Competitiveness Strategy for the Czech Republic Back to

Competitiveness Strategy for the Czech Republic Back to the Top 2012 -2020 Institutions Infrastructure Innovation

Status quo 2

What is holding us back? Slowdown in productivity growth Economic growth based on external debt Inefficient institutions, excessive regulation and corruption Large internal debt and incomplete transport infrastructure Reforms are needed simply to maintain our current position 3

What is holding us back? Institutions the inefficiency and corruption of the public sector is increasing, which places a burden on the private sector, particularly entrepreneurs public services will become more expensive, while their quality will not improve Infrastructure the benefits arising from the CR‘s advantageous position in Europe are slowly fading away regional imbalances are intensifying Innovation the role of the CR is being reduced to that of a passive supplier to other countries, slowing economic growth and sustainable development falling standards in Czech education are starting to slow the economy and the competitiveness of the Czech workforce 4

Objective of the competitiveness strategy By 2020, the CR will be one of the 20 most competitive economies in the world Vision: HIGH AND SUSTAINABLE STANDARD OF LIVING BASED ON A SOLID FOUNDATION OF COMPETITIVENESS 5

How do we achieve this goal? nine key pillars over 50 proposals for specific projects links to other policy documents Cohesion policy Export strategy Energy Policy National Reform Programme 6

European Commission’s Recommendations European Commission’s June 2011 evaluation of National Reform Programme 2011 and Convergence Programme of the Czech Republic. Deficiencies identified by the Commission are addressed in the pillars: Macroeconomic Stability Labour Market Education Institutions Infrastructure Innovation Measures outlined in the Strategy are in accordance with recommendations proposed by the Commission. 7

COMPETITIVENESS STRATEGY PROJECTS 8

Institutions Vision: efficient and non-corrupt public institutions providing quality services to citizens and entrepreneurs Today: one of the CR‘s weakest points (GCI 72 nd place in 2010) Tools: Professionalization of public sector services Management under the magnifying glass (transparency of management of state property, „online budgets“) Facilitating access for citizens and entrepreneurs to public sector services through computerisation Reinforcing the assessment of regulatory impacts and corruption risks – including their position vis-a-vis European legislation, and improving citizens‘ access to the law - e-Sbírka (e-collection of laws) Electronic arbitration proceedings and other tools to speed up law enforcement 9

OECD Survey & Competitiveness Strategy OECD CZ Further development of e-government initiatives Project Improving access to the public services contains various measures in the area of egovernment. 1. „Online budgets“ of public institututions¨ 2. Single web portal where all dispositions of public property are to be made public. - Both systems interconnected with the treasury system of budegetary management Budgetary reforms, improvements in budgetary transparency, rigorous ex ante and ex post scrutiny 3. Modern financial controlling, main focus on ex ante control Overhaul of Maximum possible publicity, overhaul in of public procurement practices monitoring and control, electronization of the process Swift implementation of the plans to integrate Establishing the Single Collection Agency – one the collection of taxes, customs and social institution dealing with all the fees into public security contributions. budgets. Obverhaul of RIA – strenthening of New metodology, implementation of CIA, consultations, more stringent screening independent screening body, extending RIA to parlamentary phase of lawmaking 10

Implementation Plan E-government – basic registers should start to operate in 2012 – Ministry of Interior Single web portal with on-line budgets in 2012 - Ministry of Finance Single web portal for dispositions of public property – 2012 - Ministry of Finance Single Collection Agency should start functioning at the beginning of 2014 (cooperation between ministries of Finance, Health and Labour and Social Affairs New RIA metodology and introduction of CIA – 2012 Ministry of Interior 11

Infrastructure Vision: The country‘s competitiveness rises alongside the quality of its infrastructure Today– slowdown in construction and maintenance, lack of links to the European transport networks, weakening energy security, slow development of information systems Tools: Coordinated, cost-effective development of all modes of transport – i. e. road, rail, water and air, linking them to European networks Increasing the competitivity of rail transport in relation to road traffic and to rail transport in neighbouring states Development of logistic systems (VLCs, optimisation of distribution processes) Quality management system for the maintenance and reconstruction of transport routes and high standards in transport Creating a State Energy Plan (SEP) Improving access to high-speed internet services 12

