Czech Republic Ranks Sixth Worst in EU for Business Conditions

The Czech Republic faces significant challenges in creating a supportive environment for businesses, ranking as the sixth worst among EU member states.

The primary issues include soaring energy costs and limited access to financing, as revealed by the Prosperity and Financial Health Index. This marks a drop of two places compared to last year.

Energy Prices as a Major Burden

Rising electricity prices remain the most pressing concern for businesses. According to Milan Mařík, an analyst for the Europe in Data project, electricity costs for companies consuming between 500 and 1,999 megawatt hours more than doubled between 2021 and 2023.

Businesses now pay the EU’s 13th highest rates for electricity, nearing the European average but with a sharper price increase compared to other nations.

This energy burden makes it difficult for local businesses to compete, with costs hindering profitability and growth. By contrast, countries like Finland, which boasts the EU’s best business conditions, offer significantly lower electricity costs and other advantages, such as a thriving startup culture and low corporate taxes.

Tax Increases Add to Struggles

Corporate income tax in the Czech Republic rose from 19% to 21% this year, aligning with the EU average but further straining businesses. Historically, the corporate tax rate stood at 45% in the 1990s before gradually declining to 19% by 2010.

The recent increase is part of the government’s fiscal consolidation efforts but has compounded challenges for businesses already grappling with rising operational costs.

Limited Access to Financing

Another major issue is the low market capitalization of the Prague Stock Exchange, which ranks as the eighth lowest in the EU. This restricts companies’ ability to raise funds for expansion and innovation, forcing many to rely on debt financing or surrender control of their businesses.

“The lack of robust trading volumes and low market capitalization discourage larger investors and, in turn, hinder companies from entering the stock market,” explains Petr Bártek, an equity analyst at Česká spořitelna. He warns that this reliance on debt financing increases financial risks and slows economic progress, leading to an outflow of talent and know-how.

Startup Ecosystem Faces Challenges

The Czech Republic also lags behind in fostering a vibrant startup culture. With just 166 startups per million inhabitants, it ranks as the eighth lowest in the EU.

In contrast, Estonia, with a strong emphasis on digitalization and a favorable business environment, boasts 1,128 startups per million residents. Estonian initiatives like digitized public administration have enabled the emergence of global companies such as Skype and Bolt.

The lack of similar support mechanisms in the Czech Republic leaves startups struggling to thrive. “Without significant reforms to reduce bureaucracy and improve access to financing, the Czech Republic risks further stagnation,” the analysis warns.

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