CZECH REPUBLIC * 1. DEVELOPMENT DISPARITIES AND ISSUES. Figure 1: Czech Republic. The Czech Republic

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1 CZECH REPUBLIC * 1. DEVELOPMENT DISPARITIES AND ISSUES The economic position of the Czech Republic has been generally favourable. GDP per head (PPS) increased to 66.5 percent of the EU25 average in Annual GDP growth is currently around three percent. Large volumes of Foreign Direct Investment and on-going economic restructuring underpin the country s growth. The relative contribution of industry to GDP and levels of employment has fallen. In 2002 industrial production accounted for 32.8 percent of GDP, compared with almost 48 percent in In contrast, the role of the retail, trade, tourism and financial services sectors has grown rapidly. Also, key sectors of industry and services have begun a steady shift towards higher value-added output. 2 In the future, key economic challenges will include: tackling the remaining structural shortcomings, notably in the labour market and in the business environment; and speeding up the transition towards a knowledge-based economy. 3 Figure 1: Czech Republic Source: The capital city, Prague, dominates the economic geography of the Czech Republic, with a large share of the national population, the highest regional employment levels and the largest concentrations of tertiary employment, foreign direct investment, research and development and higher education. Border regions and regions with favourable natural 1 ucture 2 ucture and European Commission, Commission Recommendation on the 2004 update of the Broad Guidelines of the Economic Policies of the Member States and the Community (for the period) (European Commission, Brussels, 2004). 3 European Commission, Commission Recommendation on the 2004 update of the Broad Guidelines of the Economic Policies of the Member States and the Community (for the period) (European Commission, Brussels, 2004). 1

2 environments have also benefited from increased cross-border trade (especially in the west along the German and Austrian borders - e.g. South West region) and tourism. Eastern regions of the country, mono-structural heavy industrial regions and some rural districts are among the poorest regions. Another distinctive feature of regional development in the country is a sharpening of intra-regional disparities at local level caused by the bankruptcies of industrial plants, e.g. at Kladno. These problems are particularly pronounced in regions with large concentrations of heavy industry, e.g. in Moravia-Silesia and North West Bohemia. Unemployment levels in Moravia-Silesia and North West Bohemia were 14.8 percent and 11.2 percent in 2003 (see Table 1). Table 1:Socio-economic indicators in the Czech Republic (NUTS II) Czech Republic Population (000) 2001 GDP Per Capita, PPS 2001 Employment by sector (% of total) 2002 Unemployment Rate (%) EU15=100 EU25=100 Agric. Ind. Services Regions Praha Stredni Cechy Jihozápad Severozápad Severovýchod Jihovýchod Strední Morava Moravskoslezsko Total Source: Eurostat (unemployment rates) and Third Report on Economic and Social Cohesion (European Commission, Brussels, 2004). 2. NATIONAL REGIONAL POLICY OBJECTIVES In the early 1990 s, regional development was not a major policy priority for the government. At this stage, regional development disparities were not as pronounced as in many EU countries and, crucially, the government was focused on fundamental issues of national economic and political transformation. Subsequent growth in regional disparities, ongoing processes of democratisation and decentralisation of decision-making, and EU preaccession aid and preparations for Structural Funds, all contributed to a fundamental change in the Czech Republic s regional policy. Since 1996, a range of new legislation has been introduced. The Principles of Regional Policy (resolution No.235, adopted in 1998) define the basic principles, objectives and mode of implementation of regional policy in the country. In 2000, the Act on Support for Regional Development (No. 248/2000) broadened the scope of regional policy further and took steps to incorporate basic principles of EU regional policy, such as programming, partnership and concentration. Regional policy is described as a planning activity on the part of the state and regional and local bodies with the aim of contributing to balanced and harmonious development in the individual regions of the 2