Implementation Plan Majority of measures proposed in the area of transport infrastructure will be implemented in medium or long time horizon. By 2025 the quality of road, rail, air and water transport should improve substantially. New concept of State Energy Plan (SEP) will be elaborated by the end of 2011. Better availability of broadband Internet access in less populated and accessible areas will be ensured by 2015. 13

Macroeconomic Stability Vision: an economy with healthy and flexible foundations Today: economic growth dependent on public spending and rising debt. The country‘s internal savings are declining alarmingly. Tools: Act on budgetary discipline Numerical fiscal rules Exchequer Taxes – a single collection point A shift from taxing labour to taxing consumption Minimising unnecessary exemptions Creating a tax floor Early warning system 14

OECD Survey & Competitiveness Strategy OECD CZ To achieve a structural balance close to zero - We propose to adopt numerical fiscal rules; reforms to the budgetary process, improvements system of exchequer; strengthening of the in budgetary transparency; the speedy budgetary procedural rules. implementation of plans to shift to a treasury system of budgetary management. Shifting the tax burden onto less distorting taxes A shift from taxing labour to taxing consumption. – focus on indirect taxes, particularly consumption and property taxes, rather than direct taxes on labour and capital income. The real estate tax should be increased by raising We propose to increase the real state tax rates. The two-tier VAT should be reviewed and VAT Gradual approximation of VAT rates. should be levied at a unified rate, with exceptions and exemptions reduced to a minimum. Eliminating other distortions in the taxation of Minimising unnecessary exemptions. labour and capital – corporate income tax and dividend tax should be revised to reduce the disparities between the tax treatment of different sources of investment finance. 15

Implementation Plan Majority measures in the project „Financial supervision – sustainable public finance“ will be implemented by the end of 2012. Measures in the project „Competitive tax system“ should be realized 2011 -2013. 16

Healthcare Vision: financially sustainable healthcare at a European level Today: the increasing financial strain on the system, caused by an aging population, medical advances and the increasing demands of patients and staff Tools: Rationalise purchases of medical equipment and pharmaceuticals (bulk purchases in the form of electronic auctions, access to generic drugs, centralised prescriptions) Streamline financing (transition to pre-payments, coordination of care between providers, sharing health records) Real competition between healthcare insurers Restructuring inpatient care (fewer acute cases, more follow -up and long-term care cases) More precise definitions of standard/luxury, conditions for care provision Preventive measures, incentives for prevention 17

OECD Survey & Competitiveness Strategy OECD CZ Definition of basic heathcare In line with the Strategy package (project Patient’s Ties to Health) Increase in the diversity of insurance products In line with the Strategy (project Increased Efficiency of the Functioning of Health Insurance Funds) Reaction on population ageing In line with The Strategy (project Bed-care Restructuring) 18

Implementation Plan Luxury package Definition – 2013 Implementation – 2013 Diversity of insurance plans Analysis – 2012 Implementation - 2013 Long-term case Changing beds of acute care to long-term care – start 2012 Establishing concept of health+social long-term - 2013 19

Education Vision: Education as an engine of future economic and social development. Schools as preparation for life in an environment of dynamic change Today: Declining literacy of Czech pupils, obsolete and rigid system. Tools: Improving the quality and availability of kindergartens Aligning apprenticeships and professional undergraduate education more to the needs of employers, their greater involvement in professional training Improving the quality of schools (introducing standardisation, evaluation, changing the role of the CSI) Changing the system of accreditation, the system of evaluating research and development at universities Increasing the proportion of undergraduate students, particularly career-oriented degrees+ reducing the proportion of students taking masters degrees Tuition fees with a system of universal loans with contingency repayment Public information system on higher education Enhancing literacy, mathematical and financial literacy and soft skills 20

OECD Survey & Competitiveness Strategy OECD Introduction of the tuition fees in tertiary education accompanied by publicly guaranteed student loans. CZ Part of the Strategy (project on tertiary education) In tertiary education stronger linking of funding to Part of the Strategy (project on tertiary education) output and quality indicators. Plans to support student jobs. Part of the Strategy (project on tertiary education - changes in legislation on employment of students in order to make it easier and cheaper for employers to employ students) A need for more benchmarking of schools and students. Part of the Strategy (project on elementary and secondary education – to introduce standards of quality result of education, define standards clearly and establish responsibility for non/fulfilment) Avoiding elitarism in secondary education Part of the Strategy (project on elementary and secondary education – to support socially disadvantaged pupils) 21

