Doing Business with Poland

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Author: Marat Terterov | Jonathan Reuvid

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Note to reader The titles in the GMB series of Doing Business with… guides for each of the 10 countries that joined the European Union on 1 May 2004 were first published in hard copy over the 18 months preceding entry. Since publication, there have been changes in the law and regulatory environment in each country, both in the period up to accession as countries strove to complete the harmonization of their systems with the EU’s acquis communataire body of legislation and directives and during the 18 months since. In some countries there have been changes in the taxation regimes or in accounting regulations. Change has occurred in political environments too, following parliamentary elections or in the balance of coalition governments. The economic climate of some states has been affected by the continuing malaise of the EU15 economies. Six of the EU10 (Cyprus, Estonia, Latvia, Lithuania, Malta and Slovakia) have entered the EU exchange rate mechanism 2, the eurozone’s ante-chamber, and expect to join in 2007 or 2008. The Central European states are less advanced in meeting the eurozone entry criteria and previous plans for early entry have been modified with entry dates slipping to 2009–2010 or later. All of these developments are reflected in the revised ebook editions, which GMB now offers in its online EU10 collection. The texts of the revised editions have been amended accordingly and the changes are tabled in the accompanying updates to each ebook for the benefit of readers who have been working with the original edition. Further updates are programmed at regular intervals and readers purchasing ebook editions now have the opportunity to take out annual subscriptions for the update services. In this edition of Doing Business with Poland, updates are included for the following chapters: 1.4, 2.1, 2.2, 2.3, 2.4, 2.5, 3.1, 3.2 and 3.3. Jonathan Reuvid Series Editor

Doing Business with POLAND

GLOBAL MARKET BRIEFINGS

Doing Business with Poland FOURTH EDITION

CONSULTANT EDITORS: MARAT TERTEROV AND JONATHAN REUVID

CONTRIBUTORS INCLUDE: BANK AUSTRIA CREDITANSTALT CMS CAMERON MCKENNA COFACE DELOITTE & TOUCHE MERCHANT INTERNATIONAL GROUP

GMB

Publisher’s note Every possible effort has been made to ensure that the information contained in this publication is accurate at the time of going to press and neither the publishers nor any of the authors, editors, contributors or sponsors can accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editors, authors, the publisher or any of the contributors or sponsors. Users and readers of this publication may copy or download portions of the material herein for personal use, and may include portions of this material in internal reports and/ or reports to customers, and on an occasional and infrequent basis individual articles from the material, provided that such articles (or portions of articles) are attributed to this publication by name, the individual contributor of the portion used and GMB Publishing Ltd. Users and readers of this publication shall not reproduce, distribute, display, sell, publish, broadcast, repurpose, or circulate the material to any third party, or create new collective works for resale or for redistribution to servers or lists, or reuse any copyrighted component of this work in other works, without the prior written permission of GMB Publishing Ltd. GMB Publishing Ltd. 120 Pentonville Road London N1 9JN United Kingdom www.globalmarketbriefings.com This edition first published in 2003 and updated in 2005 by GMB Publishing Ltd. © GMB Publishing Ltd. and contributors Hardcopy ISBN 1-905050-27-5

E-book ISBN 1-905050-64-X

British Library Cataloguing in Publication Data A CIP record for this book is available from the British Library

Contents Foreword xi Antoni Styrczula, President of the Polish Agency for Foreign Investment Foreword xv Michael Pakenham, HM Ambassador Introduction xix Marat Terterov and Jonathan Reuvid List of Contributors xxiii Map 1: National Boundaries and Neighbouring States xxvii Map 2: Major Road and Rail Networks in Poland xxviii Map 3: Poland’s Regions xxix Part 1 The Economy and the Business Environment 1.1

1.2 1.3

1.4

1.5 1.6 1.7

Part 2 2.1

An Introduction to Business and Politics in Poland: On the Threshold of EU Membership Michael Davenport, British Consul-General, Warsaw Economic Performance and Outlook Jonathan Reuvid Poland and the European Union: A Progress Report on Accession Foreign Trade Research Institute, Warsaw Privatization and Foreign Direct Investment Jonathan Reuvid Updates are given at the end of this chapter Foreign Trade BOSS Economic Information Agency, Warsaw Business Risk Assessment Coface Consumer Market Polish Agency for Foreign Investment (PAIZ)