3 Czech Republic, reducing unjustified differences between the levels of development of different regions and improving regional economic structure INSTITUTIONAL ARRANGEMENTS 3.1 Territorial Administrative Structures The basic levels involved in regional development are summarised in Table 2. Table 2: Territorial Administrative Structures in the Czech Republic Unit Type Designation Number of Units Statistical and Planning Regions NUTS II 8 Regions NUTS III 14 Districts NUTS IV 77 Municipalities NUTS V 6242 The country s 14 self-governing regions (kraj) began operation in early The delineation of these regions was made on the basis of significant urban centres and their network of hinterland linkages. Eight planning regions, corresponding to the NUTS II level, were also established. Three of the NUTS II regions correlate exactly with three of the smaller self-governing regions (Praha, Stredocesky and Moravskoslezský) while the remainder are made up of more than one of the 14 smaller regions. The eight cohesion regions have both analytical and statistical functions and act as a basis for Structural Funds aid. At the local level, there are 6242 municipalities that currently have the following responsibilities and authority: cooperating with the region in which they are located in preparing and implementing the region s development programmes; they may support the development of business activities which are necessary to the development of the area, for example in the form of technical and investment preparations for investors /business people; they may pool their resources with neighbouring municipalities and other legal entities to arrange joint development programmes for several municipalities. 5 4 Act on Support for Regional Development (No. 248/2000) 5 Ministerstvo pro Místní Rozvoj CR (MMR) (2003b), Národní Rozvojový Plán , Praha: MMR. 3

4 3.2 Institutional Structure for Regional Policy National Level The establishment of the Ministry for Regional Development (MMR) marked a renewed focus on the central arrangements for regional policy. Sectoral ministries have retained some regional policy competencies - see Table 3. Table 3: Sectoral Ministries and Regional Policy Ministry Trade and Industry Regional Policy Competence Czech Invest - National agency for the support of foreign investment. The agency works in co-operation with various local actors, including local governments and regional development agencies. Czech Trade - The Czech Trade Promotion Agency is a government agency of the Ministry of Industry and Trade. The Agency s main task is to assist in the development of mutual trade and co-operation. BIC - The Business Development Agency, which created a network of Regional Advisory and Information Centres; these have also been developed in cooperation with RDAs. Labour and Social Affairs Agriculture the Environment Pursues active employment policies targeted on districts with high levels of unemployment and maintains regional employment agencies. Developed a programme for Rural Revitalisation that addresses the development of infrastructure in villages, revitalisation of the built environment and public areas in villages. The Ministry also provides support to farmers in poor agricultural regions or environmentally protected areas Distribution of resources from the Environment Fund to the most polluted regions. Ministry of Finance The M inistry of Defence Transport Distribution of funds to sub-national governments The revitalisation of former Soviet Military training bases. Support for public transport in rural areas. Reflecting changes in ministerial competencies and approaches to regional policy, structures for the delivery of regional policy have undergone a related process of change. In some areas, efforts are increasingly co-ordinated and delivered through a dedicated system. For instance, the Centre for Regional Development (Centrum pro regionalni rozvoj CRR CR), responsible to the MMR, was established as the main implementing agency for Phare regional development programmes. CRR is also supposed to play a wider role offering objective and methodological support for the actions of regional development agencies. In addition to implementation structures headed by the MMR, various other central 4