Implementation Plan Project Increasing quality and availability of preschool education – 2013 Elementary and secondary education reforms– 2015 Tertiary education reforms – 2020 Project Changes in curriculum - 2016 22

Labour Market Vision: a flexible labour market to facilitate the efficient use of human resources. Today: rigid labour market with a range of barriers and little mobility Tools: A significant increase in the employment of people over 55 years of age Unifying the activities and simplifying the administrative agenda of public authorities (unifying benefits) Increasing the employment of women with young children (preschool education) Significantly facilitating access to highly educated foreigners (basic change to the policy on aliens) Increasing the offer of part-time jobs Support for rental housing Motivating the less productive workforce to take up work, reducing the grey economy 23

OECD Survey & Competitiveness Strategy OECD CZ To support parents in returning to labour market Part of the strategy – project Reconciliation of family life and job career (various instruments for parents – "child groups"; encouraging employers to offer parttime) Encouraging the labour mobility Part of the strategy – project Increasing the availability of rental housing (analysis of rental housing market and setting- up the instruments to correct the differencies between the offer and the demand) To decrease a long-term unemployment Part of the strategy – project Labour market development (changes in employment policy – cooperation between Labour office and employment agencies) Social benefits policy should be coordinated systematically. Systematic analysis of interactions due to the change of policies should be done. Part of the strategy – project Establishing the point of single payments (unification of social benefits, unification af administration) 24

Implementation Plan Majority of the measures will be implemented by the end of 2012 Project „Increasing the availability of rental housing“ has two main phases – thorough analysis of the market and finding and implementing appropriate measures – by the end of 2013 All measures concerning social affairs are subject to evidence based policies - continuously 25

Financial Markets Vision: a financial sector that supports the competitiveness of the Czech economy Today: a conservative financial sector with local higher prices for services Tools: Reinforcing competition in the financial markets – removing unnecessary barriers: Legislative barriers to IPOs In the implementation of legislation – strengthening creditor rights Creating „seed funds“ to create new, progressive companies (key role for the CMGDB) The predictability of key policies and sustainability of the reforms adopted 26

Implementation Plan Verification of the functioning of the existing regulatory environment e. g. legal procedures weakening the rights of creditors Removal of the obstacles preventing companies from accessing financial markets - IPOs The Czech-Moravian Guarantee and Development Bank (CMGDB) as institution for implementing innovative financial engineering instruments The Seed Fund project with a positive impact on the structure of the economy 27

Effective market for goods and services Vision: a favourable environment and service for business and commerce Today: Production base for subcontracting to the EU market, without direct market knowledge or direct product distribution High degree of specialisation of exports and imports Weaker domestic sector, low level of innovation Tools: Uniform data on the effect of legal regulations impacting businesses Eco-audit Minimum capital requirements, greater accountability of statutory bodies Development of the Business. Info. cz portal Amendment to the Act on investment incentives Services for innovative business Single Windows – single contact point for customs The option of calculating the tax base from statements made for the IFRS 28

OECD Survey & Competitiveness Strategy OECD CZ Exploiting the opportunity created by implementation of the EU services directive to further open up entry in services Providing quality information relevant for starting up and running business (Development of Business. Info. cz portal) Providing assistance and advise to entrepreneurs (Development of Single Assistance System) Comparatively high business start-up procedures The capital requirements fot limited liability companies will be decreased and there will be a possibility of strating a company with only a symbolic amount of registered capital. Need for reducing the regulatory burden on businesses The project on measuring and follow-up abolition of administrative burden on businesses. There will be ongoing eco-audit aimed at excessive environmental regulation. The common commencement dates of government decrees will improve the legal awareness among businesses. 29

