Lubomír Kovařík: The Czech market is extremely important for the defence industry

 06. 03. 2023      category: CZ DIALOGUES
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The Defence Industry Section of the Czech Chamber of Commerce brings together leading Czech strategic companies focusing on the defence and security industry and is a key partner of the Ministry of Defence. It was established in 2017 with the aim of creating the best possible conditions for the development of the defence industry and its support at home and abroad. The section brings together leading Czech manufacturers in the field of aerospace technology, command systems, communication and radar technology, armoured vehicles, ammunition, weapons. These include the holding companies Czechoslovak Group (CSG) and Omnipol with their many subsidiaries, including Tatra Trucks and Retia of the CSG group, or Aera Vodochody and ERA within the Omnipol group. Colt CZ Group, Meopta, PBS Group, Ray Service, Sellier & Bellot, STV GROUP and ZVI are also members. The chairman of this section since its establishment is Ing. Lubomír Kovařík, MBA. From 2006 to 2018, he was CEO of Česká zbrojovka, a.s., and from 2018 to July 2021 he was President and Chairman of the Board of Directors of the Colt CZ Group. Lubomír Kovařík was another guest on our discussion programme CZ DIALOGY, where we discussed the current state and condition of the Czech defence industry, the position of this sector as seen through the lens of the conflict in Ukraine and much more.

Video: Interview with the Chairman of the Defence Industry Section of the Czech Chamber of Commerce Lubomír Kovařík / CZ DEFENCE

The war in Ukraine has clearly changed the view on the capabilities and development of the defence industry not only in the Czech Republic but also in Europe. "In general, not only in the Czech Republic, but I think also in the EU, the defence industry is finally perceived as the main guarantor of the defence capability and strategic independence of individual states," says Lubomir Kovařík in the interview. He adds that Czech companies have started to fill all their contracts very quickly, especially long-term contracts with the Czech Army, thus replenishing the army's warehouses, which have been partially released in favour of supplies to Ukraine.

However, within Europe there are still previous settings in place that disadvantaged the defence industry, such as taxonomies. "Taxonomies - there are two points of view. In March last year, the EU Strategic Compass was published, which defined the defence industry as a clear motivator to ensure defence capability and strategic independence," Kovarik elaborates. In response to Russian aggression, funding for defence research and development was increased under the European Defence Fund. The Centre for Defence Innovation was also created. In May, the European Commission issued a report on the gaps in defence investment, the so-called Gap Analysis, and measures were defined to address these gaps. "On one side of the EU, there is a big change in the perception of the defence industry. At the same time, it is true that, for example, in the taxonomy, the change has still not manifested itself. In particular, at the moment the European Investment Bank, which not only finances some projects but also sets certain boundaries for financing within the individual banks, does not yet perceive the defence industry as one that should be financed, which is in direct contradiction to what the other part of the EU says," clarifies the chairman of the Defence Industry Section of the Chamber of Commerce.

The only effective solution, according to Kovařík, is to push all states, including the Czech Republic, to align and to have a coherent approach to the defence industry not only from one side of the EU but also from the other side, especially from the European Investment Bank. The Defence Industry Section also plays a role in this, and although it is not a large organisation, the Section brings together all the large manufacturers in the Czech Republic with a tradition in our defence industry. "Our pressure should be to help fulfil the importance we perceive within the defence industry through dialogue with the state authorities, the Ministry of Defence, the Ministry of Finance, the Government of the Czech Republic. This means helping to show why it is important, how it is necessary to work, and to create arguments for our representatives who go to the EU," says Lubomír Kovařík.

kovarik_TIT_SEZPicture: In this episode of our discussion show CZ DIALOGY, we talked to Lubomir Kovařík, Chairman of the Defence Industry Section of the Czech Chamber of Commerce | Jan Juřica / CZ DEFENCE

The Defence Industry Section also plays a role in the issue of the share of industrial cooperation of Czech manufacturers in tenders issued by the Ministry of Defence. However, this cooperation is a rather sensitive topic that cannot be forced in advance. "I think it cannot be forced. We will encounter certain legal boundaries. But some things can certainly be set," Kovařík says, citing an example from the US. Within the European Union, of course, the situation is a little different, but the fact that the Czech Ministry of Defence is now making sure that the maximum proportion of Czech supplies is made in the Czech Republic is obviously the right thing for the Czech defence industry and for the Czech economy as a whole." The basic argument for such an effort by the ministry is the fact that the Czech defence industry employs roughly 20,000 people, generates CZK 50 billion in sales, which is undoubtedly a large contribution to the state budget in the form of direct and indirect taxes. "We are strengthening, increasing self-sufficiency, strategic independence. The fact that these elements are needed has been shown recently by the covid or the current war in Ukraine. We simply cannot function without it," Kovarik says.