3 9

15 20

23 30 35

The Legal Structure and Business Regulation The Foreign Investment Regime Charles Waddell, CMS Cameron McKenna Updates are given at the end of this chapter

45

viii Contents

2.2

Alternative Corporate Structures Charles Waddell, CMS Cameron McKenna Updates are given at the end of this chapter

52

2.3

Employment Law Jaros§ aw Król and Aleksandra Gawron´ska-Mucha, CMS Cameron McKenna Updates are given at the end of this chapter

57

2.4

Dispute Resolution Pawe§ Pietkiewicz, Neil Aitken, Charles Spragge, CMS Cameron McKenna Updates are given at the end of this chapter

64

2.5

Property Ownership Steven Shone and Bartosz Kaniasty, CMS Cameron McKenna Updates are given at the end of this chapter

74

Part 3

Finance, Accountancy and Taxation

3.1

Financial Services Kevin R Smith, AWS Structured Finance Limited Updates are given at the end of this chapter

89

3.2

Accountancy and Audit Deloitte & Touche Updates are given at the end of this chapter

95

3.3

Business Taxation Deloitte & Touche Updates are given at the end of this chapter

101

3.4

Foreign Trade Regulations Deloitte & Touche Investment Incentives in Poland Deloitte & Touche

114

3.5

119

Part 4 Key Sectors of Trade and Investment 4.1

4.2

The Polish Metallurgy Sector Bohdan Bary§ ko, Jacek Frá czyk, Euromoney Polska SA/Internet Securities Construction Market Polish Agency for Foreign Investment (PAIZ)

127

132

Contents

4.3 4.4 4.5 4.6 4.7 4.8 4.9

4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18 4.19 4.20 4.21

Fuel and Energy Sector Polish Agency for Foreign Investment (PAIZ) Shipbuilding Industry BOSS Economic Information Agency, Warsaw Electrical Engineering BOSS Economic Information Agency, Warsaw Cable Industry BOSS Economic Information Agency, Warsaw Automotive and Transport Equipment Sector Polish Agency for Foreign Investment (PAIZ) Chemicals Polish Agency for Foreign Investment (PAIZ) Polish Pharmaceutical Sector Aneta Witczak, Jacek Frá czyk, Euromoney Polska SA/Internet Securities Clothing BOSS Economic Information Agency, Warsaw Food Industry Polish Agency for Foreign Investment (PAIZ) Brewing BOSS Economic Information Agency, Warsaw Packaging Industry BOSS Economic Information Agency, Warsaw Printing Industry BOSS Economic Information Agency, Warsaw Telecommunications Polish Agency for Foreign Investment (PAIZ) The Polish Retail Sector Euromoney Polska SA/Internet Securities Medical Services BOSS Economic Information Agency, Warsaw Dynamic Mobile Phone Market BOSS Economic Information Agency, Warsaw Poland’s Internet Utilization Euromoney Polska SA/Internet Securities Public Relations and Communications Practice in Poland MmD Public Relations Poland Tourism and Leisure Commercial Section of the British Embassy, Warsaw

ix

138 149 157 167 174 185 193

198 210 217 226 235 245 251 262 272 282 290 296

Part 5 Doing Business in the Polish Regions/Case Studies 5.1.1

Regional Administration

301

x Contents

5.1.2 5.1.3 5.1.4 5.1.5 5.1.6 5.1.7 5.1.8 5.1.9 5.1.10 5.1.11 5.1.12 5.1.13 5.1.14 5.1.15 5.1.16 5.1.17 5.2

