In my last article I described the impact of a needless and ideology-driven austerity agenda on the Czech Republic. The economy has experienced a sharp downturn in the past year and exports have been the main source of growth. Without the export market the situation would have been much worse.

So let’s take a look at the Czech Republic’s export figures. Exports grew during 2011, and the country maintained a healthy balance of trade. In 2011, exports totaled some 2,868 billion Czech crowns – the export to GDP ratio being 75.3%. Machinery and transportation account for just over half of all exports.

The Czech Republic’s principal trading partners are in the European Union, with Germany and Slovakia taking the largest share. A look at a map produced by the economist Pankaj Ghemawat (in which the countries of the world are scaled in size according to their volume of trade with the Czech Republic) shows us quite how Euro-centric the country’s trade relations really are.

The Small and Medium Enterprise sector is taking an increasing size of the Czech Republic’s export business. Last year SMEs accounted for 51.5% of overall export volumes, representing a year-on-year increase of some 13%. This is an important trend for the Czech Republic. Though the country has a balance of trade surplus, the overall current account is in deficit, due primarily to the repatriation of profits.

Much of the growth, especially in export industries, of the past two decades has been driven by Foreign Direct Investment. If the country is to avoid serious imbalances in the coming years, the home-grown export sector will need to continue to develop. So the SME sector ought to play a key role in strategic policy making in the Czech Republic.

In terms of the size and importance of the SME sector, the Czech Republic is not far from the EU average. Overall, according to European Commission data , there are over 930,000 Small and Medium Enterprises in the Czech Republic, some 99.9% of all businesses. SMEs employ 69.9% of the private-sector workforce and account for 55.9% of all value added. The respective figures for the EU as a whole as 67.4% and 58.1%.

In its assessment of the sector, the European Commission rates the condition of the Czech SME sector behind the EU average on all but one of ten indicators. Important work remains to be done in terms of fostering appropriate financial conditions for SMEs, as well as reducing bureaucratic and administrative burdens, improving public procurement policies, enabling domestic firms to take better advantage of the European Single Market and to foster greater cooperation between businesses and universities.

The Czech Republic does score above the EU average on one indicator – Skills and Innovation. Czech firms perform relatively well in terms of introducing product and process innovations, and providing training to their employees, though not so well in terms of innovative inter-firm cooperation and participation in EU-funded research.

The bad news is that the performance in skills and innovation that is so important for the SME sector is set to deteriorate. The Czech education system has historically been highly rated, but standards have fallen sharply in the past decade. The OECD’s report on education in the Czech Republic, released earlier this year, makes for serious reading.

The Czech Republic spends 2.5% of GDP – 6.1% of the overall public sector budget – on non-tertiary education, ranking it the lowest amongst OECD countries for which data is available. Tests of student learning outcomes of 15-year-olds show results in reading, mathematics and science roughly in line with the OECD average, but dramatic declines since 2000.

Declines in student performance are reported as being amongst the most serious in the OECD. The OECD report also raises concerns about social selectivity in the educational system – measured by the importance of parents’ occupational status in determining a child’s likelihood of entering university the Czech Republic ranks amongst the six most unequal countries (in the OECD).

The current government lacks a serious strategy on reversing this disturbing trend; indeed there have been five education ministers in the past six years. It looks as if neoliberal ideology and a lack of leadership has led to the nation squandering its most valuable resource.

A new government would have the opportunity to make a fresh start and turn around a situation that represents a serious threat to the country’s long-term economic prospects. Indeed the opposition Social Democrats could do worse than centre their policy agenda around a slogan of “education, education, education”.

Tanweer Ali is a finance lecturer with the State University of New York, currently based in Prague

Education Key to Innovation in Czech SME Sector
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