risks  are  low.  The  general  government  debt  is 
expected to remain significantly below the 60% of 
GDP threshold, reaching around 30% in 2021. As 
a result, the medium-term fiscal sustainability risk 
indicator (S1) is at -2.9 pps of GDP (see Annex B). 

out 

2.8 pps for 

of  which 

The  long-term  sustainability  of  public  finances 
remains  a  concern.  Total  ageing  costs  are 
expected to increase by 6.2 pps between 2016 and 
pension 
2070, 
expenditures,  1.1 pps for  healthcare  expenditures 
and  1.6 pps for 
long-term  care  expenditures, 
putting  the  long-term  fiscal  sustainability  risk 
indicator  (S2)  at  a  medium  risk.  The  increase  in 
pension  expenditure  is  the  main  risk  to  long-term 
sustainability.  The  statutory  retirement  age  was 
capped  at  65  years  for  both  men  and  women  and 
expected  gains 
life  expectancy  are  not 
automatically taken into account by the system.  

in 

Recent policy measures have focused mostly on 
pension  adequacy.  The  government  has  decided 
to  increase  pensions  in  2020  above  the  standard 
indexation  formula,  generating  an  additional  cost 
of  0.1  %  of  GDP.  According  to  the  Czech  Fiscal 
Council,  expenditure  on  pensions  will  peak  in 
2059  at  13.2%  of  GDP,  4.8  pps  above  the  2020 
figure. By 2059, the number of old-age pensioners 
is estimated to increase by around one third. 

Property taxes are among the lowest in the EU. 
While  deemed  less  harmful  to  growth  than  other 
taxes,  receipts  in  2018  were  only  0.6%  of  GDP 
(2.5%  in  the  EU).  Recurrent  taxes  on  immovable 
property  are  particularly  low  at  0.2%  of  GDP 
(1.5% in the EU). Despite the significant increase 
in house prices (see Section 3.2), these taxes have 
remained constant since 2005. 

Labour  taxation  for  low  wage  earners  is  high. 
The  tax  wedge  on  labour  costs  for  low  wage 
earners  is  among  the  highest  in  the  EU  (3  pps 
above  the  EU  average).  Contrary  to  the  overall 
trend  in  the  EU,  the  wedge  has  slightly  increased 
since  2009.  It  is  relatively  high  for  single  people 
with children and relatively low for couples with a 
single  earner.  Combined  with  relatively  high 
childcare costs, it can lead to lower labour market 
participation of low-wage and second earners (see 
Section  3.3).  Meal  vouchers  provided  to  low-
income earners somewhat compensate the high tax 
burden. 

the  cap  for 

The  self-employed  continue  to  benefit  from  a 
lower  assessment  base  for  social  contributions. 
the 
The  authorities  are  currently  discussing 
possibility  of  easing 
lump-sum 
expenses  and  increasing  the  pension  contribution 
requirements but  no concrete  proposals have been 
presented  yet.  As  any  new  proposal  will  most 
likely  be  voluntary, 
the  contrast  between 
employees and  the self-employed  will  most likely 
continue. 

Authorities plan to increase the digitalisation of 
the tax system. For certain types of taxes, the rate 
of electronic filing remains rather low. Significant 
progress has been made between 2015 and 2018 in 
the  case  of  VAT,  where  the  share  of  electronic 
forms  increased  from  45%  to  85%,  or  in  the  case 
of  corporate  taxation  where  the  share  grew  from 
50%  to  90%.  By  contrast,  e-filing  of  personal 
income tax returns accounts for only 15% of all tax 
returns  (up  from  3%  in  2014)  and  in  the  case  of 
just  slightly  above  5%. 
property 
to 
Authorities  are  currently  discussing  plans 
further digitalise the filing system. 

tax 

is 

it 

Tax  compliance  costs  for  businesses  remain 
high. The time needed to prepare and pay taxes is 
still high and has not significantly improved in the 
past  years (World Bank, 2019a). In particular, the 
recent  reforms  to  combat  VAT  evasion  may,  as  a 

18 

3.1. Public finances and taxation 

for  outpatient  care 

While  funding 
is  high, 
avoidable  hospital  admissions  for  some  common 
conditions  (e.g.  diabetes  and  congestive  heart 
failure)  are  higher  than  the  EU  average.  This 
points  to  weaknesses  in  the  prevention  of  risk 
factors and the management of chronic conditions, 
and  insufficient  integration  of  healthcare  services. 
Despite some initiatives, primary care doctors still 
do  not  play  a  gatekeeping  role.  Patients  may 
consult  specialists  directly  without  any  user  fees, 
which  partly  explains  the  comparatively  high 
number  of  outpatient  consultations  (8.0  contacts 
per person compared to an EU average of 6.2).  

The  cost-effective  use  of  medicines,  medical 
devices  and  equipment 
in  hospitals  and 
outpatient  care  is  less  than  optimal.  The  full 
introduction  of  e-Prescription  in  2019  has  the 
potential  to  improve  the  use  of  pharmaceuticals 
and  their  related  expenditure.  Further  developing 
and  implementing  health  technology  assessments 
together  with  centralised  procurement  procedures 
for  pharmaceuticals  and  other  medical  and  non-
medical  goods  may  generate  savings  to  payers, 
while  ensuring  access  to  high-quality  products  in 
the health system.  

and 

governance 

Fragmented 
financing 
structures  hinder  the  adequate  and  efficient 
provision  of  long-term  care  services.  Financial 
incentives  still  exist  for  prolonging  the  hospital 
treatment of patients in need of long-term care (see 
Section  3.3).  The  planned  transformation  of  acute 
care  into  long-term  care  hospital  beds  is  expected 
to  increase  transparency  and  save  costs.  A  40% 
increase  in  the  reimbursement  rate  for  home  care 
services  may  reduce  the  length  of  hospital  stays, 
but only as long as there is a sufficient provision of 
home care services. 

In 2019, the government decided to not increase 
the  statutory  retirement  age  for  the  next  5 
years.  In  a  report  endorsed  by  the  government  in 
2019,  the  Ministry  of  Labour  and  Social  Affairs 
recommended to keep the 65 years retirement age 
cap. The report provides a baseline scenario based 
on  the  current  system  and  an  alternative  scenario 
that  links  retirement  age  with  life  expectancy.  In 
the  former expenditure on pensions is expected to 
peak  in  2059  at  14.5%  of  GDP,  from  the  current 
8%,  while  in  the  latter  the  expenditures  would  be 
around  1  pp  lower.  While  the  report  recommends 
maintaining  the  status  quo,  it  also  recommends  a 
greater 
finding 
focus  on  sustainability  and 
alternative  sources  of  funding.  In  2019,  the 
authorities  created  an  advisory  Commission  for 
Fair  Pensions,  to  provide  recommendations  on 
pension  reform.  The  Commission,  composed  of 
various  stakeholders,  is  currently  discussing  a 
strategic  redesign  of  the  pension  system  with  a 
focus on transparency and simplification, adequacy 
and sustainability.   

fiscal 

sustainability. 

The  projected  increase  in  age-related  public 
expenditure on healthcare also puts pressure on 
long-term 
Public 
expenditure  on  healthcare  is  projected  to  increase 
by 1.1 pps of GDP by 2070, adding to the ageing 
costs.  The  use  of  Diagnostic  Related  Groups  will 
be piloted for reimbursement on a limited scale in 
2020, with the aim to further increase the scope in 
2021. It still remains unclear when it will become 
the main payment mechanism of hospital services. 
The government also plans  to reinforce outpatient 
emergency  departments  in  hospitals  to  reduce 
unnecessary  hospital  admissions.  Acute  care  bed 
density  and  average  length-of-stay  have  fallen  in 
the  past  10  years,  but  are  still  above  the  EU 
average. The low occupancy rate (70% vs 77% in 
the  EU  in  2017),  together  with  the  comparatively 
high  number  of  discharges  (198  per  1,000  people 
vs  174  in  the  EU  in  2017)  point  to  overcapacity. 
This  is  partly  due  to  financial  incentives  and  the 
lack  of  political  consensus  on  hospital  network 
transformation. 

Overconsumption  and 
inefficient  use  of 
outpatient care are still prevalent in the system. 

19 

 
 
 
 
 
3.2.  FINANCIAL SECTOR 

Financial sector 

the  banking  system  assets  are 

The  Czech  financial  sector  remains  stable.  The 
banking  sector  accounts  for  almost  80%  of  the 
financial  sector’s  assets,  with  the  rest  divided 
between  the  insurance  sector,  pension  funds  and 
other financial intermediaries. Approximately 90% 
of 
foreign-
controlled.  In  terms  of  concentration,  the  share  of 
assets of the five largest banks has grown slightly 
since  2014,  reaching  65%  at  the  end  of  2018. 
Banks remain funded mostly by deposits and their 
assets are  mostly in loans. The insurance sector is 
mostly  foreign-owned  and  remains  profitable, 
despite  a  drop  year-on-year.  The  eight  pension 
management companies active in Czechia are well 
capitalised and witnessed an annual increase in the 
number of participants in the funds in Q3-2019. 

The  banking  system  is  well  capitalised.  Total 
banking  sector  capitalisation  (with  a  total  capital 
ratio  of  18.7%  in  June  2019)  has  been  steadily 
increasing  for  several  years  and  is  above  the  EU 
average.  The  common  equity  Tier  1  (CET1)  ratio 
increased  in  the  first  half  of  2019  to  17.3%.  The 
Czech  National  Bank  has  been  proactive  in 
requiring  banks  to  build  up  capital  buffers.  The 
countercyclical  buffer  introduced  in  2017  was 
raised several times, reaching 1.75% as of January 
2020 and 2% as of July 2020. With several banks 
having also a systemic risk buffer ranging between 
1%  and  3%  of  their  capital,  the  central  bank 
considers  there  are  sufficient  capital  cushions  to 
the  sector, 
accommodate  potential  shocks 
assuming  reasonable  dividend  policies.  Given  the 
relatively  good  capital  levels  of  banks,  reaching 
the  targets  for  minimum  requirements  for  own 
is  generally 
funds 
considered  unproblematic  (7).  However,  due  to 
their  deposit-based  funding  model,  banks  have 
issued  few  debt  instruments  and  compliance  with 
these requirements could entail higher costs.  

liabilities 

eligible 

and 

to 

Czech  banks  continue  to  be  profitable.  Return 
on  equity  has  been  stable  and  has  remained  in 
double digits  for several  years, reaching 15.2% in 
the first half of 2019 (annualised data). Income on 

(7)  The  methodology  has  been  published  by  CNB  and  the 
individual targets will be communicated to banks in 2020. 

lower  cost-to-income 

that  banks  are  aiming 

interest  remains the main source of profit, with the 
net interest margin (as a share of assets) at 1.9% in 
2019.  A 
ratio  (47.1% 
compared  to  48.3%  in  the  first  half  of  2018) 
improve 
suggests 
profitability  through  increased  efficiency.  The 
loan-to-deposit ratio rose to 102.7% in the  second 
half  of  2019,  from  99%  in  2018,  as  Czech 
subsidiaries  of  the  major  foreign  banks  borrow 
abroad  to  lend  domestically.  Insurance  companies 
are also well capitalised and most of them maintain 
stable profitability. 

to 

The  non-performing  loans  ratio  remains  low, 
but  some  vulnerability  risks  might  emerge. 
Following the strong growth of new loans, as well 
as the sale of non-performing loans, the ratio more 
than halved between Q2-2016 (4.6%) and Q2-2019 
(1.8%).  The  coverage  ratio  has  increased  steadily 
in  the  last  2  years  reaching  53.8%  in  Q2-2019. 
Private  sector  loans  also  grew  year-on-year.  To 
mitigate the potential build-up of a systemic risk in 
the financial sector, the central bank, as the macro-
prudential 
official 
communication  on  the  provision  of  retail  loans 
the 
secured  by  residential  property.  Among 
recommendations  put  forward, 
the  supervisor 
proposed  limits  on  loan-to-value,  debt  service-to-
income and debt-to-income ratios.  

authority, 

issued 

an 

Various  measures  have  been  introduced  to 
boost the development of the capital market. To 
reduce the economy’s dependency on banks, while 
increasing  companies’  financing  options, 
also 
authorities  aim  to  develop  the  national  capital 
market.  To  this  end,  several  projects  have  been 
implemented  with  the  support  of  the  European 
Commission. Furthermore, the authorities together 
with  the  four  largest  private  banks  established  a 
National Development Fund (see Box 3.4.1) to run 
as  Qualified  Investor  Fund.  The  creation  of  the 
CEEplus  Index  (8)  is  another  initiative  that  could 
create further opportunities for the capital market. 

(8)  The CEEplus Index has been published since 4 September 
2019 based on the value of the portfolio of the largest and 
most  liquid  companies  listed  on  stock  exchanges  from 
Central  and  Eastern  Europe  (Croatia,  Czechia,  Poland, 
Romania, Slovakia, Slovenia and Hungary) 

20 

 
                                                           
                                                           
 
3.2 Financial sector 

two 

thirds  of 

relevant  as 

growth)  (Deloitte  2019).  Several  sources  also 
indicate  that  overvaluation  is  getting  stronger  in 
Prague (Andrle, M. and Plašil, M., 2019), which is 
the 
particularly 
transactions  in  the  country  take  place  there.  In 
parallel,  the  continued  rise  of  Airbnb  and  other 
rental  accommodation  companies  has  been 
limiting supply, especially in the centre of Prague. 
Outside  Prague,  the  city  with  the  highest  price 
growth was Ostrava, with a 30.3% rise in the price 
of flats in 2018.  

Housing construction is expanding, which could 
ease  supply  constraints  in  the  medium  term. 
The total number of newly started homes country-
wide has been increasing since 2014 at an average 
rate of 9.6%% annually, albeit it is still below pre-
crisis  peaks.  In  Prague,  although  the  number  of 
newly  started  homes  stalled  throughout  2018, 
construction  levels  have  increased  significantly 
since the beginning of 2019 (+65% year-on-year in 
the  second  half  of  2019).  This  will 
likely 
somewhat  ease  supply  constraints  in  the  coming 
years, although, according to Prague’s city council, 
construction  levels  should  still  increase  threefold 
in order to satisfy demand.  

Graph 3.2.1:  Number of started and completed housing 

projects (12 month moving average) 

Housing market  

House  prices  continue  to  grow,  albeit  more 
moderately than in 2017 and 2018. House prices 
increased in real terms by 9.2% in 2017 and 6.2% 
in 2018, exceeding the price level seen in the 2008 
house  price  peak  by  over  20%.  In  2019,  price 
growth  appears  to  have  levelled  off  at  slightly 
more moderate levels (+5.6% in the third quarter), 
partly  influenced  by  the  central  bank’s  new 
macroprudential rules. 

Valuation  indicators  of  the  housing  market 
suggest a positive and increasing valuation gap. 
According to the European Commission’s internal 
calculations,  the  housing  market  was  overvalued 
by  around  6%  in  2018.  The  widest  gap  relates  to 
the price-to-income ratio, which was 11.4% higher 
than the long-term average (+1.7 percentage points 
compared  to  2017).  Calculations  from  the  Czech 
increasing 
National  Bank  also  suggested  an 
mismatch  between  transaction  and  fundamental 
prices  in  the  housing  sector  of  around  15-20%  in 
mid-2019, mainly due to an undersupply of homes 
in  cities.  However,  the  increasing  difference  in 
recent  months  between  growth  in  asking  and 
purchasing  prices  for  flats  suggests  that  realized 
property prices could moderate in coming quarters. 

to 

the 

sustained  price 

increase, 
Due 
affordability  has  worsened  further.  Deflated 
house  prices  have  steadily  outpaced  real  wage 
growth  at  an  average  rate  of  2.1  pps  per  quarter 
since  2014,  which  has  lowered  affordability  even 
in  a  context  of  declining  borrowing  costs. 
Alternative  metrics  also  suggest  a  worsening  of 
affordability – according to Deloitte’s House Price 
Index  (Deloitte,  2019),  Czechia  has  the  lowest 
level  of  affordability  in  a  sample  of  12  EU 
countries,  with  11.2  gross  annual  salaries  needed 
to own a house, up from 7 salaries in 2015.  

Affordability  problems  are  most  acute 
in 
Prague and other large cities. Czechia has a high 
variation  in  price  growth  between  regions.  In 
cities,  an  increase  in  demand  due  to  internal 
migration  and  a  strong  demand 
for  prime 
properties  by  foreigners  are  putting  an  upward 
pressure  on  prices,  especially  since  cities  are 
suffering 
supply  constraints.  Prague’s 
average offer price for new dwellings increased by 
22.2%  in  2018,  significantly  higher  than  the 
increase  in  the  rest  of  the  country  (16.8%  annual 

from 

Source: Czech Statistical Office 

Burdensome  planning  procedures  continue  to 
limit  housing  supply.  According  to  the  World 
Bank,  21  procedures  need  to  be  undertaken  to 
receive  a  building  permit  in  Czechia  (OECD 
average  is  12.5)  (World  Bank,  2019a).  Some 
streamlining 
progress  has  been  made 

in 

21 

02,0004,0006,0008,00010,00012,000Dec 06Jun 07Dec 07Jun 08Dec 08Jun 09Dec 09Jun 10Dec 10Jun 11Dec 11Jun 12Dec 12Jun 13Dec 13Jun 14Dec 14Jun 15Dec 15Jun 16Dec 16Jun 17Dec 17Jun 18Dec 18Jun 19Dec 19Projects started in PragueProjects started in rest of CzechiaProjects completed in PragueProjects completed in rest of Czechia    
3.2 Financial sector 

procedures,  but  the  number  of  building  permits  is 
still  far  below  the  historical  average.  Meanwhile, 
the  number  of  second-hand  apartments  for  sale  is 
declining,  further  constraining  supply  (Deloitte 
2019).  With  a  change  in  the  legislation  process 
only expected to come into force in 2021, housing 
supply  will  likely  remain  below  demand  in  the 
years  ahead.  The  slow  progress  on  the  future 
Prague  Metropolitan  Plan  has  also  contributed  to 
housing shortages in the capital. 

The  total  stock  of  housing  loans  continued  to 
in  2019,  although  growth  has 
increase 
moderated.  The  stock  of  housing  loans  has 
steadily  increased  over  the  past  years,  reaching  a 
cumulative  growth  of  38%  in  2019  compared  to 
2015. However, the annual growth rate has slowed 
in  2019  at  7.4%,  down  from  8.6%  in  2018  and 
9.3%  in  2017.  According  to  data  by  Hypoindex, 
the volume of new mortgages decreased by 16.9% 
in  2019  (Graph  3.2.2),  partly  affected  by  the  new 
macroprudential  recommendations  by  the  central 
bank  and  the  limited  supply  in  the  real-estate 
sector.  Indeed,  the  number  of  new  mortgages  in 
Czechia  decreased  by  22%  in  2019,  fuelling  this 
decrease 
loan  growth.  Beyond 
mortgage  growth,  the  average  fixation  period  of 
new  mortgages  continued  to  increase,  with  more 
than  50%  of  new  mortgages  issued  having  a  rate 
fixation  period  of  more  than  5  years.  This  could 
ease  temporarily  debt  service  requirements  for 
households in the event of interest rate increases. 

in  housing 

Graph 3.2.2:  Evolution of housing loans and mortgages 

Source: Hypoindex and Czech National Bank 

The  central  bank 
issued  macroprudential 
recommendations  to  protect  against  systemic 
risks building in the banking sector. It currently 
recommends that lenders should not provide retail 
loans secured by residential property with a Loan-
to-Value (LTV) of over 90%, and should limit the 
provision of loans with LTVs of 80%-90% to 15% 
of new loans in each quarter. Lenders should also 
not exceed a debt-to-net income (DTI) ratio of nine 
annual  incomes  and  a  debt  service-to-net  income 
(DSTI) ratio of 45% (with the permitted exception 
of  5%  of  new  loans  for  both  indicators).  These 
recommendations  were  introduced  to  avoid  the 
development  of  a  spiral  between  property  prices 
and property purchase loans that could pose a risk 
financial  stability.  Nevertheless,  until  a 
to 
the 
is 
legislative 
Parliament, the central bank still lacks the statutory 
powers 
binding  macroprudential 
recommendations, potentially limiting the effect of 
the  current  measures  in  the  medium  term  (ESRB, 
2019). 

adopted  by 

amendment 

issue 

to 

Banks  have  been  broadly  compliant  with  the 
new  macroprudential  recommendations.  The 
share  of  loans  with  a  LTV  ratio  between  80-90% 
remained  below  the  15%  limit,  at  an  aggregate 
share of 13.5% of loans in June 2019. Meanwhile, 
3%  of  loans  issued  over  the  same  period  had  an 
LTV higher than 90%, thus not complying with the 
recommendation  and  confirming  the  need  to  have 
legally binding limits. On the other hand, the limits 
for the DTI and DSTI were met by most banks. In 
the  first  half  of  2019,  the  share  of  loans  with  a 
DSTI  of  over  45%  was  around  5%,  while  loans 
exceeding the DTI limit of 9 accounted for around 
3%. Finally, the provision of loans that exceed all 
three limits was reduced.  

pointing 

Overall,  rising  property  prices  can  be  a  source 
of  risk  for  financial  stability.  The  European 
Systemic  Risk  Board  (ESRB,  2019)  issued  a 
warning 
the  medium-term 
to 
vulnerabilities  for  financial  stability  stemming 
from  the  residential  real  estate  sector.  This  is  due 
to  an  overvaluation  of  house  prices  and  high 
growth  in  housing  credit  up  until  2019,  coupled 
with  loose  lending  standards  and  the  non-legally 
binding 
the  macroprudential 
recommendations put forward by the central bank. 
Although the Czech National Bank sees the current 
limits  as  sufficient,  continued  growth  in  housing 
prices could warrant a reassessment of the limits.  

nature 

of 

22 

0500 0001000 0001500 000-40%-30%-20%-10%0%10%20%30%40%50%60%CZK millionsy-o-y %Total stock of housing loans (rhs)New mortgages volume y-o-y growthTotal stock of housing loans y-o-y growth 
    
3.3.  LABOUR MARKET, EDUCATION AND SOCIAL POLICIES 

Labour market  

Labour  market  performance  is  far  above  the 
EU  average.  The  employment  rate  of  those  aged 
20-64  reached  80.4%  in  Q3-2019,  6 percentage 
points  (pps)  above  the  EU  average.  The  activity 
rate (20-64) stood at 82.1% in Q3-2019, above the 
EU  average  of  78.8%.  The  unemployment  rate 
dropped  to  2%  and  is  the  lowest  in  the  EU  (see 
Graph 3.3.1). Employment is projected to increase, 
albeit by only 0.9% in 2019 suggesting that further 
labour  market  gains  are  limited.  Labour  shortages 
and demographics remain key challenges. 