5.3 5.4.1

5.4.2

Part 6

Dolnóslá skie (Lower Silesia) Voivodship Kujawsko-Pomorskie Voivodship Lubelskie Voivodship Lubuskie Voivodship Mazowieckie (Mazovia) Voivodship Ma§opolskie Voivodship Opolskie (Opolszczyzna) Voivodship Podkarpackie Voivodship Podlaskie Voivodship Pomorskie (Pomeranian Region) Voivodship Warmin´sko-Mazurskie Voivodship Wielkopolskie Voivodship Zachodniopomorskie (Western Pomerania) Voivodship £ódzkie Voivodship S´laskie (Silesian) Voivodship S´wiêtokrzyskie Voivodship Public Finance Evaluation of Six Polish Cities Myriam Fernandez deHeredia, Christian Esters, Kersti Talving, Standard & Poors Case Study: Provident Polska Case Study: ERA GSM, the largest mobile phone operator in Central and Eastern Europe BOSS Economic Information Agency, Warsaw Case Study: Jarocin´skie Fabryki Mebli S.A BOSS Economic Information Agency, Warsaw

303 307 310 317 321 325 333 337 343 347 353 357 361 364 369 377 384

394 398

401

Appendices

Appendix I: Appendix II:

Foreign Trade Results from a survey of Polish exporters’ opinions on Poland’s exports Appendix III: From Chapter 4.1 Appendix IV: From Chapter 4.9 Appendix V: Sources of Further Business Information on the Internet Appendix VI: Contributors’ Contact Details

405

423 426

Index Other Titles in this series from GMB

429 440

408 412 417

Foreword Once located behind the Iron Curtain, Poland has—in the words of Professor Jeffrey Sachs—a substantial ‘memory of a market economy’ and was quick to throw a bridge across the half-century of centralized economy and draw on the best traditions of its pre-war development. Features such as its excellent location linking the west and east of Europe, from which follows a long tradition of international trade, the largest domestic market in the region and a highly educated, industrious labour force, are now accompanied by unprecedented political stability and the nearing EU accession, thus inspiring numerous foreign companies to establish their operations in Poland. The recognition of the country’s investment opportunities resulted in it being the indisputable leader of Central Eastern Europe in terms of cumulative value of attracted investment. The increasingly attractive investment incentives and consistent reduction of formalities substantially contributed to producing over US$56 billion of foreign direct investment in Poland as of 2001. Highly advantageous for Poland’s good reputation as an investment location proved to be the encouraging success of foreign companies which have entered the market since the early 1990s, as well as support of and positive appraisals from international institutions such as the International Monetary Fund and World Bank. The Polish government recognizes the expectations of foreign investors and, being an active member of the international economic community (in 1996, Poland joined the OECD and is preparing to accede to the European Union in 2004), Poland craves to be perceived as a country that favours foreign investment. Activities recently undertaken by the government are aimed at creating an even more favourable climate for foreign investors in order to enforce the position of Poland as the region’s leader in FDI inflow. A recently passed Act on Investment Incentives provides for substantial support to investors who are eligible for investment grants, as well as employment and training grants. Moreover, the government’s agenda includes limitation of financial requirements towards entrepreneurs, changes in the tax laws and making the Labour Code more flexible—the need for which has frequently been emphasized by foreign investors. It is my pleasure to recommend to you this Kogan Page publication, which provides the necessary information regarding business environ

xii Foreword

ment, operating conditions and legal procedures—information indispensable when planning to do business with Poland.

Antoni Styrczula President of Polish Agency for Foreign Investment

Foreword Poland has moved swiftly over the last 12 years to integrate into Western political and economic structures. The Government of Leszek Miller is committed to concluding negotiations with the European Union by the end of 2002 to enable Poland to join the first wave of enlargement scheduled for 2004. We can therefore reasonably expect Poland to be part of the Single European Market within the next business planning cycle. This has important implications for British business. Most trade barriers have either already been removed or will be abolished on accession. Trade Partners UK has been working hard to draw opportunities in Poland to the attention of British companies, focusing in particular on priority sectors such as the environment, transport, ICT and electronics and financial services. More British companies than ever before are analysing the potential for doing business in Central Europe, including Poland. British-Polish bilateral trade reached nearly £2.5 billion in 2001, an increase of some 25 per cent over 2000. Poland has attracted more foreign investment than any other country in the region, totalling over US$55 billion by the end of 2001. Major European, US and other companies have invested substantially in manufacturing, retail and services. Since 1990 British companies have invested some US$3.5 billion in a range of sectors. Given Poland’s imminent accession to the European Union and British companies’ traditional readiness to invest overseas, there is potential for much greater UK investment in the years ahead. Doing business in Poland is becoming more like doing business elsewhere in Europe. Successive Polish governments, driven forward by the goal of EU accession, have pursued economic reform and privatization. As a result Poland’s overall growth since 1990 has outstripped that of all other post-communist economies. Trade Partners UK believes that there are concrete opportunities for British companies in Poland, whether as suppliers, service providers or potential investors in the Polish economy. The British Embassy’s Commercial Section welcomes enquiries from all British business people with an interest in the Polish market. I am pleased to say that there has been a string of recent examples of British companies developing their business in Poland with support from Trade Partners UK. I know that CBI Director-General Digby Jones shares our positive view of the Polish