5 government ministries operating some form of regional policy each have their own policy implementation structures and institutions. Regional Level As a result of reform in territorial administrative structures and the relative division of power between levels of government, the level of regional involvement in policy development and implementation has increased substantially. The Act on Support for Regional Development sets out areas of regional development responsibility. Responsibilities allocated to the 14 self-governing regions include: co-ordination of the development of the region; development, implementation and production of regional development programmes; co-operation with central state administrative authorities; and co-ordinating the interests of municipalities in regional development matters whose significance extends beyond a single municipality. They also take part in decision-making on the allocation of public funding to support regional development, such as funding some Regional Development Agencies (RDAs). In addition to their role in state support programmes, the regions have the right to provide targeted support to municipalities within their area. Regional administrations work alongside a wide range of development partners, such as RDAs, local government, government agencies, Structural Fund intermediary and implementation bodies, NGOs and business organisations. However, the rapid pace of change and the institutional complexities involved in the administration of regional development programmes mean that partnerships, networks and programmes of cooperation are still evolving. 4. NATIONAL REGIONAL POLICY INSTRUMENTS The Strategy for Regional Development of the Czech Republic, adopted by the government in July 2000, outlines the direction and priorities of the State s regional development policy. The overall objectives of the Strategy are: the achievement of a regional economic and institutional level facilitating the Czech Republic s accession to the EU and social and economic cohesion; the stabilisation of a well-functioning regional system in the Czech Republic; and the creation of mechanisms designed to activate and harness the resources of individual regions, mechanisms to identify regional disparities, and instruments to mitigate disparities. At regional level, the fourteen self-governing regions also prepare a development strategy. Strategies are prepared by the kraj Department for Regional Development, with reference to the National Strategy, and set out development priorities for the territory. 6 6 J. Blažek, (1999) Local and regional development and policy in the Czech Republic in the 1990s, in V. Hudak, H. Huitfeldt and E. Meegan., Regional Policy Goes East: Essays on Trends and Lessons 5

6 According to the Strategy for Regional Development, standard economic and financial instruments can be applied in all regions but support will be regionally differentiated. For example, job creation grants and retraining grants are weighted to offer investors the maximum benefits in areas of relatively high unemployment. The following basic types of regions benefit from targeted regional support programmes: Regions with structural problems - defined on the basis of the following indicators: unemployment rate including the number of applicants per job vacancy; the extent of industrial decline and its impact on employment; and the development of business. Economically weak regions - defined on the basis of the following indicators: unemployment rate; number of applicants per job vacancy; wages and agricultural income levels; level of tax revenue in local budgets; the extent of decline in the primary sector (agriculture, forestry) and its impact on employment structure; and population density. Rural areas - defined on the basis of indicators measuring the decline in number of inhabitants, density of the population, the structure of employment and the proportion of the population in rural municipalities. Other regions - for example, border regions, former military areas, regions affected by natural disasters, regions with a highly disturbed or damaged environment, regions with less favourable conditions for the development of agriculture, or regions with a higher average unemployment rate than the Czech Republic average. Figure 2: Regional State Aid Map for the period Source: DG Competition website Learned for Regional Development Policy in Central and Eastern Europe, Institute for the East West Studies, Prague, Washington,

7 5. EU PROGRAMMES 5.1 Objectives For the period , the European Commission has agreed co-financing of billion for Structural Funds in the Czech Republic. The Cohesion Fund makes an additional 936 million available for The overall objectives set out in the country s National Development Plan are: Creating conditions for economic growth by strengthening internal factors; Improving the skill level, competitiveness and mobility of the labour force, along with simultaneous levelling of the impacts of economic growth on disadvantaged groups of population; Approximating to the EU environmental standards; and Balanced development of regions. 5.2 Implementation The implementation framework for Structural Funds is set out in Table 4. Table 4: Structural Funds Programme Programmes Community Support Framework (Obj.1) OP industry and enterprise OP infrastructure OP human resources development OP rural development and multi-functional agriculture Joint regional operational programme Technical assistance Single Programming Document for Prague region (Obj. 2). Technical Assistance Community contribution billion 261 million 246 million 319 million 174 million 454 million 46 million 70 million 2 million Finance acts as Paying Authority for all programmes. The Ministry for Regional Development is the Managing Authority for the Community Support Framework 7 RAPID Press Release, Commission agrees on the structural funds in the Czech Republic for , IP/03/1773 of 18 December 2003, Brussels. Available at: nguage=en&guilanguage=en 7

