The Ministry of Industry and Trade has prepared a document called the International Competitiveness Strategy for the Czech Republic. Its aim is to secure the future of the CR in the globalised world. The Strategy includes more than forty initiatives, elaborated in detail in specific measures, which together constitute a comprehensive set of reforms relating to institutions, infrastructure, public finances, education, the labour market, and other matters.
The implementation of these initiatives should create attractive conditions for creative business, innovation, and an improved standard of living.
The competitiveness potential of entities operating in the Czech Republic is not determined merely by their subjective properties. Such potential is fundamentally shaped both by conditions that they cannot influence (natural, geographic, conditions having to do with functioning abroad, competing entities, the global economy, and the financial cycle), as well as conditions that can be influenced by the actions of national governments and public administration (which may also influence the conditions of the EU internal market). International Competitiveness Strategy is concerned with these contiditons.
The Czech Republic is a small, open economy with its own currency, a freely floating exchange rate, and long-term growth in its exports and imports of goods and services, but considerable volatility in its volume and balance of trade. Nonetheless, the country's growth and development is not solely dependent on exports alone, and their direct (cash) impacts on the internal economy are limited.
A key mechanism for the implementation of the Strategy consists of setting up an appropriate mechanism for cooperation among the ministries involved. To this end, the implementation of the various initiatives of the Strategy will be regularly discussed by the Government Council for Competitiveness and the Information Society. At six-monthly intervals, the Minister of Industry and Trade will inform the Government of the Czech Republic about the developments in the main areas of competitiveness.
The implementation strategy will include transparent publishing of the benchmarks for price competitiveness and non-price competitiveness and comparative advantages in general. The publication of this data will create a motivational environment and is vital for an open economy with its own currency and a freely floating exchange rate. In the event of the weakening of the currency or the maintenance of the growth of labour costs in line with productivity, this could help domestic companies to increase their global market share, but at the same time it would also influence the attractiveness of the country from the perspective of locating production and thereby promote economic growth.
Benchmarks for price competitiveness
The set of benchmarks for price competitiveness will include:
The real exchange rate
The nominal rate deflated by the quotient of the domestic and foreign price levels expressed in terms of the unit labour cost index, the consumer price index, or the industrial producer price index. A decline in the real exchange rate implies a real weakening/depreciation (and a growth in price competitiveness), while, conversely, growth in the real exchange rate means a real strengthening/appreciation (and a decline in price competitiveness). From the perspective of price competitiveness, it is more important than the nominal rate.
Unit labour costs
The ratio of average labour costs to labour productivity resulting from added value. The indicator expresses the dynamics of cost pressures from the perspective of labour in relation to performance. A reduction in the dynamics of the indicator means labour productivity is ahead of the growth of costs. It is one the main indicators of competitiveness.
Labour productivity per hour of work
The development of the share of value added per hour worked. This is based on the same source of data as the unit labour costs indicator - they are interlinked and are compatible. Hourly labour productivity expresses performance more exactly than the frequently used productivity per worker.
Market share of the Czech Republic in global trade
The development of the indicator shows whether the Czech Republic is gaining or losing market share. It is based on WTO annual data on foreign trade, and for the purpose of comparison the development of the share for the EU 27 is also provided.
Terms of trade
The ratio of the prices of exported and imported goods. It is based on data from the Czech Statistical Office and expresses the advantage (disadvantage) of the Czech Republic's foreign trade for generating income. Negative developments in the terms of trade do not necessarily mean a deterioration if labour productivity is growing.
New orders in industry from abroad
The value of ordered industrial products and work which producers have contractually confirmed, regardless of the time of the commencement of the work after such orders were made. This also includes the value of production for an already established customer, even if a written agreement has not been concluded. The volume of the contracts omits the value of goods purchased for resale without processing.
Total factor productivity
This represents the qualitative component of growth that does not result from the growth of the overall inputs. Provided that all the inputs are taken into account, total factor productivity is a measure of the competitiveness of the economy.
Non–price comparative advantages
In addition to determining the set of regularly published price competitiveness indicators, it will also be necessary to monitor other non-price comparative advantages. The factors involved in non-price competitiveness are tracked by indicators such as the Global Competitiveness Index published each year by the World Economic Forum, whose structure is followed to a considerable extent by the measures proposed in the strategy.
The preparation and approval of a comprehensive strategy for international competitiveness represents only a necessary condition and the first step of a long and complex process. Precise specification of the problems is important, but will not in itself resolve them. The crucial phase will be the next one, the phase involving implementation and putting the measures into effect. This will not be possible without an integrated and coordinated approach by all the ministries, and the consistent implementation of the approved initiatives. Only then will the Czech Republic be able to hold its own amidst ever intensifying global competition and in a rapidly changing world.