xvi Foreword

market, which he has reinforced during visits to Warsaw over the last two years. I know of at least one major British company that used an earlier edition of Doing Business in Poland as its initial guide to the Polish market. It has since prospered way beyond its expectations. I hope that readers of this edition will be inspired by that example. Michael Pakenham HM Ambassador

Introduction In the first phase of Central and Eastern Europe’s transformation, Poland was the economic pace-setter and the first country to achieve a turnaround. The strong progress peaked in 1997 when GDP growth registered 6.8 per cent but in the period leading up to the global economic slowdown the Polish economy continued to outpace the EU. However, the unfavourable impact of the downturn and near-recession in Germany has had a stronger impact on Poland than on the democratic market economies of the Czech Republic and Hungary—the two other leading accession candidates in the present wave of increased EU membership. At mid-year 2002, Poland’s GDP growth is sluggish and forecast to reach no more than 0.8 per cent this year, compared to the more buoyant 2.9 per cent of Hungary and 3.7 per cent of the Czech Republic registered for the first quarter of the year. After its sustained reform programme involving many painful readjustments over 12 years, it is disappointing for the Polish people, who outnumber both Hungarians and Czechs by nearly four to one, that Poland is experiencing some economic difficulty as all three countries enter the run-up period to EU entry. Hopefully, the ‘anti-crisis’ package which Prime Minister Leszek Miller’s government introduced in July will address the priorities of raising economic growth and curbing unemployment which has been climbing towards 20 per cent, but more action may be necessary to contain fiscal deficits. Progress towards completing negotiations with the EU are proving difficult, not least in adapting to the common agricultural policy, itself currently subject to EU members’ review. Although Poland has adopted most chapters of the acquis communautaire, the EU will need to show some generosity in agreeing acceptable terms, both on agriculture and in accommodating the Special Economic Zones where multinational FDI projects have been focused, to be sure of acceptance in the Polish referendum scheduled for 2002. In the meantime, there is some better economic news in terms of relatively strong private consumption and improved profitability among many companies in the secondary and tertiary sectors. With regard to the population of nearly 40 million people, Poland will remain a magnet for FDI and Western businesses seeking to establish trading links in the largest territory of Central and Eastern Europe. In relation to the EU, it

xx Introduction

seems inconceivable that Poland could be omitted from the first wave of new entrants. This new edition of Doing Business with Poland is among the first in a new series of Kogan Page titles covering the leading EU accession candidates and other selected countries of Central and Eastern Europe. For the many foreign companies who have taken the decision to engage in Poland, a working knowledge of the legal system, the regulatory framework, taxation and audit and accountancy regimes is a necessary condition for avoiding the pitfalls into which foreign investment or market entry initiatives can stumble. A thorough understanding of general economic and business conditions and of the specific industries in which a market entrant intends to do business are equally essential. Part One of this book provides overviews and commentary on the Polish economy, business environment, foreign trade and investment incentives; Part Two describes the legal structure and business regulatory environment. Part Three is devoted to finance, accountancy and taxation. Together, these three sections offer recommended reading for all those who have taken the decision in principle to enter the market and have moved on to evaluating ways and means. In Part Four, key industries and markets are analysed in some detail by leading business development agencies, participants and practitioners and are intended to give practical insight to newcomers. In Part Five we present an introductory overview to each of the 16 Polish Vovoidships (regions), provide an evaluation of the status of public finance of six key Polish cities, and present several case studies of both foreign and domestic companies operating in the Polish market. The book is complemented by a series of Appendices providing further statistics on foreign trade and contact details of government agencies, business associations and facilitators in Poland from whom further information and assistance may be gathered.

