Deloitte Analysis: Czech Republic Remains More an Assembly Shop
Prague, 4 November 2019 – The share of domestic value added in the total exports of the Czech Republic amounts on average to 61%, which is one of the lowest values globally. The countries with the highest share of domestic value added in exports are Saudi Arabia and Brunei (both 95%). On the contrary, the lowest shares are recorded by Luxemburg (31%) and Malta (42%). These are the conclusions of the Deloitte study Made in the World – An Analysis of the Czech Foreign Trade and its Positon in Global Value Chains.
The highest percentage of the Czech value added goes to Germany (24%), followed by Slovakia (7%) and Poland (6%) with remarkably lower shares. This corresponds approximately to the structure of exports of the total domestic production. The automotive industry makes up the largest share of domestic value added in exports (18%), albeit the volume of value added in the exports of the given industry amounts only to 46%, which is one of the lowest figures in global comparison – as, for example, in neighbouring Germany, it amounts to 76%.
From the perspective of the final destination of the Czech value added, almost a fifth of the value added goes to Germany, the second largest consumer is the USA (7%), followed by France, Great Britain – both equally with 6%.
“As opposed to the analysis of common data on foreign trade, this approach shows that the Czech economy is not dependent solely on its European neighbours. It depends, to a large extent, also on the USA. Tensions in global trade that have been aggravated by the change in the US policy may have a bigger impact on the Czech Republic than we think,” summarises David Marek, Chief Economist & Director at Deloitte and the author of the analysis.
The involvement of the Czech economy in the global economy is increasing. From 2005 to 2015, the extent of involvement in the so-called global value chains (GVC) increased by more than a tenth. At the same time, the Czech Republic reports a lower share of domestic value added in exports as the domestic economy uses foreign semi-finished products in its production.
“However, the increasing involvement in GVC, and especially in the complex form of GVC, also means that the sensitivity of the Czech economy to upheavals in global economy increases, too,” the co-author of the study, Petr Němec, points out.
Within the OECD countries, the Czech Republic ranks as the third country with the largest distance between its production and its final consumer, preceded by Luxemburg and South Korea. It means that the Czech Republic has production in many areas that stand in the middle or at the beginning of a production chain. The analysis of value curves shows that 9 out of 10 most important industries by export volume are placed on the parts of the value curve with low value added.
“Domestic production of cars is exactly in the middle of the value chain with a low level of value added. On the ascending part of the curve, there are only information and communication activities, which are linked to the corresponding industries in Germany and the USA. The calculation and analysis of value curves for key industries of the Czech economy support the statement that the Czech Republic still remains rather an assembly shop,” adds David Marek.
In the Czech Republic, the production industries with the largest distance from the final consumer are mining and extraction, production of wooden and paper products and printed material and production of basic metals and metal products. Half way on the way to final consumers are production processes in the manufacturing industry, wholesale and retail business. The closest to the consumer are accommodation, catering and hotel and restaurant services.
The detailed study Made in the World – An Analysis of the Czech Foreign Trade and its Positon in Global Value Chains can be found here.