Czechia and Slovakia

The business relationship between Czechia, Slovakia and the Basque Country is focused on key sectors such as the automotive industry, advanced manufacturing, technology and energy. These highly industrialised regions share trade ties and strategic partnerships, particularly in technological innovation and renewable energy. Basque companies have a long-standing presence in Czechia and Slovakia, which has led to numerous trade ties and growing cooperation in the field of industrial digitalisation and Industry 4.0, driven by European initiatives that facilitate trading and joint development of industrial projects.

Two companies where Basque companies are strongly present

Czechia and Slovakia, both member countries of the European Union and NATO, have followed similar paths since their separation in 1993, but with some key differences in their global influence. Czechia plays an active role in EU policy, driving energy security policies and strengthening the block’s borders. Despite having a more limited global political influence, Slovakia continues to be a strong ally in NATO and an important player in Central Europe.

Czechia is an attractive market for investors thanks to its export policies, its mature industrial sector and its access to western and Eastern markets; while Slovakia remains a stable lure focused particularly on the industrial and automotive sectors.

Czechia has a strong and diversified economy that is clearly export driven; its key sectors include the automotive industry, technology and advanced manufacturing, which has led to it being well integrated in the global supply chains. Slovakia, in turn, has grown significantly in economic terms, particularly in the automotive industry, as is one of the largest vehicle producers per capita in Europe. Its dependence on exports is even greater than that of Czechia.

Czechia is expected to show moderate growth of its GDP, helped by lower inflation and a moderate increase in European consumer demand. The demand of external markets is forecast to grow significantly between 2025 and 2028, with its respective impact on the Czech GDP. Slovakia will likewise continue to show moderate growth of the GDP, also thanks to the recovery of the external demand. The automotive industry will continue to grow and the rise in the GDP is likely to be sustained in time.

The external sector of Czechia and Slovakia is deeply rooted in the European economy, with a strong focus on exports, particularly within the European Union, which is their main trade partner.

The Czech economy is mainly driven by exports of vehicles, machinery, electronic products and industrial equipment. Germany is its largest trade partner, both in terms of imports and exports, and its main trade partners are in the EU. The country has sought to diversify its trade partners in recent years, by strengthening ties with emerging economies outside the EU. The small trade deficit forecast in 2024 will turn into a slight surplus between 2025 and 2028 if external demand increases as expected.

On the other hand, Slovakia, with a similar export profile, is particularly strong in automotive production; it is one of the largest producers of vehicles per capita in world, and Germany is also its largest trade partner. Apart from vehicles, it exports electronic products and machinery. In the same way as Czechia, Slovakia has sought to diversity its export base towards other international markets, even though the EU continues to be its main trade partner. Slovakia maintains a moderate trade balance, which is forecast to continue between 2025 and 2028.

Both countries depend significantly on international trade and, therefore, economic fluctuations in Europe have a direct impact on their economies.

The markets of Czechia and Slovakia are noted for their integration with the European Union, and open market economy and a significant dependency on manufacturing, particularly the automotive industry.

The Czech market is one of the most developed of Central Europe and has experienced constant growth since it joined the EU; it has very strong economic sectors in the automotive industry, with manufacturers such as Škoda, machinery production, electronics and industrial equipment, and a fast-growing technology sector, with a boom in startups and IT companies.

The Slovak market has also shown strong growth since it joined the EU in 2004, with similar sectors as Czechia, even though it is much more dependent on the automotive sector, and is home to Volkswagen, Kia, Jaguar, Land Rover and PSA Peugeot plants. It is also an important producer of machinery, electronic and chemical products, and has energy matrix dependent on nuclear energy.

Both are attractive markets as they offer good opportunities for foreign investment due to their stability, skilled workforce and geographical position in Central Europe.

Czechia benefits from a diversified economy, with a strong legal framework for foreign companies and extensive trade links with their main European trade partners, thanks to the country belonging to the EU. The country’s financial sector is mature, with first-class links with international financial networks and a range of financial products available to companies, including small and medium-sized enterprises, which makes the country even more attractive for investment. The country’s great dependency on exports, particularly to the EU, make it vulnerable to external economic crises.

The role of the State in the Czech economy is mainly as a regulator and with the focus on keeping a strong and competitive market economy within the European Union. The government intervenes in strategic sectors, such as energy and transport, but the majority of its industries are private. Czechia has an uncompetitive tax system compared to the rest of the EU. Furthermore, the tax payment and registration processes are long and complicated. Outside its tax system, Czech bureaucracy is highly efficient and accessible.

Slovakia, in the same way as Czechia, has limited intervention by the State in the economy, although it has adopted a more favourable approach to foreign investment with tax policies that seek to attract capital. The State continues to be a key stakeholder in strategic sectors such as energy.

Both countries have a balanced approach regarding state intervention; they both drive open market economies, with the State mainly intervening in strategic sectors.

Czechia and Slovakia, as members of the EU since 2009, are part of the Customs Union and Single Market that allows them to benefit from tariff-free trade with their EU counterparts. Both have active policies to attract investment, with incentives that make both countries very attractive for the investor, particularly in industrial sectors and, specifically, in the automotive sector. Furthermore, foreign companies in both countries are treated in the same way as local ones in the eyes of the law.

The strategic location of the two countries in Central Europe make them attractive centres for trade and investment, with easy access to the markets of Western and Eastern Europe.

Both countries have implemented policies to eliminate the barriers to foreign trade, with Europe’s lowest average tariff rates (average of 2.9% in Czechia and 1.5% in Slovakia), which is also reflected in the commercial openness rankings, with Czechia in 24th place out of 202 world markets, while Slovakia is in 18tn.

Foreign trade is a key component of the economy of Czechia and Slovakia, and both countries have few trade barriers in general. The majority of the existing trade barriers for companies importing into Czechia and Slovakia are the result of the technical standards for some imports, which must comply with EU standards and antidumping rules. Thus, goods from outside the EU are more prone to be affected

The fact that Czech and Slovak legislation are in line with European legislation mean that investors are protected in both countries, even though there are differences between either system. Czechia has a system to protect property rights, to enforce contracts and guarantee the Rule of Law, which is a reliable base for foreign and national companies. Furthermore, Czech bureaucracy is efficient, fast and streamlined when registering a company. The legal system may be rather slow and disputes may therefore be costly in time and money.

The Slovak legal system has been shored up in the last two decades thanks to the reforms to bring it in line with EU rules. However, the inefficient internal bureaucracy, the high administrative costs and the insufficient protection of intellectual property continue to be important problems. The public procurement legislation lacks transparency and the judiciary is weak and prone to long delays, which hinder insolvency proceedings and the enforcement of contracts.

In terms of legal risk, Czechia is in 27th place and Slovakia 52nd of 202 markets worldwide.

Contact office

Tomáš Buchtele

Director of Basque Trade & Investment Czechia and Slovakia

BASQUE TRADE & INVESTMENT REPÚBLICA CZECHIA AND SLOVAKIA

Jindřišská 939/20 Praha 110 00 / Czech Republic

Zámocká 30 Bratislava 811 01 / Slovakia

+ 420 245 001 601

+ 420 603 314 432

+ 421 220 545 177

+ 421 903 669 937

tbuchtele@basquetrade.eus

* Office hours:

Monday to Thursday: 7.30 a.m. to 4.00 p.m.
Fridays: 8.00 a.m. to 1.00 p.m.

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