Graph 3.3.1:  Labour market developments 

employment  rates  of  older  workers  (age  55-64), 
grew  from  55.5%  in  2015  to  65.1%  in  2018  (EU 
average:  58.7%).  There  are,  however,  significant 
regional  differences.  At  29.7 pps,  Czechia  has  a 
higher than average employment rate gap between 
people  with  and  without  disabilities  (24.2 pps  in 
the EU in 2017) (ANED, 2018), partly due to the 
low general unemployment rate. There is therefore 
scope  for  improving  the  monitoring  and  targeting 
of  active  labour  market  policies,  in  particular  for 
the  most  vulnerable  groups.  Measures  to  increase 
labour  market  participation  of  underrepresented 
groups  would  contribute 
to  progress  under 
Sustainable Development Goals 5 and 10. 

Graph 3.3.2:  Evolution of labour shortages 

Source: Eurostat 

Labour  shortages  are  becoming  a  distinct 
constraint  to  further  economic  growth.  Due  to 
the high job vacancy rate, 39% of businesses cited 
labour  shortages  as  the  main  factor  limiting 
production  in  Q3-2019. Shortages  are  especially 
high in construction (47%) and industry (38%) but 
less  pronounced  in  services  (19%)  which  account 
for  55%  of  Czechia’s  employment  (see  Graph 
3.3.2). 
and 
demographic change have triggered a policy focus 
on automation and robotisation (see Box 3.4.2). 

Persistent 

shortages 

labour 

High  demand  for  labour  has  improved  the 
participation  of  underrepresented  groups,  but 
disparities remain. The youth unemployment rate 
(age  15-24)  has  decreased  significantly  (from 
18.9% in 2013 to 4.8% in Q3-2019), and so has the 
long-term unemployment rate (from 2.4% in 2015 
to  0.6%  in  Q2-2019).  The  participation  and 

Source: EU Business and Consumer Survey 

Women  aged  between  25  and  49  with  small 
children continue to be underrepresented in the 
labour  market.  The  negative 
impact  of 
parenthood  on  female  labour  market  participation 
continues  to  be  high  (34.2 pps  compared  to  9 pps 
in the EU). Despite the considerable increase in the 
number  of  childcare  places  created  with  the 
support of the European Social Fund (ESF), supply 
still  falls  short  of  demand.  Thus,  the  participation 
rate  in  formal  childcare  for  children  under  age  3 
(9.1%)  is below the EU average  (35.1% in 2018). 
Authorities  plan  to  amend  the  Children´s  Groups 
Act  by  2022  in  order  to  harmonise  the  different 
rules and  make childcare  more  affordable through 
increased  resources,  in  particular  for  children 
under  3  for  whom  there  is  currently  no  legal 
place.
entitlement 

provide 

to 

a 

23 

727374757677787980818283051015202500010203040506070809101112131415161718%%Activity rate 20-64 (rhs)Unemployment rate 15-74 (lhs)Long-term unemployment rate 15-74 (lhs)Youth unemployment rate 15-24 (lhs)NEET rate 15-24 (lhs)05101520253035404550ConstructionConstructionIndustryIndustryServicesServicesCZEU28CZEU28CZEU28Share of firms (%) reporting shortages2016201720182019 
        
        
3.3 Labour market, education and social policies 

24 

Box 3.3.1: Monitoring performance in light of the European Pillar of Social RightsThe European Pillar of Social Rights is a compass for a renewed upward convergence towards better working and living conditions in the EU. It sets out 20 essential principles and rights in the areas of equal opportunities and access to the labour market, fair working conditions and social protection and inclusion.  Czechia performs well on most indicators of the Social Scoreboard supporting the European Pillar of Social Rights, yet some challenges remain. The employment rate is among the highest and the unemployment rate among the lowest in the EU. Yet there is still scope for increasing the labour market participation of vulnerable groups, as well as women. The early school leaving rate has slightly declined and remains below the EU average, but regional disparities are still significant. The high gender employment gap holds women back from advancing in their careers. The employment rate of women is 15.2 pps below that of men, against 11.5 pps on average in the EU. The gender pay gap is also significant, with men’s average hourly wage being 22.5% higher than that of a women. This highlights the need for more progress on gender equality actions. Providing more quality and affordable childcare can also help improve labour market outcomes for women. There is still scope for strengthening social protection and inclusion mechanisms. While the share of people at risk of poverty or social exclusion is comparatively low, poverty remains concentrated in some localities and some groups (notably single parents, the elderly, people with disabilities and Roma). This may be partly because social transfers (excluding pensions) are not yet fully effective at getting people out of poverty, including energy poverty. New measures are in place to address over-indebtedness, one of the main factors behind poverty and social exclusion. Czechia has made changes to its legislation in order to prevent people from accumulating excessive debts – an issue that affected 9.7% of the population in 2018. High levels of household indebtedness are also among the factors behind placing children in institutional care. The new Civil Code defines the concept of usury, resulting in more predictable court decisions on adequate interest rates, penalty interests and contractual fines. There are also plans to set up an inter-ministerial working group on strengthening financial literacy. In addition, children are no longer liable for the debts of their parents and the advertising of high interest rate loans have been limited.  Social Scoreboard for CZECH REPUBLIC SOCIAL SCOREBOARD SDGs Equal opportunities and access to the labour market  Early leavers from  education and training  (% of population aged 18-24)      Youth NEET  (% of population aged 15-24) Gender employment gap Income quintile ratio (S80/S20) At risk of poverty or social exclusion (in %) Dynamic labour markets and fair working conditions   Employment rate  (% of population aged 20-64)  Unemployment rate  (% active population aged 15-74) Long-term unemployment rate (% active population aged 15-74) GDHI per capita growth  Net earnings of a full-time single worker earning AW Social protection and inclusion  Impact of social transfers (other than pensions) on poverty reduction    Children aged less than 3 years in formal childcare Self-reported unmet need for medical care  Individuals' level of digital skills Critical situation To watch Weak but improving Good but to monitor On average Better than average Best performers Members States are classified on the Social Scoreboard according to a statistical methodology agreed with the EMCO and SPC Committees. It looks jointly at levels and changes of the indicators in comparison with the respective EU averages and classifies Member States in seven categories. For methodological details, please consult the proposal for a Joint Employment Report 2020, COM(2019) 653 final; NEET: neither in employment nor in education and training; GDHI: gross disposable household income. Update of January 2020.   
3.3 Labour market, education and social policies 

ignoring  official  rules  and  procedures.  Further 
measures  may  encourage  legal  employment  of 
temporary workers and less fraud. 

Current skills shortages are likely to increase in 
is 
line  with  technological  advances.  There 
currently  a  shortage  of  around  340,000  low  and 
medium 
skilled  workers  across  all  sectors 
(European  Commission,  2019a).  This  may  be  a 
particular  challenge,  considering 
the  ongoing 
digital  transformation  that  will  require  specialised 
technical  and  digital  skills  (see  Box  3.4.2).  The 
low-carbon  transition  could  mitigate  ongoing  job 
polarisation resulting from automation by creating 
mid-level jobs in terms of wages and skills which 
could  increase  employment  by  2030  (European 
Commission, 2019b).  

The level of advanced digital skills is below the 
EU  average.  While  the  country  is  above  the  EU 
average  in  the  share  of  population  with  at  least 
basic  digital  skills  (62%  compared  to  an  EU 
average of 58%), only 26% of people have above 
basic  digital  skills  (EU  average:  33%).  The  Work 
4.0  Action  Plan  designed  by  the  government  in 
cooperation with social partners is being rolled out. 
to 
It 
technological change and develop workers’ digital 
skills 
– 
‘Development  of  systematic  support  of  digital 
literacy’  and  ‘Development  of  the  system  of 
further education in the area of digital skills’.  

includes  specific  measures 

two  promising  projects 

to  adapt 

through 

skills 

those  obtained 

A  comprehensive  national 
strategy 
encompassing initial education,  lifelong and in-
work  training  is  not  yet  in  place.  The  National 
Register  of  Qualifications, 
currently  under 
development, should increase the supply of skilled 
labour 
through  greater  recognition  of  skills, 
through  non-formal 
including 
learning.  Whereas  the  vocational  education  and 
training (VET) qualifications are well covered, the 
validation 
include  higher 
education. In 2017, the ESF project ‘Kompas’ was 
launched  to  coordinate  a  reliable  labour  market 
barometer. Its results should be soon available and 
guide  the  future  skills  forecasting.  The  initiatives 
to  define  a  single  national  skills,  competences, 
qualifications  and  occupation  framework  remain 
scattered.  This  makes  it  difficult  to  create  an 
effective  system  that  can  anticipate  the  skills 

system  does  not 

The  gender  gap 
in  employment  and  pay 
remains  high.  The  (unadjusted)  gender  pay  gap 
stood  at  21.1%  in  2017,  compared  to  the  EU 
average  of  16%.  One  of  the  main  factors  behind 
this  wage  gap  is  the  long  leave  taken  by  women 
after  childbirth,  leading  to  a  lower  labour  market 
participation  of  mothers  (Cukrowska-Torzewska, 
E.  and  Lovasz,  A.,  2019).  The  government 
implemented  a  project  called  ‘22%  to  Equality’, 
funded  by  ESF,  to  ensure  equal  pay  for  equal 
work.  In  2019,  an  action  plan  was  launched  to 
raise awareness on this issue among employers and 
the  general  public,  entailing  media  campaigns, 
studies,  conferences  and  gender  audits.  However, 
its  impact  has  been  rather  limited  so  far.  A  more 
flexible parental leave allowance to encourage the 
use of childcare was introduced on 1 January 2020. 
The  strategy  also  proposes  flexible  working 
legal  framework 
arrangements  for  which 
should be in place by 2021.  

the 

to 

Due 
labour  shortages,  employers  are 
attracting  more  foreign  workers.  According  to 
the  Ministry  of  Labour  and  Social  Affairs,  the 
number  of  EU  and  non-EU  nationals  working  as 
employees  in  Czechia  reached  606,483  by  mid-
2019 (37,807 more than in 2018). In the context of 
a  thriving  labour  market,  in  2019  authorities 
passed legislation to facilitate employment of non-
EU nationals, in particular for skilled and qualified 
workers (9).  The  measure  raised  the  quotas  for  a 
number of workers from selected countries and set 
minimum  wages  for  foreign  workers  above  the 
national  minimum  wage.  The  aim  is  to  attract 
foreign  talent,  speed  up  the  process  and  provide 
the 
decent  standards  of 
increase  in quotas may not be sufficient to reduce 
the illegal employment of foreign workers. 

living.  Nonetheless, 

inspectorates 

Undeclared  work  provided  through  temporary 
work agencies represents a challenge. According 
to  the  Ministry  of  Labour  and  Social  Affairs,  the 
labour 
illegal 
situations in 2018 (among all employers) with over 
75% 
non-EU 
countries. The  so-called  “grey”  agencies  benefit 
the  most 
labour  market 
foreign  workers,  while 
performance,  hiring 

concerning  workers 

identified  4,583 

strong 

from 

from 

the 

(9)  Under  three  programmes:  Key  &  Scientific  Personnel, 
Highly Qualified Employee and Qualified Employee. 

25 

 
                                                           
3.3 Labour market, education and social policies 

organisations.  Established  consultation  bodies 
support  discussions  with  these  organisations  on 
key employment and social issues. However, they 
legal  or 
need  more 
programme  proposals.  In  addition,  the  lack  of 
stable  funding  often  limits  their  capacity  and 
influence. 

to  review  policy, 

time 

Education and skills 

persist. 

the  ones 

Despite  a  good  overall  performance 
in 
education  and  the  provision  of  basic  skills, 
The 
inequalities 
socio-economic 
performance  of  15  year  olds  in  the  OECD’s  2018 
Programme  for  International  Student  Assessment 
(PISA)  remained  above  the  EU  average  for  all 
tested  (reading,  mathematics  and 
three  areas 
science)  and  the  proportions  of  low-achievers 
remained below the EU average. The proportion of 
low-achievers  in  reading  decreased  by  2.3  pps 
since  2009,  while  the  share  of  top-performers 
increased  by  3.1  pps.  In  reading,  students  from 
advantaged  backgrounds  outperformed  by  105 
score  points 
from  disadvantaged 
backgrounds  (up  from  85  in  2009),  equivalent  to 
more  than  2.5  grades,  significantly  above  the  EU 
average  (95  points).  The  latest  PISA  results  show 
that  the  percentage  of  15  year-old  students  with  a 
who 
low 
underperform  in  reading  is  29.7  pps  greater  than 
for those with a high socio-economic background. 
Low-achieving  students  in  reading  are  less  much 
likely to attend the same schools as high-achievers 
than the  EU average (10). The performance  gap in 
reading  between  socio-economically  advantaged 
and  disadvantaged  schools  is  comparatively  high 
(see  Graph  3.3.3).  The  future  Strategy  for 
Education 2030 aims to develop key competences 
and  reduce  inequalities,  supporting  teachers  and 
school  heads  and  transforming  the  content  and 
methods of education. 

socio-economic 

background 

needed  by  a  labour  market  that  is  currently 
adapting to automation, digital transformation and 
a to a carbon-neutral economy. 

Significant increases of the minimum wage also 
reflect  the  tightness  of  the  labour  market.  The 
minimum  wage  increased  by  9.4%  in  2020. 
However, the labour market effects of this change 
are  likely  to be small at  this  stage, since only 4% 
of  workers  were  earning  around  the  minimum 
wage  in  2017.  Younger  and  older  workers,  the 
low-skilled and employees of small firms or with a 
short  tenure  are  more  likely  to  earn  a  minimum 
wage  (Grossmann,  J.,  Jurajda,  Š.  and  Smolka,  V. 
2019).  According  to  Eurofound,  a  higher  share  of 
Czech  women  compared  to  the  EU  average,  earn 
the  minimum  wage.  Czechia  also  has  a  system  of 
seven  additional  minimum  guaranteed  wages  that 
increase  automatically  in  line  with  the  minimum 
wage,  with  a  potential 
larger 
population.  

impact  on  a 

to 

address  weaknesses 

Reinforcing  active  labour  market  policies  can 
improve  demand-supply  matching  and  address 
the  specific  needs  of  certain  groups.  The 
difficulties  in  setting  up  an  efficient  system  to 
gather,  analyse  and  process  evidence  on  labour 
market  developments  by  the  public  employment 
services  limit  the  design  of  efficient  active  labour 
market  policies  (European  Commission,  2019b). 
Efforts 
the 
implementation  and  monitoring  of  activation 
programmes  have  so  far  been  limited.  Support  is 
insufficient for the most disadvantaged groups and 
current  measures,  such  as 
the  public  work 
schemes,  provide  only  short-term  solutions.  In 
2019,  Czechia  announced  an 
‘Employment 
Package’  to  improve  the  targeting  and  support  of 
active  labour  market  policies,  particularly  for  the 
most  vulnerable  groups,  but  the  scope  of  the 
announced measures remains limited.  

in 

Social  partners  are  relatively  well  involved  in 
policy  design,  but  there  is  scope  for  further 
progress.  Social  partners  participate  in  collective 
bargaining  at  national  level  on  key  labour  market 
policies.  However,  the  membership  of  Czech 
social partners’ organisations is rather low. Further 
efforts  to  build  up  capacity  of  social  partners, 
including their analytical capacity may help. 

Disparities  in  the  rates  of  early  leavers  from 
education  and  training  are  increasing.  Early 
school  leaving  declined  in  most  regions  in  2018. 
However, the highest regional rate in Severozápad 
further  increased  to  17.1%  (see  Section  3.4).  The 
rate for Roma pupils was estimated at 57% in 2016 
among  Roma  families  that  participated  in  the 
survey (FRA, 2016). The early school leaving gap 

There  is  scope  for  greater  involvement  and 
more  stable  funding  for  the  civil  society 

(10)  This  is  measured  by  the  new  ‘isolation  index’  (OECD, 

2020) See PISA Table II.B1.4.2. 

26 

                                                           
3.3 Labour market, education and social policies 

between  people  with  and  without  disabilities  is 
also  one  of  the  highest  in  the  EU  (25.5 pps 
compared to an EU average  of 10.1 pps in 2018). 
Policies  to  address  disparities  in  the  quality  of 
teaching  in  schools  and  regions  and  to  assign  the 
most  qualified  and  experienced  teachers  to  the 
most  challenging  schools  could  help  reduce 
existing gaps. 

Graph 3.3.3:  Difference in reading scores between 

advantaged and disadvantages schools 

reform’s  impact,  further  teacher  training  to  teach 
pupils  with  special  needs,  including  those  from 
disadvantaged backgrounds, may be needed. 

Participation  in  early  childhood  education  and 
care  continued  to  rise.  Overall,  participation 
reached 92% in 2017. Regional participation rates 
vary between 85.5% in Severozápad and 96.1% in 
Střední Čechy. In 2016, only an estimated 34% of 
Roma children aged 4+ participated in this level of 
education (FRA, 2016). 

face 

recurring  difficulties 

School  principals  report  teacher  shortages. 
According  to  a  2019  national  survey,  61.7%  of 
schools 
in  hiring 
qualified  teachers  (Ministry  of  Education,  2019). 
in  primary 
Shortages  are  most  pronounced 
education  and  for  teachers  of  English,  physics, 
information and communications technology (ICT) 
and  mathematics  (European  Commission,  2019c). 
The  teacher  population  is  ageing,  with  3  out  of  8 
teachers  forecast  to  be  replaced  over  the  next 
decade  (OECD,  2019a).  PISA  test  results  showed 
that the proportion of Czech students aged 15 that 
(strongly)  agreed  their  teacher  enjoy  teaching  is 
one of the lowest in the OECD (55% compared to 
the  74%  average).  Students  also  seemed  to  score 
higher  when  they  perceived  their  teacher  as  more 
enthusiastic.  

training 

There  is  scope  for  further  development  of 
teachers’  training  in  ICT  skills.  The  TALIS 
in 
survey  reports  a  need  for  more 
advanced  ICT  skills  for  teachers.  The  ongoing 
revision  of  school  curricula  includes  digital  skills 
among  the  subjects  to  be  strengthened.  However, 
schools  are  not  well  equipped  with  digital 
technologies and teachers are not properly trained. 
Despite the targeted projects supported by funding 
by the ESF, the education system is not addressing 
fast  enough  the  changes  triggered  by  the  digital 
transformation.  

Despite pay rises, salaries of teachers and school 
principals  remain  relatively  low.  This  has  been 
reflected  in  comparatively  low  expenditure  per 
student  at  all  education  levels  over  time  (OECD, 
2019b). Salaries are relatively low compared  with 
both  other 
tertiary-educated  workers  and  by 
international  standards.  In  2018,  the  government 
announced  that  by  2021  teachers’  average  wages 
would  increase  by  150%  compared  to  2017. 
However,  in  2017-2018  the  increase  was  lower 

(1) A socio-economically disadvantaged (advantaged) 
school is a school in the bottom (top) quarter of the PISA 
index of economic, social and cultural status in a country. 
(2) EU average does not include Spain. 
Source: OECD, 2020 

In  2019,  Czechia  adopted  the  second  Action 
Plan  for  Inclusive  Education.  The  2019-2020 
action  plan  seeks  to  address  potential  segregation 
challenges  in  schools  with  more  than  50%  Roma 
introducing  anti-bullying  measures 
pupils,  by 
among others. The inclusive education reform has 
not  substantially  diminished  the  share  of  Roma 
children in special schools. There is no evidence of 
into 
putting  concrete  desegregation  measures 
practice,  including  those  recommended  by  the 
Czech  Ombudsman 
the  contrary, 
authorities  adopted  legislative  measures  that  raise 
concerns  about  a  potential  negative  impact  on 
Roma 
the 
inclusive  education  reform  has  been  adjusted  and 
efforts  are  being  made 
it  more 
consistently  across  the  country.  To  increase  the 

implementation  of 

inclusion.  The 

(11).  On 

to  apply 

(11)  147  schools  where  Roma  represent  more  than  34%  of 
pupils and 70 schools where they represent more than 50%. 

27 

458195114130136147148154164167020406080100120140160180FIPLPTELEU*ITSKCZFRBGDEScore difference    
                                                           
3.3 Labour market, education and social policies 

Few  unemployed  adults  participate  in  lifelong 
learning.  Less  than  10%  of  the  unemployed 
participated in training in 2018. On the other hand, 
supported  by  ESF (12),  the  figures  for  continuous 
vocational training of the workforce are very high 
(83.7%  compared  to  an  EU  average  of  40%  in 
2015).  Most  of  the  continuous  vocational  training 
focused on developing technical job-specific skills. 
While  adult  learning  is  considered  a  key  element 
for  career  development,  most  of  the  funding  only 
comes from the EU. 

Social policies 

see  Graph 

Poverty indicators show that Czechia performs 
better than the EU average, yet some challenges 
remain. The share of people at risk of poverty or 
social  exclusion  is  12.2%  in  2018,  below  the  EU 
average of 21.9%. In-work poverty is also low (3.4 
in 2018)%. However, the share of older people (65 
and  over)  at  risk  of  poverty  or  social  exclusion  is 
rising  steeply  (from  10.1%  in  2016  to  15.6%  in 
2017, 
(3.3.4)).  People  without 
employment  and  single  parents  are  at  a  relatively 
higher risk of poverty (21.7% and 36.9% in 2018, 
respectively)  (13).  The  proposal  to  compensate 
single  parents  with  children  that  do  not  receive 
maintenance  payments  could  reduce  their  poverty 
risks.  The  new  Social  Inclusion  Strategy  for 
2021−2030  is  being  prepared  to  underpin  the 
investment  projects  in  the  next  programming 
period of EU funds. It will focus on issues such as 
to  housing  and  social 
indebtedness,  access 
exclusion.  

