Czech Republic Infrastructure Report Q2 2008

The Czech Republic boasts a vibrant construction industry, which has been a key driver of the country's growth. Estimated at US$12.92bn in 2007 and having recorded a massive year-on-year (y-o-y) growth of 25.11% during the year, the construction industry is currently undergoing a high-growth phase that started in 2002-2003. This report forecasts the industry to grow at an average rate of approximately 8% during 2008-2012.

With some support from European Union (EU) funds, the state has been investing in infrastructure development on a large scale. In June 2007, the EU's long-term financing institution, the European Investment Bank (EIB), announced a CZK3bn (US$150.12mn) grant for the Olomouc region, central Moravia. The capital will be used for co-financing regional projects supported by EU Structural and Cohesion Funds during 2007-2013. The emphasis will be on the development of local transport infrastructure; environmental protection, energy conservation and efficient use of energy sources; and improvement of public administration services.

Furthermore, the government has embarked on a privatisation drive, channelling the generated proceeds towards infrastructure growth. The Czech government is strongly focusing on road development and in August 2007, the state made plans to sell a 7% stake in power utility CEZ and use the proceeds - CZK31bn (US$1.52bn) - for road construction and maintenance.

A stable business environment has also made the Czech Republic an attractive foreign-investment destination. The nation also boasts one of the longest rail and road networks in Central Europe. The country is fast becoming a hub for automobile manufacturing. In addition, the recent tourism boom in Prague has spurred the development of hotels. Housing construction in the country is also set to benefit from the growing availability of mortgage facilities and constantly improving living standards. Major projects planned or currently under way include the construction of a new airport near Prague, reconstruction work at the Pardubice airport, South Korean Hyundai's automotive plant in Nosovice, and state-led highway and road development programmes.

The Czech building segment is advanced in terms of capacity, technical proficiency and organisation.

Since 1991, the segment has undergone fundamental changes, characterised by the disintegration of large state-owned construction companies and the emergence of a thriving private sector dominated by small to medium-sized contractors.

The number of construction companies controlled by foreign shareholders has doubled in the past five years to 97. Although this is a very small proportion of the total number of companies, foreign owners tend to control the Czech Republic's major players. The clear market leader in the country, with a 10% market share, is Skanska CZ. Metrostav and SSZ each control about 4% of the Czech market, and their majority owners are Doprastav of Slovakia and Eurovia (Vinci) of France, respectively. Indeed, foreigncontrolled construction companies account for some 20% of firms employing 20 people or more in the industry.

However, the impressive performance of the country's infrastructure sector is somewhat marred by high levels of corruption and corporate taxation. Further, safety norms and standards imposed by the EU have increased construction costs in the country. The country's labour market infrastructure could also do with some improvement.

The Czech construction industry is expected to reach a value of CZK471.34bn (US$20.91bn) in 2012, contributing 10.49% to the country's gross domestic product (GDP). Strong foreign direct investment (FDI) inflows are likely to continue in the spheres of industrial and commercial construction. Increased consolidation may be seen in the industry in coming times.