Implementation Plan Improvement of services for entrepreneurs (eg. Development of Business. Info. cz portal) should be realized by 2013. Services for innovative business - services for the commercialisation and internationalisation, services to support technology transfer and the greater use of patent protection – realization 2011 -2020 Act on business corporations (if approved by the Parliament) should come into effect at the beginning of 2014 Project on measuring of administrative burden will be finished in 2013 and then the recommendations will be implemented Eco-audit is running project which in 2 years intervals assesses the excessive burden of environmental measures on businesses Common commencement dates will be set in 2012 for key government measures with impact on businesses 30

Innovation Vision: Innovation as a source of future prosperity for the Czech Republic Status quo: Existing sources of growth (e. g. FDI) are gradually being depleted Innovation by companies outside the Czech Republic Domestic innovation is being hindered by the absence of nontechnical skills, a low level of cooperation of academia with companies (innovations are formed in companies, not in institutes or academic organisations) The system of evaluation and financing of R&D does not support excellence Tools: Identification of the key technological areas of the Czech Republic on the basis of foresight – prioritising support for innovation and R&D Institutional reform of the innovation ecosystem – clear definition of roles + strong central authority + dialog + interaction Changes in the evaluation of R&D institutions and programmes impacting funding – support for excellence Optimising and developing support services of the technology transfer infrastructure 31

Implementation Plan Institutional reform of the innovation ecosystem (strong cenral authority + definition of roles) – analysis, discussion and legislation changes, realization 2011 -2013 New system of evaluation of R&D institutions – impact on funding (support of excellence) – realization 2011 -2012 Identification of key enabling technologies for the CZ in order to prioritize the R&D&I support (based on foresight) – realization 2011 -2013 32

Example of project card: services for innovative business Each card has a clearly defined coordinator An overview of the specific measures 33

Example of project card: services for innovative business Examples of good practice from abroad Concrete objectiives and standards of its implementation 34

Example of project card: services for innovative business Timetable for individual measures with designed deadlines 35

Export Strategy Vision: the development and diversification of exports as an engine of economic growth in the Czech Republic Today: the lack of a high quality and dynamic pro-export strategy Tools: The creation of a Pro-export strategy for the Czech Republic for the period from 2012 -20 and its close links to the Competitiveness Strategy of the Czech Republic. Lobbing for better conditions for international trade CR representation abroad, with respect to its economic interests Coordination of agencies and information sharing in pro-export activities (ICC, sectoral unions, Czech. Trade, MIT and MFA, ČEB, CMDGB and commercial banks, EGAP) Modern state services (market research, business and market intelligence, following trends) Facilitating visas for trade purposes 36

Cohesion Policy Vision: a competitiveness strategy and cohesion strategy going in the same direction. Today: 2007 -13 the most money per capita paid out by the EU, but the Czech Republic has little success in its use Focus on hard investment projects and grants, but opportunities for soft projects and financial tools underused Too many operational programmes and priorities, redistribution mechanism Tools: Concentrating the cohesion policy on the quality of the business environment, on completing infrastructure projects, the labour market and the education system Major reduction in the number of operational programmes and priority areas Major simplication of the implementation structure Simulatneous release of funds from multiple OP Strengthening the role of intermediary bodies, increasing the rate of participation of beneficiaries Increasing importance of non-subside suport tools, emphasis on return on investment The use of direct community programmes 37

Timing of implementation - non-legislative actions 18 16 14 Innovation Business 12 Financial markets 10 Labour market 8 Education 6 Healthcare Macroeconomics 4 Infrastructure 2 Institutions 0 31. 30. 31. prosinec červen prosinec červen prosinec 2011 2012 2013 2014 2015 2016 2019 2020 legislativní 63 key non-legislative actions 38

Timing of implementation - legislative actions 18 16 14 Innovation 12 Business Financial markets 10 Labour market 8 Education 6 Healthcare Macroeconomics 4 Infrastructure 2 Institutions 0 31. 30. 31. prosinec červen prosinec červen prosinec 2011 2012 2013 2014 2015 2016 2019 2020 legislativní 71 key legislative actions 39

What is next? The recently restored Government Council for Competitiveness and an Information Society will oversee its implementation Ministry of Industry and Trade will report progress of the implementation to the Government every six month 40

Thank you for your attention. Any questions please? International Competitiveness Department Ministry of Industry and Trade of the Czech Republic Na Františku 32, Praha 1 41 www. mpo. cz