There  are  strong  disparities  in  poverty  and 
social  exclusion  rates  between  people  with  and 
without disabilities. People with disabilities face a 
higher risk of poverty and social exclusion (a gap 
of 13.5 pps in 2018 compared to an EU average of 
9.5 pps according to  ANED calculations based on 
Eurostat  data).  This  is  linked  to  higher  education 
dropout  rates,  lower  education  attainment  and 
lower  employment  levels.  The  impact  of  sickness 
and  disability  benefits  on 
reducing  poverty 
decreased in the last decade, but such benefits still 
have  the  highest  impact  on  reducing  poverty,  in 

(12)  European  Commission 

calculations  based  on 

the 

Continuous Vocational Training Survey.  

(13)  Statistics  only  consider  income  before  debt  deductions. 
Taking indebtedness into account generates higher levels of 
poverty, notably in more deprived regions. 

than  for  other  public  servants,  further  reducing 
attractiveness  of  the  profession  (OECD,  2018a). 
Many talented young teachers leave the profession 
early,  often  for  financial  reasons  (Münich,  D., 
2017)  but  also  because  there  is  little  room  for 
career development. 

for 

for 

initial 

future 

training 

requirements 

Authorities  adopted  measures  to  improve  the 
attractiveness  of  the  teaching  profession.  New 
framework 
teacher 
education  programmes  increase  the  compulsory 
practical 
teachers.  An 
amendment to the Act on pedagogical staff, which 
will  make  a  two-year  induction  period  supporting 
new  teachers  compulsory,  is  currently  pending 
approval.  These  measures  seek  to  better  prepare 
and  integrate  new  arrivals  and  prevent  early 
dropouts.  However,  their  impact  will  depend  on 
the  conditions  ensured  for  those  mentoring  future 
teachers (their pay, reduction in workload for other 
tasks and training). 

Authorities  want  to  improve  the  completion 
rate  of  tertiary  education  and  reduce  socio-
economic  disparities  (European  Commission, 
2019c).  Only  18%  of  children  whose  parents 
attained  upper  secondary  or  post  secondary  non-
tertiary  education  as  their  highest  qualification 
achieve  tertiary  education  themselves.  This  is  the 
lowest proportion among OECD countries (OECD, 
2018a). According to PISA, socio-economic status 
strongly affects students’ expectations to complete 
tertiary education, with 50.8% more of advantaged 
students  expecting 
to  do  so  compared  with 
disadvantaged  ones.  The  employment  rate  of 
recent tertiary education graduates remains high at 
91.5% 
in 
population in the higher education age bracket may 
soon require additional funding and capacity.   

in  2018.  The  projected 

increase 

to 

improve 

The  provision  of  vocational  education  and 
training  is  improving.  In  June  2019,  Czechia 
approved  a  long-term  plan  for  education  (2019-
2023) 
the  quality  of  vocational 
education  and  training  (VET).  The  plan  includes 
measures to better align the VET curricula with the 
needs  of  employers.  Projects  financed  by  ESF 
support  this  trend  and  take  into  account  the 
specific  needs  of  the  regions,  involving  both 
schools and employers. The initiatives are positive 
step 
(Cedefop, 
forthcoming), but their impact needs to be closely 
monitored.  

quality  VET 

higher 

for 

28 

                                                           
3.3 Labour market, education and social policies 

municipalities to provide qualitative and affordable 
housing,  as  does  the  social  inclusion  strategy. 
Several  national  and  EU (14)  investment  schemes 
are  in  place  to  enable  municipalities  to  enlarge 
their  social  housing  stock.  However,  the  response 
from  municipalities  has  so  far  been  limited.  After 
the  social  housing  legislation  was  put  on  hold  in 
2018,  the  Ministry  of  Regional  Development 
began  in  2019  to  work  on  an  Affordable  Housing 
Act.  

Czechia has taken steps to address the growing 
consequences  of  indebtedness.  These  include 
changes  in  legislation  to  improve  the  debt  relief 
procedure, and making it possible for the debtor to 
keep  a  significantly  higher  minimum  amount  of 
money  after  all  their  debts  are  deducted  to 
encourage  taking  up  better  paid  jobs.  This  should 
motivate  debtors  to  pay  their  instalments  rather 
than  work  in  the  grey  economy.  In  addition, 
children can no longer take over the debts of their 
parents and the advertising of usury loans is being 
limited.  Despite  these  measures,  households  with 
overdue  liabilities  in  2018  constituted  about  5.1% 
of  the  Czech  population  with  an  average  overdue 
debt of €1,580. The share of people in enforcement 
proceedings reached 9.7% in 2018 (some 863,000) 
with  an  average  debt  of  around  €11,000 per 
to 
person.  While  an 
strengthen  financial  literacy  was  set-up,  more 
targeted  support  from  education  institutions  and 
social services is still necessary, mainly for groups 
facing  the  greatest  risks  (e.g.,  the  unemployed, 
pensioners, single parents and minorities). 

inter-ministerial  group 

Health  status  has  improved  but  disparities 
remain.  Life  expectancy  increased  by  4  years 
between  2000  and  2017.  However,  Czechia  still 
performs  below  the  EU  average  in  many  areas 
related to health and healthcare. Notably, treatable 
mortality  is  higher  than  the  EU  average  and  there 
are substantial regional differences in health status, 
for  example  life  expectancy  at  birth  for  both  men 
and  women  can  differ  by  more  than  4  years 
(OECD,  2018a).  Socio-economic  issues  are  the 
main  contributing  factors,  but  also  unhealthy 
eating  and  drinking  habits.  Furthermore,  care 
needs associated with multiple chronic diseases are 
expected to increase with an ageing population. 

(14)  See, for instance, ESF-funded projects such as ‚Rapid Re-

housing in Brno‘ or ‚Social housing in Ostrava‘. 

particular 
(European Commission, 2019b). 

for 

the  most  vulnerable  groups 

Graph 3.3.4:  Groups at risk of poverty or social exclusion 

Source: European Commission 

The  number  of  excluded  localities  continues  to 
grow. According to the national Roma monitoring 
report,  in 2018 there  were 830 excluded localities 
with 127,000 inhabitants, significantly higher than 
in  2015  (606  localities  with  115,000  inhabitants). 
Under the EU-funded ‘coordinated approach to the 
socially excluded localities’, 103 municipalities are 
developing  inter-sectoral  strategies  to  improve 
coordination of relevant social services.  However, 
the  measures  had  a  limited  effect  in  stopping  the 
growing  exclusion.  The  design  and  targeting  of 
future measures will benefit from the methodology 
for  mapping  social  exclusion  currently  developed 
by the Agency for Social Inclusion. 

There are many homeless people in Czechia and 
many more are at risk. There are around 68,500 
homeless  people  (of  which  21,230  adults  and 
2,600  minors  are  ‘roofless’  according  to  the  2019 
census)  and  119,000  are  at  the  risk  of  becoming 
homeless, according to estimates of the Ministry of 
Labour  and  Social  Affairs.  In  90%  of  cases,  the 
reason  for  homelessness  is  indebtedness.  Around 
37%  of  Czech  children 
in  households 
suffering  from  housing  problems  (FEANTSA, 
2018).  With  rising  housing  costs,  an  increasing 
number  of  elderly  people  are  also  experiencing 
legislative 
similar 
on 
framework 

problems.  The 
the 

current 
responsibility 

puts 

live 

29 

0510152025300506070809101112131415161718% of populationChildren (<18y)Working age (18-64)Elderly (65+)     
                                                           
3.3 Labour market, education and social policies 

There  are  differences  in  access  to  healthcare. 
While overall self-reported unmet needs are one of 
the lowest in the EU, there are regional disparities 
as regards the distribution of health care resources 
and health care personnel. The difference between 
the  highest  and  lowest  density  of  doctors  is  more 
than  double  and  there  are  sometimes  substantial 
differences in the provision of primary care. There 
are  plans  to  increase  provision  between  regions 
with combined practices providing primary care as 
well as other services. There are also challenges in 
providing healthcare to vulnerable groups, notably 
homeless  people.  A  move  away  from  hospital-
centred care (see Section 3.1), complemented by a 
further  expansion  of  primary  care,  the  integration 
of  care  and  the  necessary  infrastructure  can  help 
address gaps and disparities in healthcare provision 
and contribute to progress under SDG 3. 

to  undermine 

is  projected  to 

increase 
Population  ageing 
long-term  care  services.  The 
pressure  on 
governance of long-term care, as well as palliative, 
health and social care remains an issue. One of the 
biggest  challenges  for  the  provision  of  long-term 
care is the integration of health and social services. 
Fragmentation  and  disparities  in  conditions  for 
accessing  care  continue 
the 
effectiveness  of  the  multiple  support  schemes. 
Around  20%  of  those  needing  long-term  care 
reside in health or social care facilities, well above 
the  EU  average  of  13%  (EC-EPC  2018  Ageing 
Report)  (European  Commission,  2018b),  which 
may indicate a lack of home-based services. Most 
people  who  need  long-term  care  receive  cash 
benefits,  and  their  care  is  provided  informally  by 
people  close  to  them  (Ministry  of  Labour  and 
Social Affairs, 2015), but there are rising concerns 
about  the  effectiveness  and  quality  of  such  care. 
The  care  allowance 
to  cover 
is 
professional  social  home  care  services.  Costs  and 
lack of information remain the two main barriers to 
the  greater  use  of  long-term  care  services.  The 
current  reliance  on  informal  family  care  may  not 
be  sufficient  and  may  have  a  negative  impact  on 
labour market participation. 

insufficient 

there 

reform 

for  community-based 

The reform of the institutional care system has 
its  complex 
in  particular  due  to 
stalled, 
governance 
of 
framework.  The 
psychiatric  care,  supported  by  EU  funds,  is 
social 
promising.  As 
services, 
regional 
differences (e.g.  in  approach  to  institutionalisation 
of  children  under  3  years).  Some  social  services, 
such  as  community-based  services  for  adults 
and children with multiple handicaps or autism are 
missing.  In  addition,  social  services  are  often 
severely  understaffed,  and  their  current  staff  is 
unpaid (European Commission, 2019g). 

growing 

are 

technical  standards 

There  are  plans  for  a  systemic  change  of  the 
social  services.  The  ‘Fundamental  Principles  for 
Systemic  Modification  of  Funding  and  Other 
Proposed  Changes  in  Social  Services’  announced 
by  the  Ministry  of  Labour  and  Social  Affairs  in 
2019  aims  to  increase  the  mandatory  national 
spending based on a multiannual framework and to 
set  new  governance  mechanisms,  new  personnel, 
material  and 
reduce 
administrative burden for social services providers. 
These  changes  aim  to  address  the  non-systemic 
nature of the financial framework that impacts the 
availability of social services, including their staff. 
However,  it  is  hard  to  predict  its  results  at  this 
stage.  It  is  also  crucial  that  the  simplification  of 
services  does  not  go  against  clients’  needs.  The 
changes to financing must also be considered from 
the  clients’  perspective  and  include  transparent 
quality criteria.  

to 

Czechia  is  among  the  Member  States  with  the 
highest  number  of  institutionalised  children.  It 
remains one of the few Member States that places 
young children and infants  in institutions,  such as 
orphanages. In 2018, about 7,800 children lived in 
300  institutions,  despite  evidence  showing  that 
99%  of  them  are  not  orphans.  While  there  were 
some  attempts  to  change  the  situation  in  the  past, 
no concrete plans are currently on the table. There 
is  scope  for  greater  focus  on  preventive  social 
services and support to vulnerable families. 

30 

 
3.4.  COMPETITIVENESS, REFORMS AND INVESTMENT 

Productivity  

et 

in 

to  Davies,  E. 

Labour  productivity  growth  slowed  down  in 
2018 but remained above the euro area average. 
The  slowdown  in  productivity  growth  from  2.3% 
in  2017  to  1.6%  in  2018  was  mostly  due  to 
disappointing  outcomes 
the  manufacturing 
sector, while productivity continued to grow in the 
services sector. Total factor productivity also saw a 
drop  in  growth  from  2.7%  in  2017  to  1.1%  in 
2018,  but  was  still  above  the  EU  average  growth 
(0.7%).  According 
al. 
(forthcoming), productivity developments in 2010-
2016  were  driven  by  the  growth  of  the  average 
enterprises,  as  the  more  productive  enterprises 
grew  significantly  less,  potentially  driven  by  a 
suboptimal  allocation  of  resources.  They  link  this 
misallocation  to  barriers  to  doing  business  and  to 
competition.  The  share  of  zombie  enterprises 
(firms  that  would  typically  exit  in  a  competitive 
market)  is  below  5%  in  both  manufacturing  and 
services,  in  line  with  the  EU  average.  While 
productivity  implications  are  less  pronounced,  the 
effects  of  these  enterprises  on  employment  and 
investment  are  higher  when  compared  to  the  EU 
average (Bauer, P. et al., 2020). 

There is a significant  productivity gap between 
large  and  small  enterprises,  particularly  in 
manufacturing.  In  2017,  the  labour  productivity 
of  large  enterprises  was  around  66%  higher 
compared to microenterprises (down from 80% in 
2014), and around 25% higher compared to small 
enterprises  (35%  in  2014).  The  gap  between 
medium  and  large  enterprises  was  smaller  (15%, 
down  from  20% 
in  2014).  The  gaps  were 
significantly  wider  in  the  manufacturing  sector, 
where  larger enterprises are 50%  more  productive 
than medium ones and almost twice as productive 
as smaller ones. Additionally, the gap between the 
most  productive  and  lagging  enterprises  has  been 
increasing  over  the  years  (IMF,  2018).  Since 
domestic  SMEs  provide  the  largest  share  of 
employment  and  value  added,  authorities  aim  to 
improve their productivity and competitiveness by 
developing 
and 
Implementation  Plan  for  2021–2027  with  the 
technical  support  of  the  European  Commission. 
The  World  Bank  (2019b)  also  concluded  an 
analysis on the SMEs policy mix and its alignment 

Strategy 

SME 

new 

a 

with  the  country  needs,  identifying  actions  to 
improve  the  effectiveness  and  coherence  of  the 
SME  policy  mix.  It  found  gaps  in  improving 
management capabilities and adopting new digital 
technologies  to  catch  up  with  more  productive 
enterprises.  There  is  also  a  resource  misallocation 
across  regions  and  sectors  and  a  lack  of  synergy 
between instruments across agencies. 

Promotion  and  support  of  entrepreneurship 
remains  low,  hampering  productivity  growth. 
The  net  business  population  growth  has  remained 
rather flat since 2015 and turned slightly negative 
in  2017.  The  churn  rate  -  a  measure  of  business 
dynamism  –  reached  17.5%,  well  above  its  2008, 
but the lowest score among the Visegrad countries 
(for both birth rates and death rates of enterprises). 
In 2017, the three-year survival rate of enterprises 
was  61%,  whereas  the  5  year  survival  rate  was 
below  50%.  Attitudes  to  entrepreneurship  are 
becoming  less  positive  and  the  country  ranks 
among  the  weakest  performers  in  entrepreneurial 
education.  In  this  context,  authorities  launched 
support  programmes  targeting  technological  start-
ups  like  ‘CzechStarter’  that  provides  early-stage 
start-ups  with  mentoring  and  training.  However, 
the  provision  of  dedicated  entrepreneurship 
support  to  young  people,  women,  migrants  or  the 
unemployed  is  lacking.  While  new  measures  to 
introduce  a  legal  definition  of  family  business 
were  announced,  there  is  a  lack  of  support  for 
business  transfers  and  generational  change.  Firms 
also  invest  a  smaller  share  of  value  added  in 
managerial  organisational  capital  than  most  other 
(OECD,  2016).  Czech 
advanced  economies 
graduates  generally  possess  good  technical  skills 
but  less  developed  soft  skills  and  large  gaps  exist 
in the perceived quality of management schools.  

Innovation-driven  high-growth  enterprises  are 
key  to  economic  development  and  industrial 
renewal.  These  enterprises  are  responsible  for  a 
large  share  of  job  creation  and  productivity  gains 
and  can  leverage  efficiency  and  competitiveness 
gains  in  the  sectors  and  regions  where  they  are 
located  (Hallak,  I.  and  Harasztosi,  P.,  2019; 
Haltiwanger,  J.  et  al,  2017;  Monteiro,  G.,  2019). 
Many enterprises have successfully scaled up their 
operations  in  recent  years  and,  by  2016,  4,241 
growth 
enterprises  were 

considered 

high 

31 

 
3.4. Competitiveness, reforms and investment 

Access to conventional finance is above the EU 
average  but  risk  financing  is  less  developed. 
Almost  90%  of  applying  SMEs  received  the  full 
amount  of  the  bank  credit  they  requested,  one  of 
the  highest  success  rate  at  EU  level.  Borrowing 
costs are also relatively low.  A  majority of  Czech 
SMEs  (74%)  also  report  they  occasionally  or 
late  payments 
regularly  face  problems  with 
(European  Commission,  2019e).  Risk  financing 
remains  underdeveloped. 
In  a  World  Bank 
assessment,  the  domestic  capital  market  cannot 
fully  support  the  expected  structural  change  of 
Czechia.  Together  with  the  private  sector,  the 
authorities  decided  to  create  a  new  National 
Development Fund (see Box 3.4.1).  

Venture capital remains very low. Czechia ranks 
among  the  countries  with  the  lowest  funds  raised 
through venture capital (see Graph 3.4.2). Funding 
is mostly concentrated in start-ups and almost non-
existent  in  the  seed  and  later  development  stages, 
especially for high-risk projects. Equity issuance is 
also  negligible.  In  this  context,  the  government 
approved  in  2019  the  National  Strategy  for  the 
Development  of  the  Capital  Market  2019-2023. 
The  early  stage  equity  Fund  of  Funds  financed 
from EU funds has also started operating. 

Graph 3.4.2:  Venture Capital in 2018 as a share of GDP 

enterprises  (11.3%  of  all  enterprises  with  at  least 
10  employees  compared  to  an  EU  average  of 
10.7%).  The  geographic  distribution  is  fairly 
homogeneous, with a higher percentage in Prague, 
Severovýchod,  Jihovýchod  and  Střední  Morava 
(Flachenecker et al., 2020).   

Czech enterprises are highly integrated in value 
chains  but  due  to  the  productivity  gap,  focus 
mainly on low value added activities. According 
to the European Central Bank (2019), based on the 
World  Input-Output  Tables,  Central  and  Eastern 
European  countries  have  one  of  the  highest 
participation  in  global  and  regional  value  chains. 
In  fact,  Czechia  had  the  highest  volumes  of 
regional  value  chain  trade  in  the  EU  in  2014 
(Stöllinger  et  al.,  2018),  based  on  the  strong 
bilateral 
links  with  Germany.  Nonetheless, 
Czechia  is  positined  more  downstream  in  the 
global  production  chain  (exports  have  a  high 
import content – 38% in 2016 according to OECD 
data),  as  a  large  part  of  the  economic  activity  is 
based  on  compiling  and  assembling  processes.  In 
2016,  the  share  of  domestic  value  added  in  the 
total  exports  amounted  to  62%,  one  of  the  lowest 
figures in the EU. In the car industry, the share was 
even lower at 46%, compared to 76% in Germany. 
A  recent  analysis  showed  that  9  out  of  10  most 
important  economic  sectors  by  export  volume  are 
placed  on  the  parts  of  the  value  curve  with  low 
value added (Deloitte, 2019b). Nonetheless, export 
composition has evolved in the last three decades, 
moving  from  metal  products  to  machinery  and 
electric products (see Graph 3.4.1). 

Graph 3.4.1:  Composition of Czech exports, % of total 

Source: Invest Europe, Eurostat, European Commission 

Source: Eurostat 

32 

0%5%10%15%20%25%30%35%40%1990200920170.000.010.020.030.040.050.060.070.080.090.10CZSEUKDEHUPLSKSeedStart-upLater stage     
     
3.4. Competitiveness, reforms and investment 

Box 3.4.3: The National Development Fund 

The Czech government and the four largest banks agreed to create the National Development Fund. 
The  four  commercial  banks  (all  foreign-owned)  signed  a  Memorandum  with  the  Czech  government  in 
September  2019  and  committed  to  make  an  initial  contribution  to  the  fund  amounting  to  around  CZK  7 
billion (€275 million) for a 10-year period. Investments into the Fund remain voluntary and the government 
is currently in discussions with other private investors that may join later. 

The sole owner of the Fund is the Czech-Moravian Guarantee and Development Bank (ČMZRB), the 
national  promotional  bank.  The  Bank  plays  an  important  role  in  the  implementation  of  EU  financial 
instruments  as  it  has  successfully  contributed  to  the  allocation  of  more  than  €350  million  through  its 
instrument for small and medium enterprises (‘Expansion’ soft loans and guarantees programme). The bank 
was also able to increase the volume of bank guarantees thanks to the counter-guarantee received from the 
European Investment Bank under the EU programme for the Competitiveness of Enterprises and Small and 
Medium-sized Enterprises (COSME). The management of the Fund will be a new activity of the Bank. 

The Fund will operate as a Qualified Investor Fund. It will be set as a subsidiary of ČMZRB in the form 
of  a  Joint  Stock  Company  with  a  Variable  Registered  Capital  (SICAV).  The  Fund  requires  an  operating 
license  from  the  Czech  National  Bank  and  may  start  operations  at  the  end  of  2020.  There  are  on-going 
discussions  between  the  authorities  and  the  national  statistical  institute  on  the  possibility  of  recording  the 
liabilities of the Fund outside the balance sheet of the government. 

The Fund will combine various financial resources with mezzanine financing. It plans to provide a set of 
junior debt instruments  and  guarantee  products  with  a higher degree  of  risk  compared  to the  conventional 
products  offered  by  commercial  banks.  The  main  investment  instruments  will  be  specific  guarantees  and 
loans, subordinated and convertible bonds, and capital participation. It will be possible to complement the 
Fund’s allocations with guarantees  from the InvestEU programme if the Czech authorities decide to  make 
use of the Member State compartment under the future Cohesion Policy allocation.  

