Poland’s comparative attractiveness to Europe in terms of FDI 2014 -2020

With the European economy still suffering from the fall out of the 2011 Euro crisis, the question is where to find its bright spots of business opportunity. Poland is one of these. Already for several years Poland knows to attract a fair share of FDI in Europe and in particular in the CEE region. The factors behind its attractiveness are self-explaining, and for some the list of advantages may become a bit boring, as much as it is true. The first, and for us the highest rated factor is the labour force. Labour costs in the EU increase by approximately 3% annually; but have been growing much more rapidly among the new EU members. In 2010 in Bulgaria the rate rose by 9,2%, in Romania 5,2% and in Poland by ca. 1%. In the wealthiest countries of the old EU hourly labour costs amount to 28 to 38 EUR on average, in Poland it’s slightly over 7 EUR.

Polish labour force is well educated, flexible, and relatively young. The work ethics of the Polish professionals are commendable. According to the Central Statistical Office (GUS) the labour productivity (measured by sold production per paid employee) in industry in 2009 increased by 1,3% year to year (0,3% in 2008 and 5,8 in 2007). Technical skills are in good supply from good universities, while wages remain competitive in the region. The labour code may seem rigid to US investors, but on a European scale it is rather flexible. The economy although not impervious to the effects of the Euro crisis, holds relatively well due to its proximity to the powerhouse Germany, and a strong internal market. GDP growth in 2012 was 2%, while the average score in the euro area was -0.6% and -0.3% for the EU27. The average growth of the Polish economy in 2012-2014 is estimated at 2.2-2.3% per year. During the same period, the average for the European Union (EU27) will be 0.6%. Poland due to its central location in Europe, has very favourable road, rail and aviation links with all of the EU countries and is well placed to trade with the EU neigbours in the East. Poland’s three main sea ports; Szczecin-Świnoujście, Gdynia and Gdańsk, are connected to the world’s most important ports. All this makes Poland the best location for companies that are active in both the Central and Eastern European markets. The infrastructure of highways, rail, airports, and harbours is improving fast after a sluggish decade of neglect. The legal system improved significantly in the past decade, ensuring reliability to the business community. The reinforced legal and regulatory system shows improved measures to prevent corruption, due to which Poland is steadily moving up on index of Transparency International. The quality of life for expats has also improved dramatically in the largest Polish business centres and in Poland as a whole in the past decade. Warsaw is a thriving town, offering a wide range of entertainment. Last but not least on the list of plusses are a corporate income tax rate of 19% and generous tax incentives and investment grants for capital investments, R&D, and innovation. Poland will be top beneficiary for structural founds in EU and has highest usage and good transparency in grants distribution. For the period 2014 to 2020 Poland negotiated some € 72,9 billion of Structural Funds from the European Commission and will be leading in structural aid adsorption among entire EU. A good part of it is aimed to support industrial CAPEX. Apart from this Poland is expanding its Special Economic Zones, which provide tax break up to 70% of the investment value and announced the instrument will be continued up to 2026. Polish government constantly increases local subsidies year by year. This increase is observed in enlarging both scope and value of grants to promote investments, innovativeness and local R&D initiatives. Next to local subsidies there are Brussels’ founds that become more interesting and with help of experienced consultant easy accessible for Poland based companies. However Poland cannot sit on its hands when it comes to pushing further with structural reforms. One blot on the landscape is the botched implementation of regulations on shale gas exploration and production licencing. Instead of taking the best practices of other European countries with mature oil and gas industries, it tried to reinvent the wheel. It resulted in 2012 in the des-investment of the infant oil and gas industry, whereas its dependence on Russian gas imports should have put alternative sourcing high on the strategic agenda. The Polish government may get a second chance if it is willing to listen and look over its borders for the best practices. Also the country is relying too much on its coal reserves for its power and heat production. Still 80% of its power comes from coal fired in old polluting power plants, of which the biggest are still under government control. The easy access to coal makes it complacent to look for alternatives, like an LNG infrastructure to increase the share of gas fired power plants and gas fired heating, which will immediately and dramatically cut the CO2 output. Yes, at present natural gas -imported from Russia- is a more expensive fuel than coal, but the downward trend of global gas prices is an opportunity not to be missed. On the balance, however, Poland is one of the best performing in the CEE region, with ample business opportunities, and an impressive list of comparable advantages in the region. For the foreseeable future Poland remains an attractive FDI target with a relatively low production cost base, a location close to the Western markets, as well as to the vast Russian market, and with one of the strongest internal demands in Europe. This attractiveness is foreseen to endure well into the future. Paul van Kooperen – Managing Partner PNO Consultants – leading grant consultant in entire CEE