Acknowledgements Our principal knowledge partners who have provided most of the source content for Parts One, Two and Three are Bank Austria Creditanstalt and the Warsaw offices of CMS Cameron McKenna, Deloitte & Touche and Coface. Without their involvement this book in its new form would not have been possible and the contributions of individual authors are gratefully acknowledged. All four are participating in other titles in the series and will be providing a continuing flow of updates and material for the revision of these texts. We are equally obliged to the Polish Agency for Foreign Investment (PAIZ), BOSS Economic Information Agency and the Commercial Section of the British Embassy, Warsaw, for their major contributions to Parts Four and Five. We would also like to acknowledge the role of Pawel

Introduction

xxi

Pniewski of the Polish Bankers Association, David Kennedy of ISI Emerging Markets/Euromoney Polska and Hanna Kepka of the Foreign Trade Research Institute, all of whom contributed articles to this publication and were extremely generous to provide their time and hospitality to the Kogan Page editorial team during research trips to Warsaw in Spring 2002. We commend to you all of these contributors who are themselves sources of more detailed, authoritative information for readers who find this book useful and are moving forward into the planning phases of their entry into the Polish market. Marat Terterov and Jonathan Reuvid London, September 2002

List of Contributors BOSS has 14 years experience disseminating professional information in the Polish economy. It publishes three periodicals, including BOSS Business News Poland (in English). In addition Boss produces regular studies, analysis and in-depth reports on industries, sectors and markets in Poland. It can also produce information on many sectors as requested. The CMS Cameron McKenna Warsaw Office boasts lawyers from Poland, the United Kingdom, and the United States. With almost 70 lawyers and a total of over 130 staff, they are one of the largest law firms in Poland. Their firm’s experience in Warsaw, where they have been practising since 1989, together with their aim to provide a full service for their Polish and international business clients which meets all their requirements and individual needs has culminated in the establishment, within a structure of CMS Cameron McKenna Warsaw Office, of five practice groups ie Corporate, Energy, Projects and Construction Group, Banking, Real Estate and Construction, and Litigation. Coface is the world number one in export credit insurance and insurable business rating. It is also a leader in the provision of credit information, drawn from its network of offices and partnerships and from a unique database, up-dated in real time, of 35 million companies. Active in both traditional and B2B enterprises is has been involved in the development of international trade for over 50 years. Michael Davenport, Poland Consul-General and Director of Trade Promotion, graduated from Cambridge University in 1983 with an honours degree in modern languages. He lectured in English language and literature at Karl-Franzens University, Graz, Austria between 1983 and 1984. He trained as a lawyer at the London College of Law and at the City law firm, Macfarlanes, and qualified as a Solicitor of the Supreme Court in 1988. He joined the Foreign Office in 1988. After an initial period as Desk Officer for Kenya, Uganda and Tanzania, he was posted to Warsaw in January 1990 with the responsibility of establishing the British Know How Fund for Poland. He was awarded MBE in 1993. He served as Head of UN Peacekeeping in the Foreign Office from 1993 to 1995 before being