Investments  under  the  Fund  will  be  linked  to  the  National  Investment  Plan  unveiled  in  December 
2019.  The  plan  lists  over  20,000  projects  planned  in  2020-2050  with  a  total  cost  of  around  €315  billion 
(CZK  8  trillion  or  150%  of  GDP  at  2018  prices)  that  should  be  financed  from  different  public,  EU  and 
private sources. Transport accounts for three quarters of the allocation, particularly road and rail transport. 
The energy sector, including the building of the new nuclear blocks, was allocated around 5%. Education, 
research and innovation and digitalisation account for only around 2%. Projects under the Fund will also take 
into account the priorities of the National Innovation Strategy, the Strategy for a Digital Czechia and other 
documents that will be part of the country’s new economic strategy.  

Investors  will  be  able  to  decide  which  projects  they  want  to  fund.  The  Fund  is  expected  to  focus 
investment  in  areas  like  transport,  digital  and  social  infrastructure,  healthcare,  education,  and  energy  and 
environmental  infrastructure.  Most  of  these  projects  would  be  implemented  in  public-private  partnerships, 
despite the fact that Czechia has had a limited experience in using these financing instruments. The specific 
investment direction and strategy of the Fund will be led by the National Investment Council composed of 
nine  members  —  a  senior  expert  appointed  as  Chairman,  four  members  nominated  by  investors  and  four 
members  nominated  by  the  government.  The  Fund  will  aim  to  provide  a  certain  return on investment  and 
maximise valuation to motivate other private investors to join.  

Funding  for  innovative  enterprises  remains 
limited.  Various  public  financial  resources  are 
distributed  through  individual  entities,  mostly  in 
the  form  of  direct  support  incentives,  particularly 
grants and matching grants (Květoň and Benedetti-
Fasil,  2020).  Without  other  types  of  financial 
instruments  or  a  vibrant  entrepreneurial  and 
financial  ecosystem,  innovation  continues  to  be 
hampered.  Authorities  introduced  an  amendment 

to the Investment Incentives Act in 2019. The aim 
is to provide further financial support to innovative 
enterprises  that  draw  more  from  R&D  and,  in 
particular,  to  projects  with  higher  value  added. 
Additionally,  the  Tax  Incentives  Act  amended  in 
the 
2019 
shortcomings  of  the  R&D  tax  incentives  scheme 
and  to  boost  the  uptake  of  R&D  tax  breaks  for 
innovative enterprises. 

to  address  some  of 

is  supposed 

33 

3.4. Competitiveness, reforms and investment 

R&D spending (see 2018 country report). This gap 
could  be  narrowed  through  higher  engagement  of 
domestic enterprises in research and innovation in 
order to move up in the value chains. 

Low returns, fragmentation, moderate scientific 
quality  and  low  internationalisation  lead  to  a 
modest performance. The total R&D expenditure 
has grown steadily since 2010, reaching 1.93% of 
GDP  in  2018,  slightly  below  the  EU  average  of 
2.11%.  Public  R&D  expenditure  also  rose  from 
0.56%  in  2010  to  0.73%  in  2018,  still  below  the 
2020 target of 1% of GDP. Despite the substantial 
increase  in  public  R&D  funding,  the  quality  of 
scientific  outputs  (top  10%  most  cited  scientific 
publications  at  5.1%  in  2016)  remains  modest  at 
around half the EU average. Although the research 
system  is  more  internationalised  (as  measured  by 
international  co-publications,  at  46.5%  in  2018), 
Czechia still ranks low at the EU level. In addition, 
the  high  fragmentation  of  the  public  research 
sector results in R&D funding being thinly spread. 
Addressing these challenges would lead to further 
progress on reaching SDG 9. 

Public  R&D  expenditure  is  not  supported  by 
systemic  and  comprehensive  reforms.  Although 
some  measures  have  been 
and 
expenditure  is  increasing,  it  is  still  too  early  to 
assess  their  impact.  The  on-going  Metodika  17+ 
reform is  yet to be fully implemented by research 
organisations  and  higher  education  institutions  (a 
comprehensive rollout is expected in 2020).  

adopted, 

to 

knowledge 

Links  between  academia  and  business  are 
insufficient 
and 
support 
technology  transfer.  A  low  degree  of  public-
private  scientific  co-publications  (2.9%  compared 
to an EU average of 5.5%) suggests a weak public-
private cooperation. Regulatory barriers persist for 
spin-off creation and cooperation is often informal. 
In  the  public  sector,  researchers’  careers  largely 
depend  on 
record, 
their  publications 
discouraging them to work with the industry. Still, 
there  are  signs  that  knowledge  flows  may  be 
increased  researchers’ 
improving,  notably  via 
mobility.  The  number  of  scientists  in  full  time 
employment  in  the  private  sector  has  steadily 
increased to 3.9% in 2017 from 2.4% in 2010. 

track 

The effectiveness of the institutional governance 
of  research  and  innovation  policy  remains 
limited.  Competence  for  research  and  innovation 

a 

for 

need 

the  EU 

The  EU  supports  investment  in  Czechia  also 
through  the  European  Fund  for  Strategic 
Investments  (EFSI).  By  December  2019,  total 
financing  under  EFSI  amounted  to  €874  million, 
intended  to  trigger  €4.7  billion  in  additional 
investments.  €254  million  went  to  infrastructure 
and innovation projects, whereas €621 million was 
allocated  to  financing  SMEs.  In  total,  almost 
20,000 SMEs and mid-cap companies are expected 
to  benefit  from  improved  access  to  finance.  The 
current  experience  with 
financial 
instruments  and  the  EFSI  budgetary  guarantee 
simplification, 
demonstrated 
streamlining  and  better  coordination  of  the  EU’s 
investment  support  instruments  during  the  next 
2021-27 programming period. By the end of 2020, 
EFSI and other EU financial instruments will come 
under  the  roof  of  the  new  InvestEU  programme 
that  promotes  a  more  coherent  approach 
to 
financing  EU  policy  objectives  and  increases  the 
choice  of  policy  implementation  options  and 
implementing  partners  to  tackle  country  specific 
market  failures  and  investment  gaps.  In  addition, 
under  InvestEU,  Member  States  can  set-up  a 
national  compartment  by  allocating  up  to  5%  of 
their  structural  funds 
to  underpin  additional 
guarantee  instruments  supporting  the  financing  of 
investments  with  a  higher 
local 
specificities.  InvestEU  will  be  policy-driven  and 
sustainable 
focus 
and 
infrastructure, 
digitisation, 
social 
businesses, 
small 
the  European 
investment  and  skills.  Beyond 
Investment  Bank  Group,  other  multilateral 
financial  institutions  and  national  promotional 
banks  may  have  direct  access  to  the  InvestEU 
guarantee.  At  this  stage,  the  Czech-Moravian 
Guarantee  and  Development  Bank  (ČMZRB) 
showed  a  preliminary  interest  in  participating  in 
the InvestEU programme. 

areas: 
innovation, 
and 

four  main 
research, 

level  of 

on 

Research and innovation 

is 

crucial 

economic 

innovation 

sustainable 

for 
Home-grown 
supporting 
growth. 
Czechia  remains  a  moderate  innovator  according 
to  2019  European  Innovation  Scoreboard  (14th  in 
the  EU)  but  its  performance  has  been  gradually 
increasing. Business R&D intensity increased from 
0.77  %  of  GDP  in  2010  to  1.19%  in  2018  (EU 
average  1.41%).  A  significant  gap  exists  between 
the innovation performance of domestic firms and 
that of the large foreign-owned ones with a higher 

34 

3.4. Competitiveness, reforms and investment 

been  very  successful  in  knowledge  transfer  (over 
20  spin-offs  created)  but  also  in  tying  businesses 
and  academia  together,  principally  through  the 
work  of  South  Moravian  Innovation  Centre. 
Czechia,  being  a  country  involved  in  widening 
participation,  has  the  opportunity  to  coordinate 
activities  financed  under  Horizon  2020  (16).  Such 
projects that potentially lead to knowledge transfer 
enable cooperation with international and business 
partners and stimulate synergies between national, 
private  and  other  EU  funds.  These  projects  to 
create  centres  of  excellence  will  receive  funding 
for  up  to  7  years  after  which  the  question  of 
sustainability may arise. 

Transport and digital infrastructure 

New road infrastructure projects remain rather 
low.  The 
latest  available  figures  from  2016 
indicate that only 55% of the TEN-T road network 
and  63%  of  the  conventional  rail  network  were 
completed  (European  Commission,  2019d).  Partly 
due to a lack of proper strategic planning, essential 
parts of the TEN-T infrastructure have not yet been 
built  or  modernised.  The  number  of  completed 
kilometres  of  highways  has  been  very  low  since 
2014  (see  Graph  3.4.3).  In  total,  there  are  around 
1,200  km  of  expressways  and  motorways  in 
operation,  but  important  cross-border  links  to 
Poland  and  Austria  are  still  missing.  Uneven 
development  and  connectivity  primarily  affect  the 
south  and  the  northeast  areas  (the  unfinished  D3 
and  D35  motorways).  The  National  Investment 
Plan is supposed to address these investment gaps, 
but it remains to be seen whether the country  will 
be able to deliver the projects it has set out to do. 

Various procedural issues have lead to delays in 
infrastructure projects. Delays are mainly due to 
lengthy  authorisation  and  public  consultation 
procedures,  difficulties 
the  settlement  of 
property  rights  and  deferred  completion  of  public 
procurement  procedures.  New  forms  of  public-
private partnership financing could theoretically be 
part  of  the  solution  but  the  country  has  limited 
experience with these instruments.  

in 

The  electric  vehicle  charging  infrastructure  is 
still in early development. Czechia has one of the 
in  newly 
lowest  shares  of  electric  vehicles 
registered  passenger  cars.  The  number  of  public 

(16)  E.g. ongoing projects such as RICAIP and CETOCOEN.  

is 

leading 

supported  by 

policy  is  shared  between  different  authorities 
without  an  adequate  coordination  mechanism  or 
synergies.  A  leading  central  institution  with  a 
cross-cutting  coordination  and  practical  overview 
role is lacking. Consequently, the decision-making 
bodies  mostly  work  in  silos.  While  research  and 
innovation  policy 
several 
strategies,  these  strategies  lack  coherence  and 
coordination, 
to  potential  overlaps, 
uncertainties  and  lack  of  ownership  by  different 
entities.  The    Innovation  Strategy  2019-2030, 
adopted 
the 
majority of stakeholders, aims to move the country 
up  the  value  chain  and  help  it  become  an 
innovation leader by 2030. However, it remains to 
be  seen  how  effective  the  shared  ownership  and 
implementation  of  the  separate  pillars  of  the 
strategy  will  be.  The  effectiveness  of  the  strategy 
will  depend  on  the  successful  implementation  of 
the action plans prepared by the authorities. 

in  January  2019,  supported  by 

Innovation is hampered by insufficient numbers 
of graduates in science, technology, engineering 
and  mathematics.  The  share  of  tertiary  educated 
people  aged  25-34  has  doubled  since  2007  but  at 
33.3%  in  2018,  Czechia  still  ranks  low  at  the  EU 
level.  The  shortage  of  skilled  labour  is  due  to  a 
lower  number  of  graduates  but  also  because  of  a 
mismatch  in  the  fields  of  study  (TACR,  2019). 
Figures  for  graduates  in  science  and  engineering 
(11.9%)  and  computing  (2.8%)  indicate  a  slight 
deceleration in these areas in 2017 (15). The lack of 
ICT  specialists  on  the  market  can  significantly 
hamper  digital 
transformation  of  companies. 
Updating  the  curricula  is  a  lengthy  process  and 
there seems to be a lack of proper understanding of 
what industry requires and consequently what gets 
included in the study programmes. The quality and 
relevance of graduates’ training may therefore not 
fully  reflect  market  demands,  with  detrimental 
effects in medium and high-tech industry.  

Innovation  performance  varies  considerably 
between the regions. The country harbours a few 
pockets of scientific and technological excellence. 
By  hosting  the  majority  of  R&D  stakeholders, 
Prague  has  a  privileged  position  and  is  the  only 
strong innovator region in Czechia. While a couple 
of  the  regions  also  start  to  emerge,  others  lag 
behind.  For  instance,  Jihomoravský  region  has 

(15)  Negative  growth  rates  between  2013  and  2017  –  science 

and engineering -1.5% and computing -2.5%. 

35 

                                                           
                                                           
3.4. Competitiveness, reforms and investment 

Plan.  Due  to  the  delays  in  the  auctions  of 
frequencies,  the country  will probably  not be able 
to launch fully commercial 5G services by 2020. 

Small  and  medium  enterprises  have  started  to 
adapt  to  the  new  technological  changes.  The 
country is home to seven digital innovation hubs in 
Prague and three other regions that help introduce 
digital  technologies  in  factories  and  businesses. 
SMEs  are  eager  to  adopt  digital  technologies  but 
they lack the expertise to do so. Big data is one of 
the  most  popular  technologies  and  SMEs  expect 
public support in deploying state-of-the-art shared 
digital  infrastructure.  Czech  enterprises  also  excel 
at  e-commerce.  The  share  of  SMEs  purchasing 
online  has  increased  by  20%  since  2011  (among 
the highest growth in the EU) and almost a third of 
Czech  enterprises’  turnover  comes  from  online 
sales. (European Commission, 2019f). 

Circular economy 

Czechia  is  missing  a  circular  economy  strategy 
that  could  further  boost  economic  growth. 
Performance  under  the  monitoring  framework  on 
the  circular  economy  is  below  average.  The 
circular  material  use  rate  was  7.6%  in  2016,  up 
from 5.3% in 2010, but significantly below the EU 
average  of  11.7%.  Moving  to  a  circular  economy 
could 
the 
improve  resource  productivity  and 
efficient use of natural resources and generate cost 
savings. The potential impact of increased circular 
economy activities is as much as 1 pp in additional 
GDP growth by 2030 compared to the baseline and 
0.5  pp 
in  additional  employment  (European 
Commission, 2018c).  

Challenges  remain  in  meeting  the  2030  EU 
waste  targets.  There  are  pending  challenges  in 
reaching the 2030 EU targets for recycling 65% of 
municipal  waste,  recycling  75%  of  packaging 
waste  and  reducing  landfilling  to  a  maximum  of 
10%  of  municipal  waste.  The  landfilling  rate  of 
municipal waste is above EU average but recycling 
remains relatively low. The ambitious goal to ban 
landfilling by 2024 was postponed to 2030 in light 
of  the  new  waste  legislation  package  adopted  by 
the  government  in  December  2019.  The  90% 
collection  target  for  plastic  bottles  by  2029  might 
be  also  be  a  challenge.  Czechia  is  not  yet 
considering  introducing  a  deposit-refund  system 
for single-use beverage packaging.  

charging  points  per  plug-in  electric  vehicle  is 
below  the  EU  average.  Still,  the  number  of  new 
passenger cars using alternative fuels has increased 
ten-fold in 2011-2017. Measures for rolling out the 
required infrastructure fuels should be in line with 
the gradual uptake of clean vehicles. 
Graph 3.4.3:  Completed km of highways 

(1) For Czechia, highways represent both new sections and 
the modernisation of D1. (2) For Poland and Slovakia, 
highways represent both motorways and expressways. 
Source: European Commission 

The  target  for  fixed  broadband  full  coverage 
was reached but mobile broadband is relatively 
expensive.  Next  generation  access  coverage  has 
expanded  and  now  exceeds  the  EU  average. 
Czechia enjoys among the best 4G coverage (99%) 
but mobile broadband prices are almost double the 
EU  average.  This  affects  connectivity  particularly 
in  remote  regions  where  the  average  wages  are 
lower.  An  improved  and  affordable  access  to 
digital infrastructure can stimulate the provision of 
advanced  digital  services  that  require  fast  and 
reliable connectivity. 

in 

initiatives  such  as 

Czechia  is  committed  to  advancing  new  digital 
technologies.  It  made  artificial  intelligence  and 
automation  main  policy  priorities  (see  Box  3.4.2) 
the 
and  participates 
Coordinated  Plan  on  Artificial  Intelligence,  the 
Electronic Components and Systems for European 
Leadership  Joint  Undertaking  and  the  European 
Blockchain  Partnership.  The  Digital  Czechia 
programme’s implementation plans were approved 
in 2019. Over 16 years (2009-2025), at least €2.35 
billion  are  to  be  invested  in  digitalisation.  On  the 
other hand, Czechia remains below the EU average 
in the Commission’s Digital Economy and Society 
Index.  Furthermore,  the  country  risks  failing  to 
meet  the  objectives  of  the  European  5G  Action 

36 

050100150200250300350201420152016201720182019CZPLSK   
3.4. Competitiveness, reforms and investment 

Box 3.4.4: Automation and Artificial Intelligence in Czechia 

Automation  and  artificial  intelligence  (AI)  have  become  major  policy  priorities  for  the  Czech 
government. To jump on board with ‘the fourth industrial revolution’, the Czech authorities have launched 
various  national  strategies  on  AI,  innovation  and  digitalisation.  These  strategies  are  part  of  the  larger 
overarching  government  plan  called  ‘Czechia  —  The  Country  for  the  Future’  that,  among  other  things, 
would  make  the  country  a  leader  in  AI  by  2030.  Recently,  authorities  also  issued  a  non-paper  on  the 
country’s view on the development of the regulatory framework  for AI at EU level. The country needs to 
undergo a significant catch-up process in the sector, as there is quite some distance to frontier EU countries 
(see Graph 1). Furthermore, in the 2019 Government AI Readiness Index, Czechia is ranked 31st among 194 
countries and 3rd among newer Member States. Public funding for research and development in AI (around 
€10 million in 2017) is below EU average. 

Czechia  is  among  the  countries  that  would  potentially  be  more  affected  by  technological  change. 
Available research suggests that between 40% and 70% (depending on the methodology used) of the current 
jobs in the country may be at risk of being fully or partly automated in the next decades. The share is more 
pronounced  in  the  automotive  industry,  in  particular  for  jobs  such  as  production  workers  or  machine 
operators. The high potential for automation is in part related to the high importance of manufacturing in the 
economy (23.1% of GDP in 2018, 8.5 percentage points above the EU average). The automotive industry 
alone accounts for up to 10% of GDP and total employment when including all indirect suppliers. According 
to  a  2018  study  by  the  Czech  government,  in  the  short-term,  the  current  AI  technologies  could  substitute 
50% of the work skills demands in 11% of professions. Over 30 years, automation could replace over 50% 
of  skills  in  the  vast  majority  of  current  professions,  accounting  for  around  3.4  million  employees.  At 
regional  level,  the  highest  negative  impact  of  automation  on  employment  is  expected  in  the  Ústecký  and 
Karlovarský regions, while the largest structural benefits will most likely take place around Prague. 

Robotisation is already a significant component of the Czech economy. Acute labour shortages (80,000 
job  vacancies  in  Q3-2019)  and  high  wage  growth  (over  30%  cumulative  growth  since  2011)  in  the 
manufacturing  sector  have  prompted  most  private  companies  to  invest  significantly  in  automation  and 
robotisation. Data by the International Federation of Robotics indicates that the number of industrial robots 
increased from around 6,000 in 2011 to almost 16,000 in 2017. This accounts for around 40% of all robots 
installed in the Visegrád Four and puts Czechia in the top 15 at global level. More than half of the robots are 
used  in  car  assembly  plants,  with  the  rest  mostly  installed  in  metal,  plastic  and  rubber  manufacturing. 
Nonetheless, robot density in manufacturing (105 robots per 10,000 employees) lags behind Germany (224), 
Spain (163) and Italy (156). In the automotive industry, the density reaches around 4,000 robots per 10,000 
employees, compared to around 9,500 in Germany and 6,600 in Slovakia (see  Graph 2).  By contrast, less 
than 100 robots in total are used in education and R&D, compared to over 1,700 in Germany. According to 
Deloitte  (2018),  automation  could  double  the  potential  growth  of  the  economy  to  almost  4%  by  2033, 
particularly due to productivity gains in the manufacturing and construction sectors. 

Digital transformation is on track but digital skills need to improve to support and reap the benefits of 
a broader economic change. Digital infrastructure is improving (broadband coverage now exceeds the EU 
average) but in order to become a leader in AI, more investment is needed in very high capacity networks 
(including 5G services where the country faces delays in the roll-out). There has also been some progress in 
terms  of  rolling  out  digital  public  services.  The  steady  integration  of  digital  technologies  in  Czechia 
increases the importance of advanced digital skills, but these remain relatively low (26% compared to an EU 
average of 33% and over 38% in Germany or Austria). The number of patent applications related to Industry 
4.0  is  also  low,  with  only  33  applications  submitted  from  Czechia  by  2016,  out  of  the  total  13,229 
applications in the EU. The authorities have therefore introduced a Digital Education Strategy that is being 
rolled out, supported by  EU funds. A successful transition towards the digital economy  will largely hinge 
upon  the  availability  of  skilled  workers.  The  role  of  the  education  system  and  of  on-the-job  training  on 
digital skills will therefore be essential. 

There  have  been  encouraging  developments  in  the  research  and  innovation  of  AI,  mostly  in  Prague 
and Brno.  The AI Center (AIC) and the Institute of Informatics, Robotics and Cybernetics (CIIRC), both 
attached to the Czech Technical University in Prague, conduct state-of-the-art research and aim to transform 

37 

3.4. Competitiveness, reforms and investment 

Prague into a global AI hub. Similarly, Brno has established itself as a well-functioning regional innovation 
ecosystem  with  various  centres  of  excellence  in  research,  like  the  Brno  Technical  University,  Masaryk 
University or the Central European Institute of Technology (CEITEC), focusing on the specialisation of the 
Jihomoravský  region  in  areas  such  as  cybersecurity,  microscopy,  nanotechnology  and  biotechnology. 
Smaller  scale  initiatives  are  taking  place  in  Olomouc,  Ostrava,  Liberec  and  Pilsen.  Currently  more  than 
1,000 researchers in AI work with a funding of €250 million and according to the business environment, the 
Czech educational system offers more than 100 different masters programmes focused on AI. Consequently, 
Czech research teams, with the support of the government have officially expressed interest in hosting one 
of  the  European  AI  excellence  centres.  This  may  require  further  coordination  activities  among  the  Czech 
academia.  

