Region

Europe

Seeking Pole Position

By Luiza Oleszczuk

Driving around midtown Warsaw one could still notice some traits of the old, post-soviet Poland – gray buildings, so typically associated with Central and Eastern Europe; a few small dingy shops here and there. But it’s enough to enter any of the offices or look at the sparkling shopping centres to feel the air of modern Europe and globalised business. And nothing illustrates that large, hungry market better than the (mostly young) people treading along Warsaw streets sporting various styles and designer clothes, convincing those in doubt that this is just another consumer-driven European city.

Talks about outsourcing destinations like China, India, the Philippines and others – though rightfully enthusiastic – sometimes overshadow other alternative destinations, like those in Central and Eastern Europe. And it would be a pity to bypass these newly advanced economies.

During the 2008-2009 financial meltdown that ended up halting GDP growth all over Europe, putting most European Union countries in the red and seriously undermining the European banking system – Poland was the only country in the EU with a growing GDP, which rose 1.8% in 2009, while the EU’s total economy contracted by 4.2% that year.

This third largest country in “Emerging Europe” (6th largest in the EU) has survived the storm with stable, strong banks and economy, and a stable, responsive government. Four years later, the investment climate in the country remains attractive – Poland, with a population of over 38.5 million, is currently the fastest growing economy in Europe. And it’s open for business.

According to the Polish Information and Foreign Investment Agency, the GDP growth will continue in the coming years. But those estimates are shared by large international think tanks, like Ernst & Young, IMF and others. Ernst & Young calls Poland “One of the most successful CEE (Central and Eastern Europe) reformers” and points out the country is characterised by a “robust supplier base” and “people with engineering background”.

It’s good to also remember that Poland is the largest beneficiary of EU subsidies, after having joined the union in 2004.

BUSINESS CLIMATE

After centuries of very stormy history, the Poles managed to turn their location into an advantage.

“Over the years, Poland’s location in Europe had been tragic for the country,” the head of the Trade & Investment Section of the Polish Consulate General, Henryk Sanecki, said in a meeting I recently attended; referring to Poland’s war-torn history and its location between western Europe and Asia and Russia.

“Today – at a time of peace and membership in the EU and NATO – its location is a great trade advantage.”

Poland is indeed located in the geographical centre of Europe, which makes its territory a crossing point between North and South and between East and West; it also makes it part of the trans-European transportation corridor.

Investors associating Central and Eastern Europe with political instability will be glad to learn that Poland has had a democratic government since it gained its real autonomy in 1989, and has been led by Prime Minister Donald Tusk and his Civic Platform part since 2007, assuring it a stable government for the past six years.

Polish politicians believe that membership in the EU, NATO, OECD, WTO and the Schengen Zone is to assure the country economic stability and facilitate trade, as well as security. The government also maintains a very good diplomatic relationship with the United States.

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Economically, a vast majority of Polish imports and exports rotate within the EU and Russia, though recently also China (Exports in 2011: Germany 26.8%, UK 6.6%, Czech Republic 6.4%, France 6.3%, Italy 5.5%, Netherlands 4.5%, Russia 4.2% ; Imports in 2011: Germany 28.7%, Russia 10.3%, Netherlands 5.9%, Italy 5.3%, China 5.3%, France 4.4%, Czech Republic 4.3%).

No wonder Poland has been receiving an increasing amount of attention from foreign investors over the past decade; more and more often including technology giants like HP, Google, Sony or IBM, all of which are already present on the market and attracted to Poland’s pool of engineers.

FDI Intelligence, a think tank analysing investment flows, stated in a report that in 2011 Poland and Russia were becoming the fastest-growing European investment destinations. Poland ranked 5th on its 2011 report; 6th according to the World Investment Report, and it was also announced by Ernst & Young the second most attractive country in Europe for FDI within the next three years in 2012 and by Deloitte to be the second location in Eastern Europe and Russia offering the greatest revenue opportunities over the next three years.

Although FDI in Poland dropped due to the global crisis, the fall was not as steep as in most other economies, and in 2009 it was 19%, whereas the fall in world FDI flows was 40%.

So what is Poland doing with all this positive economic climate? For one – it’s trying to attract foreign investors. But not only – a number of agencies, support programmes coming from the central government and special economic zones serves both the foreign and domestic entrepreneurs.

There are 14 Special Economic Zones (SEZ) in Poland, each offering tax breaks and modern, environmentally friendly premises. The total value of capital invested so far in all the 14 zones was expected to go over PLN 50 billion (US$15 billion) in 2008.

“A business, on entering an SEZ has the assurance of tax benefits and an additional benefit is the fact that they can begin trading on a specially prepared site, fully equipped with the necessary utilities,” reads an announcement on the website of the Polish Information and Foreign Investment Agency.

The zones also provide assistance in negotiating with the local authorities or the central administration. But the tax breaks can also come directly from municipalities or the central government.

Entrepreneurship in Poland is also supported by government-backed development agencies like the Polish Agency for Enterprise Development (PARP) or the Polish Information and Foreign Investment Agency (PAIiIZ).

HEALTHY BANKING SYSTEM

“I am very impressed with the banking system; it is as modern as in other developed centres in the world,” an Argentina-born, US-based CEO of a software company Belatrix, Luis Robbio, told me after his recent trip to Poland.

The state of Polish banks is another aspect that often surprises foreign investors. Poland’s financial sector is stable and growing; it lived stably through the crisis, mostly due to a large reserve which is required constitutionally.

“The purpose of these reserves is to smooth out the impact of movements in banking sector liquidity on interbank interest rates. They also serve to limit excess bank liquidity,” reads the monetary policy of the National Bank of Poland.

The Polish society is frugal and it has a dislike of credit cards. In 2012 for instance, for every 32.9 banking cards there were only 6.4 credit cards, and that ratio was very alike over the preceding years.

Poland is also still using its own currency, the zloty, which – as some argue – might have contributed to its financial wellbeing during the crisis and is still contributing to operational costs in Poland being relatively low. The government, however, is determined to join the eurozone at some point between 2015 and 2018, much against the preferences of the population which came to associate the euro with Poland’s spendthrift southern-European neighbours and the source of Europe’s financial hiccup, and is now overwhelmingly against joining the common currency.

“If you ask the average Pole he would say that the eurozone means the increase of prices and a need to pay the debts of others,” Witold Orłowski, Chief Economic Advisor at PwC Poland and a renowned Polish economist said this June at the Wroclaw Global Forum.

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