The Ministry of Defence is working on platforms for national emergencies, such as the purchase of raw materials or the concentration of strategic companies. How does Lubomír Kovařík assess this activity? "We as a defence industry welcome the fact that this discussion has been opened. In my opinion, three things need to be done in order to continue and conclude this discussion: firstly, it is necessary to define the strategic needs of the state, comprehensively of the entire Czech Republic. Secondly, it is necessary to define what the capacities of individual companies within the Czech defence industry are today. And thirdly, to define how the state is able to finance the provision of its needs. We, as the defence industry, will help to ensure that the current situation, which I consider insufficient, is fulfilled. Personally, I would welcome the involvement of the entire government so that there is a clear system for defining, meeting, financing and reviewing these needs so that we can avoid many problems in the future," Lubomír Kovařík emphasises.  

"Of course, we are also building the potential to be able to export. The Czech defence industry is not dependent on the Czech Republic. It is there to export," says the Chairman of the Defence Industry Section of the Czech Chamber of Commerce. However, according to him, the share of the Czech defence industry in contracts cannot be legislated. "I like the approach of the Ministry of Defence of the Czech Republic, which perceives the arguments from the defence industry and demands a minimum of forty percent involvement of the domestic defence industry in all large strategic supplies where we cannot supply products with our own capacities. And I think that is the way to meet the requirement to have increasing defence capability and competitiveness," Kovařík said, adding, "Therefore, the development of companies is also important, which has been manifested especially recently by purchases from foreign entities. This helps the development of the entire Czech defence industry. Recently, for example, it has been reported that CSG has bought an Italian munitions company (Fiocchi Munizioni) and is working on building production capacity for matches in the United States. This is undoubtedly helping the defence industry to expand and increase its role in the global market." But the field of activity of Czech arms manufacturers is not so vast that these players do not clash in competitions for military contracts.

And doesn't the competition spoil relations between armourers? The chairman of the Defence Industry Section of the Czech Chamber of Commerce does not think so. According to him, competition is more of a motivation. "The Czech defence industry has a very strong tradition, it is quite extensive. For example, in the Central European region we are one of the most extensive. We are able to produce weapons, ammunition, ballistics, wheeled armoured vehicles, cargo transport vehicles and subsonic aircraft, radars and a whole range of other products," Kovařík said. Competition is welcome, he says, and is the right thing to do. The current situation places great demands on armourers. "A number of defence industry companies are increasing their capacities to be able to cover not only the current requirements arising from the Ukrainian conflict. I would point out that the current production of the European defence industry in a number of products, especially large-calibre ammunition, is far from being sufficient for the current consumption in the conflict in Ukraine," warns Kovarik. Therefore, he says, it is necessary to invest much more in defence in the next ten or fifteen years than in the last twenty years, and the defence industry must adapt to the situation. 

Such companies certainly include the Colt CZ Group, which, in addition to Česká zbrojovka a.s., after the acquisition of the major global arms manufacturer Colt, includes both American Colt and Canadian Colt Canada, or the Swedish manufacturer of optical mounting solutions for weapons Spuhr. According to Lubomir Kovařík, last year's name change from Česká zbrojovka Group to Colt CZ Group is nothing more than a shift to the global market and taking advantage of the significant perception of the Colt name in the world. "The Czech market is extremely important for Česká zbrojovka and for our entire group for two reasons. We think that Czech Armaments and our entire group as a weapons manufacturer should play a key role in ensuring the strategic independence and defence capability of the Czech Republic. At the same time, the second reason is that all domestic manufacturers - our group, CSG, Omnipol, Aero Vodochody, Sellier&Bellot - always need references from the domestic market because that is key, that opens up markets abroad. Whenever you come abroad today, the first question of potential buyers of your products is - what do you supply to your army, what do you supply to your police, what reference do your users have with your products. That is why the Czech Republic is important for all domestic manufacturers in the defence industry," says Lubomír Kovařík, Chairman of the Defence Industry Section.

If you are interested in our full interview with Lubomír Kovařík, watch the video at the beginning of this article.

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