Increasing the country’s entrepreneurial culture and developing its venture capital market are crucial 
for  technological  progress.  Currently,  there  are  only  timid  attempts  to  turn  the  existing  AI  research  into 
domestic  start-ups,  particularly  due  to  the  low  availability  of  venture  capital.  While  some  successful 
initiatives were brought to market, an increased entrepreneurial culture would help scale up the projects and 
increase  the  number  of  international  venture  capital  investors.  Until  the  private  sector  is  fully  mobilised, 
future  EU  financing  schemes  like  InvestEU,  Digital  Europe  or  Horizon  Europe  may  help.  There  is  also 
scope to consider AI in other areas, such as healthcare, transport and public administration. 

Graph 1:  Active players in AI and robot density in car manufacturing 

Source: Graph 1: Samoili et al (forthcoming).  
              Graph 2: Szabo (forthcoming) based on data from the International Federation of Robotics and EUROSTAT.  

Single Market Integration 

has 

increased. 

Czechia’s enforcement of Single Market rules is 
average overall. The lag in turning EU legislation 
into  national  law  has  declined  but  the  number  of 
infringement  cases,  including  those  for  incorrect 
transposition, 
Ineffective 
enforcement  of  single  market  rules  increases 
uncertainty for businesses, reducing their incentive 
to make additional investments. There are potential 
trade  benefits  from  improving  compliance  with 
Single  Market  goods  legislation,  as  Czech  small 
and  medium  enterprises  are  among  the  weakest 
performers in the EU in both intra-EU imports and 
exports of goods. estimated welfare gains (relative 
changes 
full 
incomes) 
transposition  of  the  Single  Market  legislation 

from 

real 

the 

in 

amount  to  1.12%  of  GDP,  with  an  additional 
1.55%  from  eliminating  infringement  proceedings 
(ESRI, 2019).  

and 

consumer 

Market  surveillance  of  non-food  products  is 
suboptimal. Retailers are the least likely in the EU 
to  think  their  competitors  comply  with  product 
safety 
legislations.  Market 
surveillance  of  the  Single  Market  for  goods  is 
essential to protect consumers and to ensure a level 
playing  field  for  businesses.  In  Czechia,  the 
responsibility  for  market  surveillance  of  non-food 
products  is  spread  over  about  a  dozen  authorities. 
Combined  with  a  persistent  lack  of  financial  and 
material  resources,  this  may  pose  challenges  for 
coordination and strategic priority setting, but also 
effective implementation of surveillance activities. 

38 

16050100150200250300UKDEFRITNLESSEBEPLATIEDKELFIROCZHURest of EUGraph 1: Players active in AI patenting activites and frontier research in 2009-2018FirmsResearch institutions-2,00002,0004,0006,0008,00010,000CZHUPLSKDEITFRESUKGraph 2: Robot density in car manufacturing20112011-2016   
 
3.4. Competitiveness, reforms and investment 

The regulatory burden on professional services 
and  professions  is  an  obstacle  to  growth  and 
competitiveness.  The  low  business  churn  rate 
shows a relatively low dynamism and competition 
within  regulated  professional  services  present  in 
these  sectors  in  Czechia  (see  Graph  3.4.4).  The 
European  Commission  restrictiveness  indicator 
shows  that  a  number  of  professional  business 
services  (i.e.  architects,  engineers,  lawyers)  are 
among  the  highly  regulated  in  the  EU.  The  high 
level of regulation in these professional services is 
also  confirmed  by  the  recently  updated  OECD 
product  market  regulation  indicator.  Regulatory 
restrictions 
forms, 
multidisciplinary 
shareholding 
requirements,  voting  requirements,  and  reserved 
activities)  can  be  detrimental  to  the  economic 
performance  of  the  services  markets.  In  general, 
labour  and  business  regulations  remain  important 
barriers for investment in the country (EIB, 2019). 

to 
activities, 

(limitations 

legal 

attractive 

them  more 

making 
for  private 
investment.  This  in  turn  means  that  Prague  (with 
its adjacent areas) and the Brno  metropolitan area 
also face much higher costs of living and a lack of 
affordable housing. The recently adopted Regional 
Development  Strategy  2021+  has  the  potential  to 
increase 
investment  and  address  the 
disparities.  The  strategy  can  make  use  of  certain 
territorial instruments such as Integrated Territorial 
and  Community  Lead  Local 
Investments 
Developments,  combining  various 
funds  and 
programmes.   

targeted 

Graph 3.4.5:  Regional Competitiveness Index 2019 

Graph 3.4.4:  Business churn in selected sectors in 2017 

Source: European Commission 

(1) Business churn: firm birth rate + death rate - percentage 
Source: Eurostat 

Regional dimension 

in 

the 

increase 

the  gap  between 

Despite 
living  standards, 
regional  disparities  are  wide.  The  most  striking 
the  capital  city  and 
is 
Severozápad,  an  area  located  between  Prague  and 
Saxony (see Graph 3.4.5). In general, poorer areas 
show 
inequality, 
increasing  homelessness,  higher  indebtedness  and 
pressing  demographic  challenges.  Conversely, 
richer  regions  achieve  much  better  educational 
outcomes  and  have  a  greater  innovation  capacity, 

lower  productivity,  greater 

the 

industry 

industry 

in  Ústecký 

Jihomoravský,  Pardubický 

Productivity  and  competitiveness  vary  in  line 
with  the  economic  structure  of  the  regions. 
While 
and 
Olomoucký  regions  have  a  rather  diversified 
economy, Moravskoslezsko and Severozápad have 
a  very  specific  economic  structure,  dominated  by 
coal  mining  and  processing  and  usually  another 
major  sector  (metal  industry  in  Moravskoslezsko, 
region  and 
chemical 
region). 
automotive 
Consequently,  productivity  is  evolving  somewhat 
differently. The progress in overall convergence is 
mainly  driven  by  the  good  performance  of  the 
capital city and the surrounding region. According 
to  the  2019  Regional  Competitiveness  Index, 
Prague  and  Střední  Čechy  are  among  the  30% 
most  competitive  regions  in  the  EU,  at  levels 
comparable  to  some  German  (e.g.  Münster)  or 
Austrian  regions  (e.g.  Salzburg).  The  moderately 
developed  regions  stand  in  the  middle  of  the  EU 
ranking, while Severozápad is in the bottom 30%. 

in  Karlovarský 

39 

02468101214161820AccountingEngineeringLegalArchitecturalReal estateTravel agenciesCzechiaEU-28RCI 2019InstitutionsMacroeconomicStabilityInfrastructureHealthBasic EducationHigher EducationLabour MarketEfficiencyMarket SizeTechnoReadinessBusinessSophisticationInnovationBasic Sub-indexEfficiency Sub-indexInnovation Sub-indexEU-28PragueSeverozápad    
    
3.4. Competitiveness, reforms and investment 

in 

has 

also 

strengthened 

Regional  innovation  distribution  reflects  the 
concentration of economic activity. The share of 
innovative firms in  most regions is lower than the 
EU  average.  Nonetheless,  Prague  is  a  strong 
innovator, with an R&D intensity of 2.9% of GDP. 
Innovation 
the 
Jihomoravský  region,  particularly  in  Brno,  in 
sectors like cybersecurity, electron microscopy and 
space  technologies  and  in  Střední  Čechy  in  life 
sciences,  physics  and  materials.  Ostrava  and 
Olomouc also have solid scientific bases, whereas 
Liberec and České Budějovice excel in areas such 
as textile or biology. Jihozápad is a high performer 
in  design  applications,  including  Pilsen  –  an 
engineering  success  story.  Conversely,  R&D 
intensity  is  only  0.3%  of  GDP  in  the  less 
developed  region  of  Severozápad.  The  growing 
network  of  regional  innovation  centres  providing 
business  development  support  could  generate 
positive  spillovers 
to  regions  with  potential 
(Zlínský  region)  or  where  the  harvested  fruits  of 
innovation and smart specialisation are still limited 
(Vysočina 
region).  Regional  authorities  also 
managed to strengthen their role in promoting and 
innovation 
business 
cultivating 
environment,  despite  the  fragmented  governance 
(World  Bank,  2019b).  At  the  same  time,  the 
current economic situation helps firms become less 
dependent on grants. 

and 

the 

Educational performance lags behind in the less 
developed  regions.  While  more  than  57%  of  the 
Prague  population  aged  30-34  has  a  tertiary 
degree,  in  the  less  developed  regions  it  drops 
below  30%,  or  even  below  20%  in  Severozápad. 
The latter has a different education structure of the 
population (a higher percentage of basic education) 
and  very  limited  research  (least  numbers  of 
researchers  per  capita).  There  are  relatively  large 
regional  differences  in  the  level  of  support  for 
regional schools and teachers’ skills. The reform of 
financing  the  regional  education,  implemented 
since  1  January  2020,  aims  to  reduce  unjustified 
differences  in  the  level  of  support  for  schools.  Its 
impact  to  compensate  for  differences  in  regional 
socio-economic development remains to be seen.  

Governance 

Public  sector  performance  and  government 
effectiveness  ranks  below  the  EU  average. 
According  to  international  indicators,  Czechia 
performs  relatively  well  on  access  to  government 

The quality of infrastructure and connectivity is 
relatively  uneven.  The  existing  parts  of  the 
backbone network have a poor connection between 
regions  and  lack  quality.  More  than  87%  of  the 
population  living  within  a  radius  of  120  km  of 
Prague  can  reach  the  capital  in  less  than  90 
minutes. In Jihozápad and Severovýchod, this ratio 
is only 50%. The regional transport networks have 
low interoperability and multimodality of different 
types  of  transport  systems.  There  is  a  high-speed 
broadband  connectivity  gap  between  urban  (76%) 
and  rural  (59%)  areas.  Access 
to  ultra-fast 
the  whole 
broadband 
population.  In  15%  of  municipalities  there  is  no 
interconnection  with  high-capacity  backhaul 
optical  networks  and  only  10%  of  municipalities 
have access to more than one provider. While 64% 
of people use the internet for interacting with their 
public  authorities 
in  Prague,  only  45%  of 
individuals  do  so  in  Střední  Morava.  Vysočina  is 
its  public 
the  only 
administration and all regional facilities (including 
schools and hospitals) are interconnected by high-
speed  broadband. 
regions,  digital 
In  some 
innovation hubs connect relevant regional partners 
and coordinate the support to SMEs. 

that  digitised 

to  16%  of 

limited 

region 

is 

to 

in 

differences 

Regional 
socio-economic 
indicators  persist  and  new  challenges  emerge. 
While  Prague,  Vysočina  and  Jihovýchod  have  a 
life  expectancy  close 
the  EU  average, 
Severozápad and Moravskoslezsko lag behind. The 
highest  gap  (3  years)  is  between  Prague  and 
Ústecký region. The highest share of people at risk 
of  poverty  is  reported  in  Severozápad  (19%)  and 
Moravskoslezsko (16%) where it has been steadily 
increasing  in  the  past  3  years.  The  lowest  share 
(around 5%) is in Prague and Střední Čechy. In the 
more  developed  regions,  overall  population  has 
been  growing  constantly  since  2000  (+20%  in 
Střední  Čechy,  the  region  with  the  highest  gross 
immigration  rate),  whereas  population  declined  in 
the  poorer regions  where  migration  has been low. 
In general,  foreigners represent a large part of the 
population  in  cities  like  Prague  (almost  15%), 
Brno,  Pilsen  and  Mladá  Boleslav.  In  other  areas 
like  Zlínský  and  Olomoucký 
regions  and 
Vysočina, foreigners make up less than 2% of the 
total  population.  The  uneven  spread  of  foreign 
workers  may  cause  new  disparities  and  increase 
pressures  on  housing,  healthcare  and  education 
(see also section 3.3). 

40 

 
3.4. Competitiveness, reforms and investment 

early  warning  mechanisms  to  potentially  avert 
bankruptcy  (European  Commission,  2019f).  A 
legislative  amendment  introduced  administrative 
and  financial  simplifications  in  the  liquidation 
process but the impact is yet to be assessed. 

recent 

continue 

The  lengthy  and  heavy  procedures  to  obtain  a 
to  be  an 
construction  permit 
important barrier for investment. Czechia ranks 
157th  on  the  length  of  the  permitting  procedure 
according to the Doing Business Index. The length 
doubled  between  2013  and  2016,  stabilising  at 
legislative 
around  250  days.  The 
the  Act  on  accelerating 
amendments 
the 
to 
construction  of 
transport,  water,  energy  and 
electronic communication infrastructure have been 
appreciated  by  the  business  community  with 
respect  to  simplification  and  acceleration,  but  the 
impact  is  still  to  be  assessed.  Another  legislative 
amendment  to  shorten  the  allowance  process 
is  under  discussion.  The  subject 
timeframe 
proposal  of  the  new  construction  legislation  was 
approved by the government in 2019 but has faced 
criticism  from  certain  public  authorities  and 
stakeholders  for  its  potential  negative  effects 
permitting 
on public 
procedures and 
rights. 
Approval  of  the  fully-fledged  proposal  is  planned 
for 2020 and the entry into force by 2021. 

of 
participation 

finances, 

length 

public 

to 

are 

The 

public 

country 

services 

available. 

becoming 
Digital 
increasingly 
is 
implementing  its  e-government  plan  included  in 
the Digital Czechia strategic paper. As of 2020 the 
country  has  a  new  ‘digital  constitution’  that  gives 
right 
receive  nearly  all  public  services 
electronically.  Nonetheless,  only  around  10%  of 
municipalities  offer  an  app  or  an  online  portal  to 
communicate with the general public. The number 
of  e-government  users  is  growing  at  a  slow  pace, 
as  only  a  small  share  of  the  population  uses  the 
eID card’s digital features. At the same time, only 
half of those  who  needed to submit official forms 
to public administrations did so electronically. The 
Supreme  Audit  Office  suggested  recently  that  the 
digitalisation  of  public  services  is  progressing 
rather  slowly  and  remains  below  the  EU  average 
due  to  slow  progress  in  legal  changes,  lack  of 
experts and out-of-date information systems. 

Digital  public  services  are  becoming  increasing 
available.  The  country  is  implementing  its  e-
government  plan  included  in  the  Digital  Czechia 

its  regions 

information  and  the  use  of  regulatory  impact 
assessments  in  policymaking  (despite  a  lower  use 
since 2017). Weaker performance is observed in e-
government,  professionalism  of  the  civil  service, 
transparency  of  government  and  control  of 
corruption  (European  Commission,  2018d).  The 
efficiency  of  public  administration  is  undermined 
by a  weak inter-ministerial coordination at central 
level and large  fragmentation at local  government 
level. Czechia also has one of the largest variations 
between 
terms  of  quality  of 
in 
governance  in  the  EU.  Between  2010  and  2018, 
slightly, 
government  performance 
whereas  trust  in  government  decreased.  Strategic 
planning,  e-government,  public  procurement, 
evidence-informed  decision  making  and  project 
management  are  other  areas  where  performance 
still falls short of EU average. Innovation in public 
administration is also not generated systematically 
and  intentionally.  The  application  of  the  rules  on 
conflict  of  interest  has  been  subject  to  scrutiny. 
Audits  by  the  European  Commission  on  potential 
conflicts of interest in the context of EU funds are 
currently ongoing. 

improved 

confirms 

regulation  data 

Starting a business remains difficult. According 
to  the  2019  Doing  Business  Index,  Czechia  ranks 
115th  out  of  190  economies.  The  2018  product 
the 
market 
administrative  burden  on  start-ups  is  problematic, 
particularly  for licences  and permits. This  may be 
driven by distortions created by state involvement 
in  the  economy  and  barriers  to  domestic  and 
foreign  entry.  Authorities,  on  the  other  hand, 
suggest  that  businesses  can  be  started  even  in  as 
little as one day. 

that 

Czechia  performs  relatively  well  in  terms  of 
giving  second  chances  to  reputable  bankrupt 
entrepreneurs.  The  fear  of  failure  rate  is  one  of 
the  lowest  in  the  EU  and  the  strength  of  the 
insolvency  framework  index  is  above  the  EU 
average. The time needed to resolve an insolvency 
case has fallen from 6.5 years in 2008 to 2.1 years 
in  2019.  However,  at  17%  of  the  debtor’s  estate, 
the  cost  of  resolving  insolvency  remains  among 
the  highest  in  the  EU.  Challenges  connected  with 
second chance include: (i) the ineffective measures 
to  facilitate  business  transfers  due  to  generational 
change;  (ii)  lack  of  equal  treatment  for  honest 
bankrupt  entrepreneurs;  (iii)  lack  of  ‘fast-track’ 
procedures  to  enable  entrepreneurs  to  move  on 
faster from bankruptcy processes; and (iv) lack of 

41 

3.4. Competitiveness, reforms and investment 

trace  subcontractor  payments,  quality  criteria  or 
the best value methodology. On the other hand, the 
initiatives  on  green  procurement  are 
still 
negligible.  Ministries  act  as  central  purchasing 
bodies  for  their  subordinated  bodies  and  external 
contracting  authorities  (e.g.  municipalities)  can 
also use central purchasing services. There new are 
initiatives on joint procurement led by the Ministry 
of Health  for the state hospitals and  by the  Union 
of  Towns  and  Municipalities 
smaller 
municipalities. The Ministry of Labour and Social 
Affaires  integrated  social  and  responsible  aspects 
in their procurement procedures.  

for 

The  perception  of  the  transparency  of  public 
procurement process is growing. While still seen 
as a serious issue by some stakeholders, error rates 
seem  to  be  decreasing  and  are  less  blatant.  The 
2018-2022 Anti-Corruption Strategy and the action 
plans  involve  training  courses  to  streamline  anti-
corruption  measures.  There  are  also  plans  to 
launch a public consultation on the  functioning of 
the Competition Office’s review procedures. 

Despite  improvements,  corruption  remains  a 
concern  for  businesses  and  hinders  economic 
activity.  The  World  Bank’s  control  of  corruption 
indicator  has  been  fluctuating  in  the  past  5  years 
and  Czechia  now  ranks  in  the  69.2  percentile 
worldwide,  slightly  down  from  70.7  in  2017. 
the  Transparency 
Czechia’s 
in 
International’s  Corruption  Perception 
Index 
remained  relatively  stable  in  2018  and  2019  but 
then  dropped  in  2020  (17).  According  to  the  2019 
Eurobarometer  Survey  on  corruption,  32%  of 
surveyed 
firms  mentioned  corruption  as  an 
obstacle to business (down from 51% in 2017). 

rankings 

Several  anti-corruption  measures  are  still 
pending.  In  December  2018,  the  government 
adopted  the  2018-2022  Anti-Corruption  Strategy, 
focusing  on  risk  management  and  risk  analysis, 
and  in  March  2019  it  approved  the  related  action 
plan.  This  focuses  on  four  priority  areas:  (i)  an 
effective  and 
(ii) 
transparency  and  open  access  to  information;  (iii) 
efficient  management  of  state  property;  and  (iv) 
the  development  of  civil  society.  The  law  on 
nominations  to  the  state  owned  companies  has 

independent  government; 

(17)  According 

to  Transparency 

own 
methodology  of  compiling  the  Corruption  Perception 
Index. 

International’s 

all 

public 

services 

strategic paper. As of 2020 the country has a  new 
‘digital  constitution’  that  gives  right  to  receive 
nearly 
electronically. 
Nonetheless,  only  around  10%  of  municipalities 
offer  an  app  or  an  online  portal  to  communicate 
with 
the  general  public.  The  number  of  e-
government  users  is  growing  at  a  slow  pace,  as 
only  1%  of  the  population  uses  the  eID  card’s 
digital  features.  At  the  same  time,  only  half  of 
those  who  needed  to  submit  official  forms  to 
public  administrations  did  so  electronically.  The 
Supreme  Audit  Office  suggested  recently  that  the 
digitalisation  of  public  services  is  progressing 
rather  slowly  and  remains  below  the  EU  average 
due  to  slow  progress  in  legal  changes,  lack  of 
experts and out-of-date information systems. 

to 

in 

as 

such 

areas 

The legal framework for public procurement is 
improving.  Authorities  usually  adopt  the  strictest 
interpretation 
contract 
modification  or  low  tender  assessment  to  avoid 
irregularities.  An  amendment 
the  Public 
Procurement  Act  is  currently  being  prepared  to 
address  certain  aspects  that  have  proven  to  be 
problematic.  Training  is  under  way  for  most 
personnel  dealing  with  procurement,  including  at 
regional  level.  Several  thousand  people  were 
trained internally in 2019, with new courses being 
added  (e.g.  in  healthcare).  Procurement  processes 
are  electronic,  running  either  on  the  state-owned 
platform  or  on  one  of  the  seven  major  private 
platforms.  The  government  recently  approved  the 
update of the electronic infrastructure system. 

quickly 

decisions 

to  make 

The  average  speed  of  procurement  review 
procedures  is  improving. In 2019, the procedure 
shortened  from  37.7  to  29  days.  The  media  tends 
to  put  considerable  pressure  on  the  Competition 
Office 
and 
transparently.  Moreover,  in  November  2019,  the 
Constitutional  Court 
third  party 
submissions  for  review  should  not  be  subject  to 
fees. The Competition Office was also subject to a 
police  investigation  linked  to  its  decisions  in 
certain  high-profile  cases.  The  institution  started 
to  reassure 
providing  guidance  and 
contracting authorities, in particular municipalities, 
about its interpretation of key legal matters.  

training 

ruled 

that 

Smart  procurement  practices  are  increasing 
and improving in quality. In general, there seems 
to be an increase in the use of new practices such 
as ‘meet the buyer’ events, transparent accounts to 

42 

                                                           
3.4. Competitiveness, reforms and investment 

been  adopted  in  late  2019.  However,  the  bill  on 
lobbying,  pledged  in  previous  action  plans,  is 
pending  discussion  in  the  Parliament.  The  bill  on 
whistleblower  protection  is  being  prepared  at 
ministerial  level.    Clear  rules  for  parliamentarians 
on acceptance of gifts, on declaration of activities 
and assets, on incompatibilities, on interaction with 

lobbyists  is  missing.  A   revision  of  the  law  on 
public  prosecution  is  currently  under  preparation. 
In  2019 
triggered 
the  proposed  amendment 
concerns  from  key  stakeholders  regarding  the 
independence  of  public  prosecution,  including 
from the side of the Supreme State Prosecutor.  

