Czechia’s digital ambitions: Between setbacks and startup sparks

Czechia’s journey towards digital transformation has made progress, though not without significant hurdles — particularly in the digitalization of public administration. Despite ambitious plans and substantial investments, the reality remains far from ideal, with citizens frequently encountering outdated processes and bureaucratic inefficiencies. A strong startup sector, growing openness to AI adoption, and continued focus on digital skills development offer reasons for optimism. Momentum is also building among policymakers and business leaders, as seen at the Digital Czechia conference in March 2025, where calls to address overregulation and unlock greater investment featured prominently. Many businesses are hoping for change — especially around administrative burdens and limited public investment — as the general elections approach. A key priority for the next government will be addressing regional barriers, such as limited access to AI chips.

Czechia performs strongest in areas such as digital skills, eGovernment service usage, and 5G network coverage. Despite improvements in individual indicators, Czechia ranks 20th out of 27 EU countries, with an overall score of 68% (DESI, 2024). One of the key factors slowing down the development of digital industries is the underperformance of digitalization efforts in public administration, which faced a serious test in 2024.

State’s digitalization setbacks

In 2024, digitalization in Czechia was expected to bring significant changes, such as the digitalization of the construction permitting process. However, after initial optimism, implementation fell short — state services were unprepared, and the attempt to digitalize construction permits encountered major setbacks. As a result, the digitalization of public services was postponed to 2027, and construction permit digitalization was delayed until 2028. According to earlier estimates, Czechia is losing nearly 280 million EUR annually due to the failure of the digital system for construction processes, further discouraging developers from building and exacerbating one of the worst housing shortages in Europe.

Among the smaller successes were projects launched by the labour and transport ministries, and the introduction of a digital identification card, which is expected to integrate with the European EUDIW project in the future, potentially replacing successful private initiatives like Bank iD. However, the challenges lie not only in technology but also in structural inefficiencies and limited momentum for broader administrative reforms.

Potential in the startup sector and AI

In 2022, Czech startups employed 150,000 people, accounting for 4% of the workforce and approximately 5% of GDP. Their employees earned above-average salaries, with wages significantly higher than the national average. The number of startups grew by one-third between 2018 and 2022, with two-thirds based in Prague and a significant presence in Brno and Ostrava. Investments in startups increased sixteenfold during this period, from 80 million EUR to 1.48 billion EUR.

The most-funded startup was the online supermarket Rohlík.cz, which raised 700 million EUR, while the biggest exit was the sale of antivirus company Avast for 7.5 billion EUR. Other highly successful startups that have grown into regional players include the travel portal Kiwi, the management platform ProductBoard, and the logistics company Zásilkovna (Packeta). Demonstrating AI-driven innovation, Czechia has seen the rise of startups like Rossum, MAMA AI, and Filuta AI, which provide services to large multinational companies.

The importance of the startup sector was underscored by the newly established Parliamentary Subcommittee for Startups and the Czech Startup Association, which lobbies nationally for better business conditions. The association collaborates with Czech Founders and operates at the European level within the S9+ group of states.

Czechia has also joined the international Europe Startup Nations Alliance (ESNA). The association’s launch has been supported by developments in the EU, where the Draghi Report calls for economic transformation, and the European Commission has appointed its first-ever commissioner dedicated to startups, research, and innovation. AI adoption in Czech businesses remains slow — currently, only 47% of ICT firms use AI. A significant shift is expected with upcoming legislative changes and the implementation of the AI Act, which, according to Deputy Minister of Industry and Trade Jan Kavalírek, is designed to transpose core EU requirements while encouraging research and development investments. Additionally, the newly formed Parliamentary Committee on Artificial Intelligence (MPO, 2025) and the Czech National AI Platform (CNAIP) are expected to play key roles in supporting a more innovation-friendly business environment.

Startups and AI at a pivotal moment

Czechia’s startup and AI ecosystem is at a pivotal moment and overcoming bureaucratic obstacles, attracting investment, and fostering a culture of innovation will be crucial for realizing its potential. Currently, Czechia ranks among the EU countries with the least favourable business environments, holding the 22nd spot out of 27 in the Prosperity and Financial Health Index. Regulatory complexity and challenging conditions for business continue to hinder capital investment, as highlighted by policymakers and top business representatives at the Digital Czechia conference in March 2025. Limited availability of AI chips presents an additional hurdle for Czechia and other CEE countries, leading policymakers to seek collaborations within the EU and with international tech suppliers to ensure access to crucial hardware and drive AI advancements.

Upcoming general elections and impact on the business environment

With general elections expected in early October 2025, Czechia is entering a year-long campaign period. Current polls suggest a potential victory for the opposition ANO movement, led by former Prime Minister Andrej Babiš, which holds over 30% in most polls. A key uncertainty is the coalition potential of the populist ANO movement. In addition to the current governing parties, other political forces that could enter Parliament include a far-right nationalist coalition led by SPD, the right-wing nationalist Motorists, the left-wing movement Stačilo!, and the centre-left SOCDEM.

The future business environment may evolve in different directions. On one hand, ANO leader Andrej Babiš has increasingly drawn on rhetoric similar to that of U.S. President Donald Trump and Hungarian Prime Minister Viktor Orbán, raising questions about Czechia’s future alignment within the European Union. Continued close ties with Slovakia and Hungary could signal a shift in Czechia’s role within the Visegrad Group. On the other hand, after four years of Prime Minister Petr Fiala’s cabinet, parts of the business community are signalling openness to change — encouraged by Babiš’s promises to attract cryptocurrency startups and new incentives, such as Czech National Bank Governor Aleš Michl’s proposal to hold up to 5% of national reserves in Bitcoin.

As Czechia moves through this pivotal phase in its digital transformation, businesses will need to stay agile — ready to seize new opportunities while adapting to a changing policy landscape.