The rise of digital challengers – Perspective on the Czech Republic

| Report

Over the past 20 years, the Czech Republic has experienced rapid development (GDP per capita grew by 62 percent between 1996–2017), fueled by traditional industries, dynamic exports, investments from abroad, a growing workforce combined with labour-cost advantages, as well as funding from the European Union. The growth potential of many of these drivers is nearly exhausted, for example unemployment is at record low levels (2.9 percent in 2017). New sources of productivity growth are needed if the Czech Republic hopes to continue on its path to increased prosperity. The report The Rise of Digital Challengers – Perspective on Czech Republic – presents accelerated digitization as the new engine of growth.

Czech Republic as one of the ten Digital Challenger markets based in Central and Eastern Europe has strong foundations on which to accelerate its digitization. The digital economy is already well developed in the Czech Republic and in some sectors, such as financial services and manufacturing, the Czech Republic achieved higher digitization rates than the EU Big 5. Additional advantages are large talent pool, high-quality digital infrastructure, as well as high adoption of digital skills among individuals. If this opportunity is captured fully the accelerated digitization can deliver up to EUR 26 billion in additional gross domestic product (GDP) by 2025, or almost one percentage point of GDP growth p.a. This could bring higher competitiveness and prosperity and make Czech Republic one of the most advanced economies in Europe.

This report presents a perspective on the Czech Republic as part of a wider study “The rise of Digital Challengers: How digitization can become the next growth engine for Central and Eastern Europe” analyzing the opportunities for the digital economy in CEE. We consider the Czech Republic, alongside nine other markets in the region (Bulgaria, Croatia, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia), to be a “Digital Challenger” with potential for accelerated digital economy growth. We compare the Czech Republic and the other Digital Challengers to a group of relatively small, highly digitized countries we refer to as “Digital Frontrunners”, namely Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, the Netherlands, Norway and Sweden.

We believe that in order to benefit fully from the digital transformation, the time to act is now. The Czech Republic is booming economically; however, history shows that booms do not last forever. Also the countries of CEE, including Czech Republic, can benefit from cooperating closely. Together the CEE Digital Challengers represent EUR 1.4 trillion in GDP – the 12th largest economy in the world. Promoting digital solutions across the region can help reduce the cost of cross-border trade and enable Czech enterprises to tap into this potential. Also, a pan-CEE coalition could ensure the digital interests of the region’s countries are heard at the European level.