43 

Box 3.4.5: Investment challenges and reforms in Czechia Macroeconomic perspective Investment in Czechia has consistently been above the EU average since 2004, due to the high share of manufacturing, which requires high levels of investment in equipment. The average share of investment to GDP in 2004-2018 was 26.7%, one of the highest in the EU. Nevertheless, investment in R&D and other intangible assets like education and digitalisation remain rather modest. Public investment is expected to remain robust due to an increased absorption of EU funds up to 2023.  Assessment of barriers to investment and ongoing reforms  Despite relatively high investment, a number of challenges persist. Inadequate coordination among different layers of government is affecting the efficiency of public investments. The lack of predictability in business regulation and the administrative and regulatory burdens are particularly problematic. Labour and skills shortages are also perceived as main barriers, while modest investment in R&D and insufficient links between academia and businesses are limiting knowledge and technology transfers. Lengthy authorisation and public consultation procedures have weighed on investment in both transport infrastructure and housing. Selected barriers to investment and priority actions underway 1. Relatively low quality transport infrastructure is one of the main barriers to investment in the country. Infrastructure investment in transport is below pre-crisis levels, leading to a reduced number of completed kilometres of road infrastructure since 2014. Lengthy administrative procedures for building new infrastructure also inhibit further investment. Some recently adopted amendments aim to simplify and accelerate the process, and a new construction code is currently under preparation. 2. Labour shortages and skill mismatches are perceived as one of the main barriers to investment by private firms. In light of the labour shortages, employers plan to attract more foreign workers. Meanwhile, firms do not invest as much in training employees as the EU average, particularly in the manufacturing sector. However, one sign of progress was the launch of the 2019-2030 innovation strategy.   Regulatory/ administrative burdenCSRTaxationPublic administrationAccess to financePublic procurement /PPPsCSRCooperation btw academia, research and businessJudicial systemFinancing of R&D&ICSRInsolvency frameworkBusiness services / Regulated professionsCompetition and regulatory frameworkRetailEPL & framework for labour contracts ConstructionWages & wage settingDigital Economy / TelecomCSREducation, skills, lifelong learning CSREnergyCSRTransportCSRLegend:No barrier to investment identifiedSome progressCSRInvestment barriers that are also subject to a CSRSubstantial progressNo progressFully addressedLimited progressNot assessed yetPublic administration/ Business environmentFinancial Sector / TaxationR&D&ISector specific regulationLabour market/ Education3.5.  ENVIRONMENTAL SUSTAINABILITY 

some  of 

is  a  particularly 

Czechia’s  carbon-intensive  economy  needs  to 
overcome  various  challenges  to  move  closer  to 
climate  neutrality.  As  a  transit  country  with  a 
high  share  of  manufacturing  in  GDP,  Czechia  is 
currently  witnessing 
the  highest 
greenhouse  gas  emissions  per  capita  in  the  EU. 
This is mostly due to a significant reliance on coal 
and a less than optimal level of energy efficiency. 
Coal  production 
important 
economic activity in three regions, which will need 
to  undergo  a  socially-fair  transition  in  a  cost-
efficient  manner.  According  to  the  country’s 
recently  unveiled  National  Investment  Plan,  the 
costs of a full transition away from the use of fossil 
fuels  by  2050  are  expected  to  reach  €25  billion 
(12% of GDP at 2018 prices). However, in a recent 
report,  the  Czech  Supreme  Audit  Office  (NKU, 
2019)  found  that  the  motivation  of  the  Czech 
general  public  to  reduce  energy  consumption  and 
increase  environmental  taxation  is  quite  low. 
Furthermore,  there  are  no  effective  and  efficient 
tax measures in place to ensure climate  transition, 
particularly in road transport.18 

Climate change already affects Czechia through 
droughts,  floods  and  damage  to  its  forests, 
causing 
significant  economic  damages.  A 
significant  part  of  the  economic  losses  is  not 
insured, meaning that either the state (as an insurer 
of  last  instance)  or  the  victims  absorb  the  losses. 
Droughts  and  an  expansion  of  the  bark  beetle 
population  due  to  favourable  weather  conditions 
have  caused  significant  economic  damages  (an 
estimated  20-25  millions  m3  of  damaged  wood  in 
2019).  The increase of beetle-damaged  wood has 
been  exponential  over  the  past  years  (from  1 
million m3 in 2014 to 5 million m3 in 2017), to the 
extent that Czechia has lost its carbon sink. Forest 
land  area  in  conifer  forests  cleared  by  salvage 
logging  or  affected  by  droughts  increased  almost 
threefold  since  2016.  Apart  from  a  scheme  to 
collect rainwater to change the landscape structure 
and  restore  wetlands,  there  are  few  effective 
adaptation  measures  put  in  place  to  address 
drought.  Furthermore,  in  2018,  79%  of  habitats 
and  64%  of  species  covered  by  Natura  2000 
network were in unfavourable conservation status. 
Also, only 19% of surface water bodies are in good 
or high status. 

18 The Commission will assess, in the course of 2020, the final 
National Energy and Climate Plan submitted by Czechia on 
22 January 2020.  

Energy  intensity  remains  one  of  the  highest  in 
the EU, but there seems to be a low ambition to 
reduce it in the medium-term. Czechia is one of 
the most energy-intensive countries in the EU (see 
Graph  3.5.1).  Final  energy  consumption  has 
remained  quite  constant  since  the  mid-1990s 
(around  25  Mtoe)  but  import  dependency  (for  oil 
and natural gas) has been increasing significantly, 
reaching  37%  in  2017  (the  highest  level  since 
1990). Energy consumption per capita in 2017 was 
4.1 tonnes of oil equivalent per person (down from 
4.7 in 1990), the highest among regional peers and 
above  EU  average  (3.3).  Both  primary  and  final 
energy  consumption  increased  since  2014  (40.4 
Mtoe  and  25.5  Mtoe,  respectively).  In  the  draft 
National Energy and Climate Plan submitted to the 
Commission, Czechia plans to reach 41.3 Mtoe of 
primary  energy  consumption  and  23.7  Mtoe  of 
final energy consumption by 2030. This represents 
a  rather  low  level  of  ambition  for  primary  energy 
consumption  and  only  a  modest  contribution  for 
final energy consumption. 

Graph 3.5.1:  Energy intensity in selected countries 

(1) kilograms of oil equivalent per €1,000 
Source: Eurostat 

Road  transport  is  becoming  on  of  the  main 
the  number  of 
consumer  of  energy,  as 
conventional  motor  vehicles  has  increased.  The 
reduction  of  energy  consumption  in  industry  was 
counteracted by its increase in transport (see Graph 
3.5.2).  Between  2011  and  2018,  the  number  of 
motor  vehicles  in  Czechia  increased  by  over  25% 
and  now  account  for  127  grams  of  CO2  per  km 
(NKU, 2019), far from the 2021 EU-wide target of 

44 

0100200300400500600700800900BGEECZPLHUSKROLTDEEU2819952017 
                                                           
    
95 g CO2/km. While in 1995, transport accounted 
for only 11% of all energy consumption, by 2017 it 
had  reached  27%,  though  this  was  still  below  the 
EU  average  of  31%  (see  Graph  3.5.2).  Almost 
95% of all consumption in the sector is due to road 
transport.  This  was  caused  by  an  uptake  of  more 
polluting vehicles coupled  with low sales of zero-
emission vehicles, and the absence of a supporting 
policy  framework. Less than  4,000 passenger cars 
(0.4 % of the vehicle fleet) is fully electric or plug-
in  hybrid  and  there  are  only  around  620  installed 
chargers  (European  Alternative  Fuel  Observatory 
data),  suggesting  investment  in  the  recharging 
infrastructure remains low. More worrying, despite 
stricter  rules  imposed  recently,  1  in  4  vehicles 
currently 
the  permitted 
emissions limits, according to an inspection carried 
out in 2019. The density of the rail network is very 
high,  but  only  around  a  third  of  the  lines  are 
electrified and high-speed connections are missing. 
Consequently,  Czechia  has  a  much  higher  use  of 
coaches than the EU average. 

in  circulation  exceed 

Graph 3.5.2:  Final energy consumption by sector and 

production by source 

3.5. Environmental sustainability 

for  renewable  energy  sources  to  account  for  22% 
of  gross  final  consumption  of  energy  by  2030, 
slightly  below  the  23 %  recommended  by  the 
European Commission. It also aims to increase the 
share  of  nuclear  energy.  According  to  its  2015 
Energy Policy, nuclear energy could account for a 
third  of 
total  primary  energy  sources 
(excluding  electricity)  and  a  half  of  gross 
electricity generation by 2040. 

the 

renewable 

A  complete  legal  and  institutional  framework 
for  supporting  renewable  energy  is  pending. 
The abolishment of support schemes for renewable 
energy in 2014 led to a static market. In this sense, 
authorities have been preparing legislative changes 
of the Renewable Energy Support Act with the aim 
of introducing a new support schemes. In addition, 
the  administrative  burden  and  various  technical 
and  legal  obstacles  to  domestic  energy  generation 
from 
(i.e.  grid 
connection  and  charges,  and  the  involvement  of 
many  authorities 
licensing  process). 
the 
Investment grants for distributed renewable energy 
are  currently  the  only  support  instrument  for  new 
installations,  but  there  are  plans  to  introduce 
auctions  for  projects  above  1  megawatt.  Self-
consumption,  citizens'  cooperatives  and  Power 
Purchase  Agreements  as  enshrined  in  the  new 
Clean  Energy  Package  may  help  address  negative 
perception  and  increase  public  acceptance  of 
renewables in the country. 

resources  persist 

in 

Despite  some  progress,  the  economy  is  still 
among  the  most  carbon  intensive  in  the  EU. 
Czechia  has  one  of  the  highest  greenhouse  gas 
emissions  per  capita  in  the  EU  (12.2  tonnes 
compared  to  an  EU  average  of  8.5  in  2018)  and 
progress  since  2007  has  been  rather  low  (see 
Graph  3.5.3).  Around  75%  of  the  emissions  are 
generated  by  energy,  followed  by 
industrial 
processes and product use (12%), agriculture (6%) 
and  waste  management  (4%).  Nonetheless,  total 
emissions dropped by around one third since 1990, 
putting  Czechia  among  the  countries  with  the 
highest  effort  (in  line  with  the  other  newer 
Member  States  in  the  region).  In  this  context,  the 
country  is  likely  to  meet  the  2030  target  in  the 
sectors  not  covered  by  the  EU  Emissions  Trading 
System (EU ETS), according to the projections of 
the  draft  National  Energy  and  Climate  Plan. 
According to  national projections,  greenhouse gas 
emissions generated by the energy industries under 
the  scope  of  EU  ETS  are  expected  to  drop  by 

Source: Eurostat 

The use of renewable energy in Czechia is below 
EU average and the sector has been static in the 
past years. At around 15%, the share of renewable 
energy  in  final  consumption  is  below  EU  average 
(18% in 2018) and has been static since 2014. The 
share is particularly low in the electricity sector (at 
13.9%, it is almost 20 pps below the EU average), 
but  also  in  transport.  According  to  its  draft 
National  Energy  and  Climate  Plan,  Czechia  aims 

45 

0510152025303540024681012141619902004200920142017IndustryTransportResidentialServicesSolid fossil fuels production (rhs)Renewable & biofuels production (rhs)MtoeMtoe   
3.5. Environmental sustainability 

brown coal (lignite). The country’s 9  mines  make 
Czechia  the  third  largest  coal  producer  in  the  EU 
(46  million 
tonnes  produced  annually)  after 
Germany  and  Poland.  Nonetheless,  since  1989, 
mining production decreased by 56% for hard coal 
and  88%  for  brown  coal.  The  latter  is  one  of  the 
sources  with  the  highest  emissions  of  CO2  – 
almost  twice  that  of  natural  gas  and  almost  30% 
more than diesel or gasoline (20).  

around  a  quarter  between  2020  and  2035,  while 
emissions  from  transport  are  expected  to  drop  by 
around  20%.  Under  the  Effort  Sharing  regulation, 
their 
most  sectors  are  expected 
emissions,  except  for  agriculture,  where  a  10% 
increase  is  expected  by  2030  (EEA,  2019).  The 
2017  Climate  Policy 
foresees  an  emission 
reduction  of  80%  in  1990-2050.  In  the  energy 
sector, the emissions should fall nearly to zero. 

reduce 

to 

Graph 3.5.3:  Greenhouse gas emissions per capita 

Source: Eurostat; European Environmental Agency 

Carbon prices in Czechia are too low to have a 
significant impact on mitigating climate change. 
Czechia  does  not  have  an  explicit  carbon  tax. 
Thus,  according  to  OECD  (2018),  the  carbon 
pricing  gap  in  Czechia,  which  compares  actual 
carbon  prices  and  real  climate  costs,  estimated  at 
€30  per  tonne  of  CO2,  was  70%  in  2015,  down 
from only 71% in 2012 (19). This is the highest gap 
among  the  Visegrad  countries  and  significantly 
above  the  EU  average.  Consequently,  for  a  cost-
transition,  carbon  prices 
effective 
would need to increase considerably. 

low-carbon 

There is a high reliance on solid fossil fuels with 
higher CO2 emissions. In 2018, solid fossil fuels 
represented more than one third of the total energy 
supply, down from two thirds in 1990 and one-half 
in  2000.  Over  70%  of  the  supply  comes  from 

(19)  The  OECD  report  measures  carbon  prices  using  the 
Effective  Carbon  Rate,  which  is  the  sum  of  three 
components: specific taxes on fossil fuels, carbon taxes and 
prices of tradeable emission permits. 

is 

There  is  no  final  date  for  phasing  out  coal 
production  but  authorities  are  implementing  a 
strategy for the coal-mining regions. The Czech 
coal  commission  is  required  to  analyse  options 
regarding  an  exit  from  coal  production  and 
propose  recommendations  to  the  government  by 
important  for 
September  2020.  This  date 
Moravskoslezsko  and  Severozápad  (21),  which  are 
among the 6 largest coal-mining regions in the EU 
(22).  While  both  regions  still  strongly  depend  on 
the  mining  sector,  they  are  at  various  stages  of 
transition  to  a  zero-emission  economy.  They  are 
supported  by  a  specific  government  resolution 
called  the  Strategic  Framework  for  Economic 
Restructuring (RESTART) which outlines a broad 
variety  of  measures 
for 
accompanying the transition. Given the challenges 
and  needs,  local  commitment  and  a  coordinated 
action  at  regional  and  national  level  are  key  to 
achieve  structural  change  and  carbon  neutrality 
(see Annex D). 

to  be  prepared 

Air  quality  remains  a  problem  in  most  Czech 
regions.  Residential  solid  fuel  combustion  is  the 
main  source  of  particulate  matter  (PM2.5  and 
PM10),  but  Benzo[a]pyrene  (BaP)  and  volatile 
organic  compounds  are  also  key  sources.  The 
emissions of SO2 mostly come from the industrial 
and power generation sectors, which account for a 
large share of the nitrogen oxides, volatile organic 
compounds, particulate matter and heavy metals in 
the  air.  Most  large  combustion  plants  still  use  the 
flexible 
industrial 
emissions directive to temporarily allow less strict 
emission limit values.  

arrangements  under 

the 

(20)  https://www.eia.gov/tools/faqs/faq.php?id=73&t=11 
(21)  Severozápad is a NUTS 2 region composed of two NUTS 3 
regions  (Karlovarský  and  Ústecký).  Moravskoslezský  is 
both a NUTS2 and a NUTS 3 region. 

(22)  Czechia  employs  about  10%  of  the  185,000  coal  sector 
workers in the EU, behind Poland, Germany and Romania 
(Alvez Diaz et al., 2018). 

46 

0.05.010.015.020.025.030.020182007    
                                                           
                                                           
3.5. Environmental sustainability 

to  boost 

more  efficient  use  of  energy  and  resources  across 
all sectors. Currently, however, there are a lack of 
initiatives 
the  resource  and  energy 
efficiency  of  the  information  and  communication 
sector, as the authorities prioritise other aspects of 
the digital agenda, such as the development of the 
digital  infrastructure,  digital  public  services  and 
cybersecurity.  An  increase  in  sustainability  could 
also  come  from  the  cloud-computing  strategy, 
currently under preparation. 

Various other policies can ease the transition to 
a more sustainable economy but are not widely 
used.  There  is  space  to  tighten  environmental 
criteria  of  vehicle  taxes  to  promote  the  use  of 
cleaner  vehicles  (see  Section  3.1).  Furthermore, 
several  tax  exemptions  reduce  incentives  to  save 
energy or to switch to cleaner  fuels. Initiatives on 
green public procurement and green budgeting are 
also  still  relatively  limited.  Pricing  carbon  could 
also  help  tackle  climate  change  and  air  pollution 
energy 
cost-effectively, 
and  help 
affordability.  As 
source  of 
environmental  revenue,  Czechia  can  consider  the 
cost-effective  transfer  of  emissions  allocations  to 
other  Member  States.  The  country  also  lacks  an 
overarching  circular  economy  strategy  that  could 
help in the transition (see Section 3.4). 

additional 

improve 

an 

increased 

reduce  energy  costs 

Improving  energy  efficiency  can  be  an 
opportunity  to  increase  competitiveness.  The 
country  achieved  only  68%  of  the  estimated 
cumulative energy savings for 2014-2017, far from 
the  energy  savings  obligations  under  the  Energy 
energy 
Efficiency  Directive.  An 
performance  can 
for 
households  and  businesses,  as  well  as  develop 
cleaner  industries  and  help  the  economy  move  up 
the  value  chain.  Authorities  are  implementing  a 
scheme  for  the  replacement  of  obsolete  and 
inadequate  local  heating  sources  in  households, 
supported  by  EU  Funds.  By  2019,  80,000  heaters 
were  replaced  out  of  the  100,000  foreseen  by  the 
end  of  2020.  Nonetheless,  the  implementation  of 
energy  efficiency  policies  remains  split  among 
several  authorities.  There  is  also  a  low  awareness 
about  the  wider  benefits  of  energy  efficiency, 
coupled  with  a  lack  of  motivation  to  draw 
available  funding,  due  to  long  payback  times  and 
administrative burden.  

There  is  an  opportunity  to  increase  investment 
in  smart  building  systems.  Appropriate  methods 

The  transition  from  coal  is  expected  to  have 
significant  consequences  at  regional  level.  The 
coal  regions  currently  have  higher  levels  of 
unemployment,  poverty,  indebtedness  and  early 
school  leaving  than  the  national  average  (see  also 
section  3.3).  The  transition  process  is  expected  to 
affect local communities dependent on coal mining 
and  the  coal-fired  energy  sector  encompassing 
over  21,000  employees.  Certain 
jobs  will 
disappear,  while  others  may  be  relocated.  The 
transition  strategies  are  therefore  expected  to 
involve  economic, 
social 
measures to ensure the efficient phasing out of the 
coal-based  economy.  Tailored-made  support  for 
SMEs,  start-ups, 
innovation  ecosystems  and 
technology  development  together  with  retraining 
and  the  creation  of  new  job  opportunities  for 
affected  groups  will  also  be  vital  components.  In 
view  of  the  higher  unemployment  rate  in  the  coal 
regions, reskilling workers is essential. The case of 
Karlovarský  region  demonstrates  the  need  for  an 
effective  regional  transition  strategy,  as  the  shift 
from  the  mining  monoculture  has  significant 
negative socio-economic consequences. 

technological  and 

The  use  of  zero-  and  low-carbon  technologies 
can ease the transition to a sustainable economy 
but the ambition to invest in them remains low. 
This  is  particularly  true  for  road  transport  where 
the  progress  to  move  to  zero-emission  vehicles  is 
rather  low  (see  Section  3.4.3).  Nonetheless,  a 
support  scheme  for  the  construction  of  publicly 
accessible  recharging  and  refuelling  stations  for 
vehicles  running  on  alternative  fuels  is  in  place 
since  2017.    The  available  national  sources  of 
funding  do  not  necessarily  prioritise  investments 
focusing  on  sustainability  (i.e.  that  minimise  the 
effects  of  climate  change  or  environmental 
destruction)  or  penalise  projects  that  use  solid 
fossil  fuels.  The  country  is  also  below  the  EU 
average  on  eco-innovation.  Activities  related  to 
the  area  of  energy  are  very  low, 
R&D 
representing  only  around  0.1%  of  GDP  (down 
from  0.3%  in  2011).  Moreover,  out  of  the  €21 
million  invested  in  research  in  2016,  around  half 
went to activities related to nuclear and fossil fuels 
(IEA, 2019).  

in 

A successful transition to a sustainable economy 
will  also  depend  on  the  use  of  new  digital 
technologies  and  applications.  Developing  and 
applying  5G  networks,  artificial 
intelligence 
processes, or low-power processors can facilitate a 

47 

3.5. Environmental sustainability 

to invest in buildings, in line with the EU’s Smart 
Finance  for  Smart  Building  Initiative,  could  be 
seen  as  an  opportunity.  The  indicative  milestones 
of  the  long-term  renovation  strategy  have  not  yet 
been  clearly  defined.  The  milestones  on  the 
renovation of the  national stock of residential and 
non-residential  buildings  into  a  highly  energy-

efficient and decarbonised building stock by 2050 
need  further  details.  Clearly  defined  milestones 
would  enable  Czechia  to  estimate  the  wider 
benefits  that  energy  efficiency  renovations  can 
bring.  Embedding  the  ‘energy  efficiency  first 
principle’  into  the  strategy  would  allow  the 
country to harness energy savings. 

Graph 3.5.4:  Coal regions in Czechia 

Source: European Commission 

48 

 
 
 
 
ANNEX A: OVERVIEW TABLE 

2019 country-specific recommendations (CSRs)  

Summary assessment ([1])  

CSR  1:  Improve  long-term  fiscal  sustainability  of 
the pension and health-care systems. Adopt pending 
anti-corruption measures.  

