Inflow of Foreign Direct Investment - The Czech Republic has long been successful at attracting FDI even before accession to the European Union. The Czech Republic has the highest share of FDI in Central and Eastern Europe per head of population. Approximately one third of the FDI investment into the country comes from its high cost neighbour, Germany - a trend that is expected to continue as Germany is slow to undertake structural reforms of its own economy. Recent companies to make significant investments in the Czech Republic include DHL, Accenture, General Electric, Siemens, etc.

Stable and appreciating currency - There are a few reasons why the Czech Koruna has performed so well over the last couple of years. There is the fact that investors are looking towards the currency joining the Euro within the next 5-8 years. If we look historically how 'weaker' currencies have performed leading up to joining the Euro we see that the Lira and Peseta appreciated approx 20% against the Deutschmark in the preceding few years. The Czech Crown has so far appreciated by approximately 9% and so there is room for further strength. Another factor has been the relatively low interest rates in Europe which has attracted funds to the Czech Republic, despite the fact that the Czech central bank is in the process of cutting rates. In addition, there was rapid price inflation in Ireland, Spain, Portugal, etc. after these countries entered the Euro. We expect a similar inflation in Czech Republic.

Structure of Economy - The economy has shifted from industry and manufacturing towards higher value added services since the mid 1990's and thereby insulates the economy from external price shocks. The surge in FDI during this period, which amounted to 13.4% of GDP in 2002, has contributed to acceleration in the pace of export diversification.