8 (CSF). Specifically, the Department for European Integration and Structural Funds of the Ministry fulfils the Managing Authority function. The Managing Authorities for individual operational programmes are set out in Table 5. Arrangements for programme implementation and intermediary bodies are detailed in the programmes and the relevant programme complements. Table 5: Operational Programmes Managing Authorities Programme Joint Regional Operational Programme OP Industry OP Human Resources Development OP Infrastructure Managing Authority Ministry for Regional Development Ministry of Industry and Trade Ministry of Labour and Social Affairs Ministry of the Environment OP Rural Development and Multi-Functional Agriculture Ministry of Agriculture Source: Resolution of the Government of the Czech Republic No. 102/2002 and No. 149/ Geographic Focus The country s Joint Regional Operational Programme (JROP) is one of the five programmes implemented under the Community Support Framework for Objective 1 in the Czech Republic. The JROP covers the development priorities of the seven Cohesion Regions of the Republic that are eligible under Objective 1. The programme has the following priorities: Support of small and medium enterprises in the selected regions; Improving regional infrastructure; Developing the infrastructure for the human resources development; and Support of tourism. Regional Councils, made up of representatives of the self-governing regions from within each NUTS II region, fulfil the role of regional Managing Authorities for the Structural Funds. They have a key role in the development of regional level strategies and programmes co-financed with EU funding, appraisal and selection of projects, decisions on funding for individual measures and implementing monitoring and review measures. 8 Seven branches of the Centre for Regional Development (CRR) are now in operation. They are responsible for project implementation of EU funded projects at the regional level. CRR 8 The Councils are made up of ten representatives from each regional parliament within the particular NUTS II region. In practice, this means that the Councils can vary in size from ten to thirty people. In NUTS II regions corresponding to the kraj, Regional Representatives perform this function. The Regional Councils fulfil the role delegated to them by the MMR. They have to comply with the regulations and decrees set down by the MMR. The Ministry can also monitor and over-ride the decisions of the Regional Councils. The work of the Councils will be supported by permanent secretariats, which are currently being established. 8

9 branches implement the agreed and finalised projects, supervise the tender and cover all financial management. 6. REFERENCES J. Blažek, J. Prikryl and T. Nejedl, The Czech Republic, in Davey K. (ed.) Investing in Regional Development: Policies and Practices in EU Candidate Countries (Open Society Institute, Budapest, 2003) pp J. Blažek, Regional Development and Regional Policy in the Czech Republic: An Outline of the EU Enlargement Impacts (2001), Infomationen zur Raumentwickling, Vol. 11, No.12, pp J. Blažek, (In)consistency and (In)efficiency of the Czech Regional Policy in the 1990s (2000), Informationen zur Raumentwicklung, Vol. 7, No. 8, pp J. Blažek, Local and Regional Development and Policy in the Czech Republic in the 1990s in V. Hudak, H. Huitfeldt and E. Meegan (eds.), Regional Policy Goes East: Essays on Trends and Lessons Learned for Regional Development Policy in Central and Eastern Europe, (Institute for East West Studies, Prague, Washington, 1999), pp ECORYS, Regionální Akcní Plán Moravskoslezsko, (Ministerstvo Pro Místní Rozvoj, Praha, 2003). D. Marek and M. Baun, The EU as a Regional Actor: The Case of the Czech Republic (2002), Journal of Common Market Studies, Vol. 40, No. 5, pp Ministerstvo pro Místní Rozvoj CR (MMR), Spolecny Regionalni Operacni Program (MMR, Praha, 2003a). Ministerstvo pro Místní Rozvoj CR (MMR), Národní Rozvojový Plán (MMR, Praha, 2003b). Ministerstvo Pro Místní Rozvoj (MMR), Strategie Regionálního Rozvoje Ceské Republiky, (MMR, Praha,2000). Mladá fronta Dnes, Zaplatí Cesko unii víc, než dostane? Mladá fronta Dnes, 23 March * This paper has been prepared by Dr Irene McMaster with Chiara Polverari, based on EPRC desk research and fieldwork. 9