Czechia has made Limited Progress in addressing 
CSR 1  

Improve 
pension and health-care systems.  

long-term  fiscal  sustainability  of 

the 

that  an 

increase 

  No Progress The process of a regular review of 
the statutory retirement age took place in 2019. 
The  report  concluded 
in 
expected  expenditure  on  pensions  up  to  14.5% 
of  GDP  in  2059.  After  social  and  economic 
considerations,  the  government  decided  not  to 
increase the statutory retirement age. Therefore, 
the long-term fiscal sustainability of the pension 
system  remains  problematic.  There  was  some 
limited  progress  regarding  the  sustainability  of 
the  health-care  system.  A  schedule  for  the 
reform  of  primary  care  was  approved  by  the 
Ministry  of  Health  in  June  2019.  The  use  of 
Diagnostic  Related  Groups  will  be  piloted  for 
reimbursement on a limited scale in 2020, with 
the  aim  to  further  increase  the  scope  in  2021.. 
The 
fully 
system  of  ePrescriptions  was 
implemented  in  2019  and  there  are  further 
instance  eHealth  and 
developments 
enhancement  of  the  competences  of  general 
practitioners.  

in  for 

Adopt pending anti-corruption measures.  

CSR  2:  Foster  the  employment  of  women  with 
young  children,  including  by  improving  access  to 
affordable  childcare,  and  of  disadvantaged  groups. 
Increase 
inclusiveness  of  the 
including  by 
training  systems, 
education  and 
fostering technical and digital skills and promoting 

the  quality  and 

  Limited  Progress  Several  pending  measures 
are either not yet adopted by the government, or 
are  not  finally  approved  by  the  Parliament. 
These  proposals  include:  extending  the  role  of 
the  Supreme  Audit  Office  to  the  regions  and 
municipalities, 
on 
introducing 
protection  of  whistleblowers  and  on  lobbying. 
The bill on whistleblower protection is currently 
prepared  at  ministerial  level,  with  a  view  to 
adopt it in 2020. The law on nominations to the 
state  owned  companies  was  adopted  by  the 
Parliament in 2019.  

legislation 

Czechia has made Limited Progress in addressing 
CSR 2  

49 

 
 
 
A. Overview table 

the teaching profession.  

Foster  the  employment  of  women  with  young 
children, 
to 
affordable childcare, and of disadvantaged groups.  

improving  access 

including  by 

the  quality  and 

inclusiveness  of  the 
Increase 
education  and 
including  by 
training  systems, 
fostering technical and digital skills and promoting 
the teaching profession.  

in 

on 

rate 

falls  short  of  demand, 

leaving 
formal  childcare 

  Limited  Progress  Women  aged  25-49  with 
small  children  continue  to  be  underrepresented 
in  the  labour  market.  The  negative  impact  of 
labour  market 
female 
parenthood 
participation  continues  to  be  above  the  EU 
average.  Despite  the  considerable  increase  in 
the number of childcare places created with the 
support  of  the  European  Social  Fund,  supply 
the 
still 
participation 
for 
children under age 3 still significantly below the 
EU  average.  Authorities  plan  to  amend  the 
Children´s  Groups  Act  by  2022  in  order  to 
harmonise 
rules  and  make 
childcare  more  affordable  through  increased 
resources,  in  particular  for  children  below  3 
years  for  which  currently  there  is  no  legal 
entitlement for a place. High demand for labour 
has  led  to  improvements  in  the  participation  of 
underrepresented  groups.  Still,  Czechia  has  a 
than  average  employment  rate  gap 
higher 
between  people  with  and  without  disabilities  - 
29.7  pps  vs  24.2  pps  in  the  EU  in  2017. There 
are  also 
regional  differences. 
Targeting of active labour market policies to the 
most vulnerable is still not sufficient, including 
in  the  new  measures  announced  (Employment 
Pack).  

the  different 

significant 

from 

  Some Progress Positive measures were adopted 
but  still  they  seem  insufficient  to  bring  enough 
actual  progress.  Socioeconomic  inequality  of 
opportunities  for  children  remains  high.  The 
latest  PISA  results  show  that  the  share  of  15 
year-old  students  with  a  low  socio-economic 
background  who  underperform  in  reading  is 
29.7  percentage  points  greater  than  for  those 
socio-economic 
coming 
background.  The  reform  to  promote  inclusive 
education  has  so  far  had  a  limited  impact  on 
Roma  and 
the 
amendment  to  the  inclusive  education  reform 
are  uncertain.  Substantial  progress  to  improve 
the educational outcomes of Roma still remains 
to  be  observed.  Despite  recent  wage  increases, 
teachers’  wages  in  Czechia  are  among  the 
lowest across OECD countries and  consistently 
below  those  of  tertiary-educated  adults  at  all 

the  possible 

impacts  of 

high 

a 

50 

 
A. Overview table 

in 

ICT 

level,  with 

skills.  The 

to  attract 
the 

levels of education. The teaching profession still 
the  best 
has 
limited  capacity 
candidates.  The  ageing  of 
teaching 
workforce  is  a  rising  issue  in  Czechia,  in 
particular  at  primary 
raising 
concerns about potential shortages in the future. 
Despite  some  measures  taken  (for  example 
Action  Plan  Work  4.0),  the  level  of  advanced 
digital skills is below the EU average. There  is 
scope  for  further  development  of  teachers' 
training 
initiatives 
implemented  by  Czechia  are  a  step  in  the  right 
towards  higher  quality  vocational 
direction 
education and training, but their impact needs to 
be  closely  monitored.  Also  a  comprehensive 
national  skills  strategy  is  still  missing.  The 
government  has  adopted  the  implementation 
plans for the Digital Czechia Programme. They 
include actions to improve digital skills through 
the  support  for  life-long  learning,  upskilling 
employees in SMEs and freelancers, support of 
courses  for 
improving  digital 
literacy  of  students  and  teachers  or  opening 
education  to  digital  technologies.  If  properly 
implemented, these actions have the potential to 
address the country-specific recommendation in 
the area of digital skills.  

job  seekers, 

Czechia  has  made  Some  Progress  in  addressing 
CSR 3  

,  and 

CSR  3:  Focus  investment-related  economic  policy 
on  transport,  notably  on  its  sustainability  ,  digital 
infrastructure 
low  carbon  and  energy 
transition,  including  energy  efficiency  ,  taking  into 
the 
account 
administrative  burden  on  investment  and  support 
more 
public 
procurement.  Remove  the  barriers  hampering  the 
development  of  a  fully  functioning  innovation 
ecosystem.  

disparities.  Reduce 

quality-based 

competition 

regional 

in 

investment-related  economic  policy  on 

Focus 
transport, notably on its sustainability  

  Limited Progress Several large TEN-T railway 
projects  are  on-going,  including  to  upgrade  the 
Prague  railway  junction  as  well  as  the  lines 
connecting  to  the  Slovak  and  to  the  German 
borders.  These  projects  experienced  some 
delays  and  are  planned  for  completion  in  the 
next  2  to  3  years.  A  number  of  development 
studies are also ongoing to further reinforce the 
rail network. Projects are underway in the road 
sector  as  well, 
the 
motorway  connections  to  the  Austrian  and 

regarding 

including 

51 

 
A. Overview table 

follows 

infrastructure 

Polish  borders.  The  uptake  of  zero  emission 
vehicles  remains  low.  In  2019,  only  0.5%  of 
newly  registered  vehicles  were  battery  electric 
or  plug  in  hybrid  vehicles.  The  deployment  of 
recharging 
the  slow 
growth  pass  of  zero  emission  vehicles.  In 
December  2020, 
the  Czech  government 
approved a National Investment Plan that gives 
the  utmost  priority  to  transport,  allocating 
around three quarters of the total sum. The plan 
foresees  investment  in  transport  infrastructure 
of  CZK  6,000  billion  by  2050,  of  which  CZK 
3,000 billion by 2030. The National Investment 
Plan assumes investments of CZK 782 billion in 
motorway  construction,  CZK  878  billion  in 
railway  modernisation  and  CZK  769  billion  in 
the construction of high-speed railway lines.  

, digital infrastructure  

  Limited  Progress  5G  auction  has  been 
postponed  suggesting  that  Czechia  will  likely 
not be able to reach the objectives of the EU 5G 
action  plan.  The  national  Innovation  strategy 
aims  to  help  companies  use  more  digital 
technologies,  support  Industry  4.0  or  build 
super-fast  broadband  infrastructure  as  a  basis 
for  online  services.  However,  the  government 
has  not  yet  launched  concrete  initiatives  to 
implement the strategy.  

,  and  low  carbon  and  energy  transition,  including 
energy  efficiency  ,  taking  into  account  regional 
disparities.  

  Limited  Progress  Czechia  has  made  limited 
progress regarding the need to improve its legal 
framework and reduce administrative burden for 
investing  in  renewable  energies.  At  around 
15%,  the  share  of  renewable  energy  in  final 
consumption  is  below  EU  average  (18%  in 
2018)  and  has  been  static  since  2014.  Czechia 
has one of the highest greenhouse gas emissions 
per  capita  in  the  EU  (12.2  tonnes  compared  to 
an  EU  average  of  8.5  in  2018)  and  progress 
since  2007  has  been  rather  low.  The  available 
national  sources  of  funding  do  not  necessarily 
prioritise investments focusing on sustainability 
(i.e. that minimise the effects of climate change 
or  environmental  destruction)  or  penalise 
that  use  solid  fossil  fuels.  Road 
projects 
the  main 
transport 
consumers  of  energy 
the 
investments  in  low-carbon  technologies  and 
vehicles  remain  low.  The  long-term  renovation 
strategy  still  lacks  details  on  the  steps  to 
renovate  and  decarbonise  buildings,  while  such 
details  would  allow  the  estimation  of  benefits 

is  becoming  one  of 

in  Czechia,  but 

52 

A. Overview table 

from energy savings. 

Reduce the administrative burden on investment  

and  support  more  quality-based  competition  in 
public procurement.  

Remove the barriers hampering the development of 
a fully functioning innovation ecosystem.  

and 

to  domestic  and 

  Limited  Progress  The  2018  product  market 
regulation  (PMR)  data  confirms  administrative 
burden  on  start-ups  as  a  problematic  area, 
particularly  concerning  licenses  and  permits. 
The  result  may  also  be  driven  by  distortions 
induced  by  state  involvement  in  economy  and 
barriers 
foreign  entry. 
Complex,  non-harmonised  and  unpredictable 
legislation  discourage  investors  and  undermine 
medium 
competitiveness. 
long-term 
Ineffective  enforcement  of  single  market  rules 
increases  uncertainty  for  economic  operators, 
reducing their incentives to undertake additional 
investments.  Tax 
for 
businesses  remains  high.  The  recent  legislative 
amendments  to  the  Act  on  accelerating  the 
construction  of  transport,  water,  energy  and 
electronic  communication  infrastructure  have 
been  appreciated  by  the  business  community 
with  respect  to  simplification  and  acceleration, 
but  the  impact  is  still  to  be  assessed.  Work  is 
currently  underway  on  a  new  construction  law, 
the aim of which is to reduce the administrative 
the 
burden  and  speed  up  and  streamline 
permitting  processes  in  all  legislation 
that 
regulates  or  affects  the  construction  law  in 
Czechia  (around  60  laws).  However,  the  actual 
implementation is expected only after 2021.  

compliance 

costs 

  Some  Progress  Effort  in  supporting  quality-
based  competition  is  noticeable.  The  Czech 
authorities  put 
in  place  a  well-structured 
training  system  and  organised  conferences  and 
the 
to 
specialised 
professionalisation 
contracting 
level 
authorities.  The  contracting  authorities  also 
seem  to  genuinely  focus  more  on  quality 
criteria.  

increase 

events 

of 

  Some  Progress  The  adopted 
Innovation 
Strategy  of 
to  remove 
the  Czechia  aims 
obstacles  for  the  development  of  a  functioning 
innovation  ecosystem.  Under  the  same  axis, 
automation  and  artificial  intelligence  (AI)  have 
become  major  policy  priorities  for  the  Czech 
government,  part  of  the  larger  overarching 
government plan called ‘Czechia - The Country 
for the Future.’ If well implemented, the set up 
goals  could  contribute  to  the  improvement  of 

53 

A. Overview table 

this ecosystem.  

Europe 2020 (national targets and progress)  

Employment rate target set in the NRP: 75%.  

80.2% in the first half of 2019 

R&D target set in the NRP: 1% of GDP for public 
R&D expenditures 

1.93% of GDP total R&D expenditures in 2018 

0.73% of GDP public R&D expenditures in 2018 

National  greenhouse  gas  (GHG)  emissions  target:  
-  Maximum  +9%  in  2020  compared  with  2005  (in 
sectors  not  included  in  the  EU  emissions  trading 
scheme)  

+4% in 2018, according to provisional data  

2020 renewable energy target: 13%  

+14.8% in 2017  

Energy  efficiency,  2020  energy  consumption 
targets:  

40.4 Mtoe primary energy consumption in 2017 

25.5 Mtoe final energy consumption in 2017 

Czechia's  2020  energy  efficiency  target  is  39.6 
Mtoe  expressed  in  primary  energy  consumption 
(25.3 Mtoe expressed in final energy consumption)  

Early school/training leaving target: 5.5%.  

6.2% in 2018  

Tertiary  education  target:  32%  of  population  aged 
30-34.  

33.7% in 2018  

Target for reducing the number of people at risk of 
poverty  or  social  exclusion,  expressed  as  an 
absolute number of people: 1,466,000  

1,264,200 in 2018  

([1])  The  following  categories  are  used  to  assess  progress  in  implementing  the  country-specific 
recommendations (CSRs):  

No  progress:  The  Member  State  has  not  credibly  announced  nor  adopted  any  measures  to  address  the 
CSR. This category covers a number of typical situations to be interpreted on a case by case basis taking 
into account country-specific conditions. They include the following:  

  no legal, administrative, or budgetary measures have been announced  

54 

 
 
  
 
 
 
A. Overview table 

 

in the national reform programme, 

 

in any other official communication to the national Parliament/relevant parliamentary committees or 
the European Commission, 

  publicly (e.g. in a press statement or on the government's website); 

  no non-legislative acts have been presented by the governing or legislative body; 

 

the  Member  State  has  taken  initial  steps  in  addressing  the  CSR,  such  as  commissioning  a  study  or 
setting up a study group to analyse possible measures to be taken (unless the CSR explicitly asks for 
orientations or exploratory actions). However, it has not proposed any clearly-specified measure(s) to 
address the CSR. 

Limited progress: The Member State has:  

  announced certain measures but these address the CSR only to a limited extent; and/or 

  presented legislative acts in the governing or legislative body but these have not been adopted yet and 

substantial further, non-legislative work is needed before the CSR is implemented; 

  presented  non-legislative  acts,  but  has  not  followed  these  up  with  the  implementation  needed  to 

address the CSR. 

Some progress: The Member State has adopted measures  

 

that partly address the CSR; and/or  

 

that address the CSR, but a fair amount of work is still needed to fully address the CSR fully as only a 
few of the measures have been implemented. For instance, a measure or measures have been adopted 
by the national Parliament or by ministerial decision but no implementing decisions are in place.  

Substantial progress: The Member State has adopted measures that go a long way towards addressing 
the CSR and most of them have been implemented.  

Full  implementation:  The  Member  State  has  implemented  all  measures  needed  to  address  the  CSR 
appropriately.  

55 

 
ANNEX B: COMMISSION DEBT SUSTAINABILITY ANALYSIS AND 

FISCAL RISKS 

56 

General Government debt projections under baseline, alternative scenarios and sensitivity tests2018201920202021202220232024202520262027202820292030Gross debt ratio32.631.530.730.129.328.728.227.927.827.827.928.028.3Changes in the ratio (-1+2+3)-2.1-1.1-0.7-0.6-0.8-0.6-0.5-0.3-0.10.00.10.20.3of which(1) Primary balance (1.1+1.2+1.3)1.80.90.60.40.30.1-0.1-0.2-0.4-0.5-0.6-0.7-0.8(1.1) Structural primary balance (1.1.1-1.1.2+1.1.3)1.30.50.30.30.20.1-0.1-0.2-0.4-0.5-0.6-0.7-0.8(1.1.1) Structural primary balance (bef. CoA)1.30.50.30.30.30.30.30.30.30.30.30.30.3(1.1.2) Cost of ageing0.10.30.40.60.70.91.01.01.1(1.1.3) Others (taxes and property incomes)0.00.00.00.00.00.00.00.00.0(1.2) Cyclical component0.50.40.30.10.10.00.00.00.00.00.00.00.0(1.3) One-off and other temporary measures0.00.00.00.00.00.00.00.00.00.00.00.00.0(2) Snowball effect (2.1+2.2+2.3)-1.1-0.9-0.6-0.5-0.5-0.5-0.6-0.5-0.5-0.5-0.5-0.5-0.5(2.1) Interest expenditure0.80.70.70.70.70.60.60.60.60.50.50.50.5(2.2) Growth effect-1.0-0.8-0.7-0.6-0.6-0.6-0.6-0.6-0.5-0.5-0.5-0.5-0.5(2.3) Inflation effect-0.9-0.8-0.7-0.5-0.6-0.6-0.6-0.6-0.5-0.5-0.5-0.5-0.5(3) Stock-flow adjustments0.80.70.50.30.00.00.00.00.00.00.00.00.0Note: For further information, see the European Commission Debt Sustainability Monitor (DSM) 2019. b. For the medium-term, the risk category (low/medium/high) is based on the joint use of the S1 indicator and of the DSA results. The S1 indicator measures the fiscal adjustment required (cumulated over the 5 years following the forecast horizon and sustained thereafter) to bring the debt-to-GDP ratio to 60 % by 2034. The critical values used are 0 and 2.5 pps. of GDP. The DSA classification is based on the results of 5 deterministic scenarios (baseline, historical SPB, higher interest rate, lower GDP growth and negative shock on the SPB scenarios) and the stochastic projections. Different criteria are used such as the projected debt level, the debt path, the realism of fiscal assumptions, the probability of debt stabilisation, and the size of uncertainties. c. For the long-term, the risk category (low/medium/high) is based on the joint use of the S2 indicator and the DSA results. The S2 indicator measures the upfront and permanent fiscal adjustment required to stabilise the debt-to-GDP ratio over the infinite horizon, including the costs of ageing. The critical values used are 2 and 6 pps. of GDP. The DSA results are used to further qualify the long-term risk classification, in particular in cases when debt vulnerabilities are identified (a medium / high DSA risk category). [2]Thechartspresentaseriesofsensitivitytestsaroundthebaselinescenario,aswellasalternativepolicyscenarios,inparticular:thehistoricalstructuralprimarybalance(SPB)scenario(wheretheSPBissetatitshistoricalaverage),theStabilityandGrowthPact(SGP)scenario(wherefiscalpolicyisassumedtoevolveinlinewiththemainprovisionsoftheSGP),ahigherinterestratescenario(+1pp.comparedtothebaseline),alowerGDPgrowthscenario(-0.5pp.comparedtothebaseline)andanegativeshockontheSPB(calibratedonthebasisoftheforecastedchange).Anadversecombinedscenarioandenhancedsensitivitytests(ontheinterestrateandgrowth)arealsoincluded,aswellasstochasticprojections. Detailed information on the design of these projections can be found in the FSR 2018 and the DSM 2019.CZ - Debt projections baseline scenario[1]Thefirsttablepresentsthebaselineno-fiscalpolicychangescenarioprojections.Itshowstheprojectedgovernmentdebtdynamicsanditsdecompositionbetweentheprimarybalance,snowballeffectsandstock-flowadjustments.Snowballeffectsmeasurethenetimpactofthecounteractingeffectsofinterestrates,inflation,realGDPgrowth(andexchangerates in some countries). Stock-flow adjustments include differences in cash and accrual accounting, net accumulation of assets, as well as valuation and other residual effects.[3] The second table presents the overall fiscal risk classification over the short, medium and long-term. a. For the short-term, the risk category (low/high) is based on the S0 indicator. S0 is an early-detection indicator of fiscal stress in the upcoming year, based on 25 fiscal and financial-competitiveness variables that have proven in the past to be leading indicators of fiscal stress. The critical threshold beyond which fiscal distress is signalled is 0.46. 10152025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -CZBaselineEnhanced lower GDP growth scenarioAdverse combined scenarioEnhanced higher interest rate scenario102030405020172018201920202021202220232024(% of GDP)Stochastic debt projections 2020-2024 -CZp10_p20p20_p40p40_p60p60_p80p80_p90p50Baseline10152025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -CZBaselineHistorical SPB scenarioSGP scenario10152025303540455020172018201920202021202220232024202520262027202820292030Debt as % of GDP -CZBaselineHigher interest rate scenarioNegative shock on the SPBLower GDP growth scenarioBaselineHistorical SPBLower GDP growthHigher interest rateNegative shock on SPBStochastic projectionsRisk categoryLOWLOWLOWLOWLOWLOWDebt level (2030)28.334.929.830.129.0Debt peak year20192030201920192019Percentile rank52.0%65.0%Probability debt higher36.1%Dif. between percentiles23.6Short termLOW(S0 = 0.2)DSALOWDebt sustainability analysis (detail)Medium termLOWLOW(S1 = -2.9)MEDIUMLong termMEDIUM(S2 = 4.8)S1S2 
ANNEX C: STANDARD TABLES 

Table C.1: 

Financial market indicators 

(1) Latest data Q3 2019. Includes not only banks but all monetary financial institutions excluding central banks. 
(2) Latest data Q2 2019. 
(3) Quarterly values are annualized. 
* Measured in basis points. 
Source: European Commission (long-term interest rates); World Bank (gross external debt); Eurostat (private debt); ECB (all 
other indicators). 

57 

201420152016201720182019Total assets of the banking sector (% of GDP)(1)124.8122.6127.1144.8137.6144.0Share of assets of the five largest banks (% of total assets)60.962.563.963.764.5-Foreign ownership of banking system (% of total assets)(2)91.393.192.891.791.492.0Financial soundness indicators:(2)              - non-performing loans (% of total loans)--4.02.82.11.8              - capital adequacy ratio (%)17.017.617.718.118.318.7              - return on equity (%)(3)11.411.311.913.013.315.2Bank loans to the private sector (year-on-year % change)(1)4.57.18.87.47.24.4Lending for house purchase (year-on-year % change)(1)5.78.29.29.18.67.1Loan-to-deposit ratio(2)78.981.884.394.9101.9102.7Central bank liquidity as % of liabilities(1)0.00.00.00.00.00.0Private debt (% of GDP)71.568.168.767.370.7-Gross external debt (% of GDP)(2) - public13.315.516.516.413.114.1    - private36.932.931.633.131.931.8Long-term interest rate spread versus Bund (basis points)*41.37.933.866.3158.5180.0Credit default swap spreads for sovereign securities (5-year)*47.244.938.737.034.738.0 
 
 
    
 
C. Standard tables 

Table C.2: 

Headline Social Scoreboard indicators 

(1) People at risk of poverty or social exclusion (AROPE): individuals who are at risk of poverty (AROP) and/or suffering from 
severe material deprivation and/or living in households with zero or very low work intensity. 
(2) Unemployed persons are all those who were not employed but had actively sought work and were ready to begin 
working immediately or within two weeks. 
(3) Gross disposable household income is defined in unadjusted terms, according to the draft 2019 joint employment report. 
(4) Reduction in percentage of the risk of poverty rate, due to social transfers (calculated comparing at-risk-of poverty rates 
before social transfers with those after transfers; pensions are not considered as social transfers in the calculation). 
(5) Average of first three quarters of 2019 for the employment rate, long-term unemployment rate and gender employment 
gap.  
Source: Eurostat 

58 

201420152016201720182019 (5)Equal opportunities and access to the labour marketEarly leavers from education and training (% of population aged 18-24)5.56.26.66.76.2:Gender employment gap (pps)17.516.616.015.815.215.0Income inequality, measured as quintile share ratio (S80/S20)3.53.53.53.43.3:At-risk-of-poverty or social exclusion rate(1) (AROPE)14.814.013.312.212.2:Young people neither in employment nor in education and training (% of population aged 15-24)8.17.57.06.35.6:Dynamic labour markets and fair working conditionsEmployment rate (20-64 years)73.574.876.778.579.980.2Unemployment rate(2) (15-74 years)6.15.14.02.92.22.0Long-term unemployment rate (as % of active population)2.72.41.71.00.70.7Gross disposable income of households in real terms per capita(3) (Index 2008=100) 100.9104.9108.2109.9114.9:Annual net earnings of a full-time single worker without children earning an average wage (levels in PPS, three-year average)13,49613,80914,111:::Annual net earnings of a full-time single worker without children earning an average wage (percentage change, real terms, three-year average)-0.090.952.23:::Public support / Social protection and inclusionImpact of social transfers (excluding pensions) on poverty reduction(4)43.642.340.542.438.5:Children aged less than 3 years in formal childcare4.42.94.76.59.0:Self-reported unmet need for medical care1.10.80.70.50.3:Individuals who have basic or above basic overall digital skills (% of population aged 16-74):57.054.060.0:: 
 
   
 
C. Standard tables 

Table C.3: 

Labour market and education indicators 

* Non-scoreboard indicator. 
(1)  Difference between the average gross hourly earnings of male paid employees and of female paid employees as a 
percentage of average gross hourly earnings of male paid employees. It is defined as "unadjusted", as it does not correct for 
the distribution of individual characteristics (and thus gives an overall picture of gender inequalities in terms of pay). All 
employees working in firms with ten or more employees, without restrictions for age and hours worked, are included. 
(2) PISA (OECD) results for low achievement in mathematics for 15 year-olds. 
(3) Impact of socio-economic status on PISA (OECD) scores. Value for 2018 refers to reading. 
(4) Average of first three quarters of 2019. Data for youth unemployment rate is seasonally adjusted. 

Source: Eurostat, OECD 

59 

Labour market indicators201420152016201720182019 (4)Activity rate (15-64)73.574.075.075.976.676.7Employment in current job by durationFrom 0 to 11 months9.710.010.110.59.9:From 12 to 23 months7.07.58.58.18.6:From 24 to 59 months16.115.115.416.718.2:60 months or over67.167.365.964.563.2:Employment growth* (% change from previous year)0.61.41.61.61.30.9Employment rate of women(% of female population aged 20-64)64.766.468.670.572.272.6Employment rate of men (% of male population aged 20-64)82.283.084.686.387.487.6Employment rate of older workers* (% of population aged 55-64)54.055.558.562.165.166.5Part-time employment* (% of total employment, aged 15-64)5.55.35.76.26.36.4Fixed-term employment* (% of employees with a fixed term contract, aged 15-64)9.710.09.79.68.47.8Transition rate from temporary to permanent employment(3-year average)33.535.136.539.642.9:Youth unemployment rate (% active population aged 15-24)15.912.610.57.96.76.0Gender gap in part-time employment7.07.17.68.58.27.8Gender pay gap(1) (in undadjusted form)22.522.521.521.1::Education and training indicators201420152016201720182019Adult participation in learning(% of people aged 25-64 participating in education and  training)9.68.58.89.88.5:Underachievement in education(2):21.7::20.4:Tertiary educational attainment (% of population aged 30-34 having successfully completed tertiary education)28.230.132.834.233.7:Variation in performance explained by students' socio-economic status(3)::::16.5: 
 
    
 
 
C. Standard tables 

Table C.4: 

Social inclusion and health indicators 

* Non-scoreboard indicator. 
(1) At-risk-of-poverty rate (AROP): proportion of people with an equivalised disposable income below 60 % of the national 
equivalised median income.  
(2) Proportion of people who experience at least four of the following forms of deprivation: not being able to afford to i) pay 
their rent or utility bills, ii) keep their home adequately warm, iii) face unexpected expenses, iv) eat meat, fish or a protein 
equivalent every second day, v) enjoy a week of holiday away from home once a year, vi) have a car, vii) have a washing 
machine, viii) have a colour TV, or ix) have a telephone. 
(3) Percentage of total population living in overcrowded dwellings and exhibiting housing deprivation. 
(4) People living in households with very low work intensity: proportion of people aged 0-59 living in households where the 
adults (excluding dependent children) worked less than 20 % of their total work-time potential in the previous 12 months. 
(5) Ratio of the median individual gross pensions of people aged 65-74 relative to the median individual gross earnings of 
people aged 50-59. 
(6) Fixed broadband take up (33%), mobile broadband take up (22%), speed (33%) and affordability (11%), from the Digital 
Scoreboard. 
Source: Eurostat, OECD 

60 

201320142015201620172018Expenditure on social protection benefits* (% of GDP)Sickness/healthcare6.06.05.85.95.9:Disability1.31.31.21.21.1:Old age and survivors9.39.08.78.68.5:Family/children1.81.71.61.61.6:Unemployment0.70.60.50.50.5:Housing0.30.30.30.30.2:Social exclusion n.e.c.0.30.30.30.30.2:Total19.619.118.418.318.0:of which: means-tested benefits0.50.50.50.50.4:General government expenditure by function (% of GDP)Social protection13.513.112.512.312.0:Health7.67.67.67.47.5:Education5.15.14.94.54.6:Out-of-pocket expenditure on healthcare13.614.114.815.014.8:Children at risk of poverty or social exclusion (% of people aged 0-17)*16.419.518.517.414.213.2At-risk-of-poverty  rate(1) (% of total population)8.69.79.79.79.19.6In-work at-risk-of-poverty rate (% of persons employed)4.03.64.03.83.53.4Severe material deprivation rate(2)  (% of total population)6.66.75.64.83.72.8Severe housing deprivation rate(3), by tenure statusOwner, with mortgage or loan3.32.21.72.32.12.3Tenant, rent at market price10.68.98.89.27.07.3Proportion of people living in low work intensity households(4) (% of people aged 0-59)6.97.66.86.75.54.5Poverty thresholds, expressed in national currency at constant prices*98,56199,553102,238106,735110,989115,847Healthy life yearsFemales8.99.38.68.98.5:Males8.58.58.08.47.6:Aggregate replacement ratio for pensions(5)0.60.60.50.50.50.5Connectivity dimension of the Digital Economy and Society Index (DESI)(6):44.856.361.462.3:GINI coefficient before taxes and transfers*46.046.946.246.144.7:GINI coefficient after taxes and transfers*24.625.125.025.124.5: 
 
  
 
C. Standard tables 

Table C.5: 

Product market performance and policy indicators 

*While the indicator values from 2003 to 2013 are comparable, the methodology has considerably changed in 2018. As a 
result, past vintages cannot be compared with the 2018 PMR indicators. 
(1) Value added in constant prices divided by the number of persons employed.       
(2) Compensation of employees in current prices divided by value added in constant prices.       
(3) The methodologies, including the assumptions, for this indicator are shown in detail here: 
http://www.doingbusiness.org/methodology.        
(4) Average of the answer to question Q7B_a. "[Bank loan]: If you applied and tried to negotiate for this type of financing 
over the past six months, what was the outcome?". Answers were codified as follows: zero if received everything, one if 
received 75% and above, two if received below 75%, three if refused or rejected and treated as missing values if the 
application is still pending or don't know.       
(5) Percentage population aged 15-64 having completed tertiary education.       
(6) Percentage population aged 20-24 having attained at least upper secondary education.       
(7) Index: 0 = not regulated; 6 = most regulated. The methodologies of the OECD product market regulation indicators are 
shown in detail here: http://www.oecd.org/competition/reform/indicatorsofproductmarketregulationhomepage.htm       
Please be aware that the indicator values from 2003 to 2013 are comparable, however the methodology has considerably 
changed in 2018 and therefore past vintages cannot be compared with the 2018 PMR indicators.       
(8) Simple average of the indicators of regulation for lawyers, accountants, architects and engineers.       
(9) Aggregate OECD indicators of regulation in energy, transport and communications (ETCR). 
Source: European Commission; World Bank — Doing Business (for enforcing contracts and time to start a business); OECD (for 
the product market regulation 
indicators); SAFE (for outcome of SMEs' applications for bank loans). 

61 

Performance indicators201320142015201620172018Labour productivity per person(1) growth (t/t-1) in %Labour productivity growth in industry-4.323.690.89-0.437.720.00Labour productivity growth in construction3.736.844.40-2.04-2.663.26Labour productivity growth in market services1.152.425.421.981.982.83Unit labour cost (ULC) index(2) growth (t/t-1) in %ULC growth in industry5.39-0.641.944.48-0.647.00ULC growth in construction-8.31-4.32-0.265.626.844.62ULC growth in market services-1.320.11-1.742.574.624.25Business environment201320142015201620172018Time needed to enforce contracts(3) (days)678678678678678678Time needed to start a business(3) (days)30.530.530.524.524.524.5Outcome of applications by SMEs for bank loans(4)0.730.330.430.190.130.29Research and innovation201320142015201620172018R&D intensity1.901.971.931.681.791.93General government expenditure on education as % of GDP5.105.104.904.504.60:Employed people with tertiary education and/or people employed in science & technology as % of total employment373837383939Population having completed tertiary education(5)181920212122Young people with upper secondary education(6)919190908990Trade balance of high technology products as % of GDP0.400.26-0.91-0.03-0.44-0.44Product and service markets and competition2003200820132018*OECD product market regulation (PMR)(7), overall1.881.501.391.30OECD PMR(7), retail1.031.231.561.24OECD PMR(7), professional services(8)2.772.482.362.42OECD PMR(7), network industries(9)2.962.452.011.23 
 
  
 
 
C. Standard tables 

Table C.6:  Green growth 

All macro intensity indicators are expressed as a ratio of a physical quantity to GDP (in 2010 prices) 
          Energy intensity: gross inland energy consumption (in kgoe) divided by GDP (in EUR) 
          Carbon intensity: greenhouse gas emissions (in kg CO2 equivalents) divided by GDP (in EUR) 
          Resource intensity: domestic material consumption (in kg) divided by GDP (in EUR) 
          Waste intensity: waste (in kg) divided by GDP (in EUR) 
Energy balance of trade: the balance of energy exports and imports, expressed as % of GDP.  
Weighting of energy in HICP: the proportion of 'energy' items in the consumption basket used for the construction of the HICP. 
Difference between energy price change and inflation: energy component of HICP, and total HICP inflation (annual % 
change). 
Real unit energy cost: real energy costs as % of total value added for the economy. 
Industry energy intensity: final energy consumption of industry (in kgoe) divided by gross value added of industry (in 2010 
EUR). 
Real unit energy costs for manufacturing industry excluding refining: real costs as % of value added for manufacturing sectors. 
Share of energy-intensive industries in the economy: share of gross value added of the energy-intensive industries in GDP. 
Electricity and gas prices for medium-sized industrial users: consumption band 500–20 00MWh and 10 000 -100 000 GJ; figures 
excl. VAT. 
Recycling rate of municipal waste: ratio of recycled and composted municipal waste to total municipal waste. 
Public R&D for energy or for the environment: government spending on R&D for these categories as % of GDP. 
Proportion of GHG emissions covered by EU emissions trading system (ETS) (excluding aviation): based on GHG emissions. 
(excl. land use, land use change and forestry) as reported by Member States to the European Environment Agency. 
Transport energy intensity: final energy consumption of transport activity including international aviation (kgoe) divided by 
gross value added in transportation and storage sector (in 2010 EUR). 
Transport carbon intensity: GHG emissions in transportation and storage sector divided by gross value added in transportation 
and storage sector (in 2010 EUR). 
Energy import dependency: net energy imports divided by gross inland energy consumption incl. consumption of 
international bunker fuels. 
Aggregated supplier concentration index: Herfindahl index covering oil, gas and coal. Smaller values indicate larger 
diversification and hence lower risk. 
Diversification of the energy mix: Herfindahl index covering natural gas, total petrol products, nuclear heat, renewable 
energies and solid fuels. Smaller values indicate larger diversification. 
* European Commission and European Environment Agency - 2018 provisional data. 
Source: European Commission and European Environment Agency (Share of GHG emissions covered by ETS); European 
Commission (Environmental taxes over labour taxes and GDP); Eurostat (all other indicators). 

62 

Green growth performance201320142015201620172018MacroeconomicEnergy intensity kgoe / €0.280.260.250.240.240.23Carbon intensity kg / €0.820.780.750.740.71-Resource intensity (reciprocal of resource productivity)kg / €0.990.990.980.950.910.92Waste intensity kg / €-0.14-0.15--Energy balance of trade % GDP-4.8-4.0-2.4-2.1-2.6-2.9Weighting of energy in HICP%14.0614.3614.4213.7113.0912.78Difference between energy price change and inflation p.p.-0.1-5.70.8-1.1-3.10.0Real unit of energy cost% of value added21.319.819.920.1--Ratio of environmental taxes to labour taxesratio0.120.120.120.120.12-Environmental taxes% GDP2.12.12.12.12.12.2Sectoral Industry energy intensity kgoe / € 0.130.120.120.110.110.11Real unit energy cost for manufacturing industry excl. refining% of value added17.716.116.016.0--Share of energy-intensive industries in the economy% GDP12.5512.8612.7412.3012.4211.77Electricity prices for medium-sized industrial users€ / kWh0.100.080.080.070.070.07Gas prices for medium-sized industrial users€ / kWh0.030.030.030.030.020.03Public R&D for energy % GDP0.020.030.030.030.030.03Public R&D for environmental protection% GDP0.010.010.010.010.010.02Municipal waste recycling rate%24.225.429.733.634.134.5Share of GHG emissions covered by ETS*%52.453.652.151.851.851.1Transport energy intensitykgoe / €0.770.830.840.850.830.78Transport carbon intensitykg / €0.870.940.951.020.991.02Security of energy supplyEnergy import dependency%27.430.131.932.637.2-Aggregated supplier concentration indexHHI33.527.230.432.633.4-Diversification of energy mixHHI26.325.625.525.724.724.6 
   
 
ANNEX D: INVESTMENT GUIDANCE ON JUST TRANSITION FUND 

2021-2027 FOR CZECHIA 

Building  on  the  Commission  proposal,  this  Annex (23)  presents  the  preliminary  Commission  services’ 
views on priority investment areas and framework conditions for effective delivery for the 2021-2027 Just 
Transition  Fund  investments  in  Czechia.  These  priority  investment  areas  are  derived  from  the  broader 
analysis  of  territories  facing  serious  socio-economic  challenges  deriving  from  the  transition  process 
towards a climate-neutral economy of the Union by 2050 in Czechia, assessed in the report. This Annex 
provides the basis  for a  dialogue between Czechia and the Commission services as  well as the relevant 
guidance  for  the  Member  States  in  preparing  their  territorial  just  transition  plans,  which  will  form  the 
basis for programming the Just Transition Fund. The Just Transition Fund investments complement those 
under  Cohesion  Policy  funding  for  which  guidance  in  the  form  of  Annex  D  was  given  in  the  2019 
Country Report for Czechia (24). 

The  coal  mining  regions  of  Czechia  include  Moravskoslezský  and  Severozápad  (the  latter  includes 
Karlovarský and Ústecký). Around 18,000 people work directly in coal mining activities. The transition 
process  is  expected  to  affect  local  communities  dependent  on  the  coal  mining  and  coal-fired  energy 
sector, which employ over 21,000 people and account for over 19,000 indirect jobs in the country (there 
are over 10,000 indirect jobs in coal-related activities in Severozápad, around 4,000 in Moravskoslezský 
and over 5,000 in other Czech regions). The impact of the transition could be deepened by the fact that 
these are already among the country’s poorest regions. 

The Moravskoslezský region is the biggest hard coal mining region in Czechia (28% of total land area is 
part of the Ostrava-Karviná coal basin). It has three active mines and is responsible for over 10,000 direct 
jobs in the coal sector.  

In the Ústecký region where 80% of Czechia’s lignite is extracted (Northern Bohemia coal basin), there 
are  over  5,000  coal-related  jobs,  four coal  mines,  the  largest  Czech  coal  fired  power  plants  (Prunéřov, 
Tušimice, Ledvice and Počerady) and a high concentration of chemical industry firms. 

In  the  Karlovarský  region  (with  two  lignite  mines  and  the  lowest  GDP  per  inhabitant  in  Czechia),  the 
mining company located in the district of Sokolov (which records the highest number of socially excluded 
areas in Czechia) is the largest employer with around 3,000 jobs. A further over 1,000 jobs are related to 
power generation activities and related industry. 

Based on this preliminary assessment, it appears warranted that the Just Transition Fund concentrates its 
intervention  on  these  regions.  The  Moravskoslezský,  Ústecký  and  Karlovarský  regions  are  expected  to 
experience  substantial  job  losses,  which  realistically  might  not  be  entirely  offset  by  the  creation  and 
development of SMEs. Exceptionally, and where necessary for the implementation of the territorial just 
transition plan, support to productive investments in large enterprises could therefore be considered. 

The social challenges posed by an effective and just transition will require a diversification of the regional 
economies,  creating  new  business  opportunities  and  upskilling  and  reskilling  of  workers,  as  well  as 
strengthened support for renewable energy, energy efficiency and the rehabilitation of contaminated sites.  

To tackle these transition challenges, high priority investment needs have therefore been identified. The 
smart specialisation strategies provide an important framework to set priorities for innovation in support 
of economic transformation. Key actions of the Just Transition Fund could target in particular: 

 

 

Investments  in  the  deployment  of  technology  and  infrastructures  for  affordable  clean  energy,  in 
greenhouse gas emission reduction, energy efficiency and renewable energy; 

Investments  in  the  creation  of  new  firms,  including  through  business  incubators  and  consulting 
services; 

(23)  This Annex is to be considered in conjunction with the EC  proposal for a Regulation of the European Parliament and of the 
Council  on  the  Just  Transition  Fund  2021-2027  (COM(2020)22  and  the  EC  proposal  for  a  Regulation  of  the  European 
Parliament and of the Council laying down common provisions on the European Regional Development Fund, the European 
Social Fund Plus, the Cohesion Fund, and the European Maritime and Fisheries Fund and financial rules for those and for the 
Asylum and Migration Fund, the Internal Security Fund and the Border Management and Visa Instrument (COM(2020)23) 

(24)  SWD(2019) 1002 final 

63 

 
                                                           
D. Investment guidance on Just Transition Fund 2021-2027 for Czechia 

 

productive  investments  in  SMEs,  including  start-ups,  leading  to  economic  diversification  and 
reconversion; 

  Upskilling and reskilling of workers; 
 

Investments in regeneration and decontamination of sites, land restoration and repurposing projects. 

To  further  support  smart  regional  and  local  development,  priority  investment  needs  have  therefore  also 
been identified. Related actions of the Just Transition Fund could target in particular: 

Investments in research and innovation activities and fostering the transfer of advanced technologies; 
Investments in digitalisation and digital connectivity; 

 
 
  Technical assistance. 

Investment needs have further been identified for alleviating the environmental and socio-economic costs 
of the transition. Related actions of the Just Transition Fund could  target in particular: 

 

Investments  in  enhancing  the  circular  economy,  including  through  waste  prevention,  reduction, 
resource efficiency, reuse, repair and recycling; 
Job-search assistance to jobseekers; 

 
  Active inclusion of jobseekers. 

64 

 
 
 
 
 
ANNEX E: PROGRESS TOWARDS THE SUSTAINABLE 

DEVELOPMENT GOALS (SDGS) 

Assessment of Czechia’s short-term progress towards the SDGs (25) 

Table E.1 shows the data for Czechia and the EU-28 for the indicators included in the EU SDG indicator 
set used by Eurostat for  monitoring progress towards the SDGs in an EU context (26). As the short-term 
trend at EU-level is assessed over a 5-year period, both the value at the beginning of the period and the 
latest available value is presented. The indicators are regularly updated on the  SDI dedicated section of 
the Eurostat website. 

Table E.1: 

Indicators measuring Czechia’s progress towards the SDGs 

(25)  Data  extracted  on  9  February  2020 

from 

the  Eurostat  database 

(official  EU  SDG 

indicator 

set; 

see 

https://ec.europa.eu/eurostat/web/sdi/main-tables).  

(26)  The EU SDG indicator set is aligned as far as appropriate with the UN list of global indicators, noting that the UN indicators are 
selected for global level reporting and are therefore not always relevant in an EU context. The EU SDG indicators have strong 
links with EU policy initiatives. 

(Continued on the next page) 

65 

 
 
                                                           
 
  
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

66 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

67 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

(Continued on the next page) 

68 

 
 
 
   
 
E. Progress towards the Sustainable Development Goals (SDGs) 

Table (continued) 

Source: Eurostat 

69 

 
 
 
   
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