xxiv List of Contributors

posted to Moscow as Deputy Head of Political Section with responsibility for external and security affairs. The Commercial Section of the Polish Embassy supports British business seeking to export to Poland or invest on the Polish market. In 2001 UK’s exports to Poland amounted to GBP 1.3 billion (USD 2,1 billion) and UK’s imports from Poland reached GBP 1.2 billion (USD 1.8 billion). British companies have invested more than GBP 2 billion in Poland, including the retail, automotive, food processing, pharmaceuticals and household goods sectors. Deloitte & Touche Central Europe spans 17 countries and has 27 offices, but it operates as one cohesive entity. In 1997 they integrated their national practices to form Deloitte & Touche Central Europe because they realized that to best serve their clients they needed to be able to share their knowledge and manpower throughout the whole of their geography. Their integration has allowed them to manage regionally and deliver locally, adding value to their services and allowing them to be performed in the most efficient manner. In becoming one firm, they positioned themselves as the professional services firm to beat. Deloitte & Touche Central Europe has the expertise and the cultural diversity that is necessary to provide world-class services in the 21st century. In addition to all the resources they have to draw on within Central Europe, they also have the expertise of their global organization, Deloitte Touche Tohmatsu. As part of Deloitte Touche Tohmatsu, their clients are given the same high level of services that they provide, anywhere in the world. Internet Securities (www.securities.com) provides hard-to-get information through its network of 20 offices in 19 countries, covering 35 national markets in Asia, Central and Eastern Europe, and Latin America. Its flagship product, the Emerging Markets Information Service aggregates and produces unique company and industry information including financial, economic and political news, for delivery to professionals over the Internet. The subscription-based service enables users to access and search through a comprehensive range of unique business information derived directly from over 5000 leading local and international sources. Internet Securities products have continually earned outstanding recognition and product reviews, including ‘perfect scores’ in all categories and a ‘must have’ ranking from Information World Review, a first place ranking by the Wall Street Journal Europe among business web sites, and repeated ‘Best of the Web’ ratings from Forbes Magazine. Headquartered in New York, Internet Securities Inc. is a Euromoney Institutional Investor company.

List of Contributors xxv

Kevin R Smith is Managing Director of AWS Structured Finance Ltd. AWS acts as an advisor to companies on most financing and accounting matters including raising trade and project finance, and debt and equity but has particular expertise in Central and Eastern Europe and the Former Soviet Union. AWS Structured Finance Ltd is a specialist firm of international financial consultants that focuses on all forms of trade, project and structured financing transactions. This may be in providing assistance at any stage from concept or business planning through advising on strategy and structuring the most effective and bankable project, to actually raising debt, equity and other aspects of the financing package. AWS has almost unique experience in Central and Eastern Europe and the Former Soviet Union, having worked throughout the region for many years. As well as a large group of specialists and contacts in the UK that can be used on any specific projects they also have a network of associates throughout the region. This ensures that they can access the right people and information in the quickest and most cost-effective way. Their approach is a very practical one, based on real experience of what works and how to make things happen. Their experience allows them to approach potential problems from different angles and to find innovative solutions. They offer a very personalized service and start with the premise that they wish to develop ongoing, long-term relationships with their clients and this ensures high quality but at a very competitive cost. The Merchant International Group Limited, (MIG), is an international security and intelligence-gathering group, working across 140 countries. MIG undertakes bespoke project work globally and serves many major international corporate clients. The primary mission of MIG is to identify, quantify and manage the risks associated with overseas investments. MIG looks at the world differently and thereby provides its clients with intelligence and insight expanding the options available to them. The role of Polish Agency for Foreign Investment (PAIZ) is to promote Poland’s investment opportunities and to encourage foreign companies to choose Poland as their preferred investment location. The Agency is a joint stock company, wholly owned by the State Treasury. It acts as an intermediary, serving individual and corporate foreign investors. PAIZ offers foreign companies its know-how and helps them establish contacts with governmental bodies and the business community. Pawel Pniewski has been working for the Polish Bank Association since 1996. He currently heads the Foreign Section of the Association and deals mostly with international and European matters. Mr Pniewski

xxvi List of Contributors

is also Secretary General of ICC Poland Polish branch of International Chamber of Commerce. The Polish Bank Association (PBA), established in 1991, is a voluntary organisation of banks created on chamber of commerce charter. The organisation represents the interest of the whole banking community to parliament, government and general public. Another task of the Association is inter-bank infrastructure building, eg the PBA played an important role at creation of National Clearing House (KIR SA). Banking Telecom Company ‘TELBANK SA’ and Credit Information Bureau (BIK SA). Jonathan Reuvid graduated in economics at Oxford and was employed as an economist by the French national oil company, Total, at the time of its UK market entry. From there he moved into investment banking, financial consultancy and marketing strategy. After seven years working for a US multinational engineering group with European general management responsibility, he engaged in the development of joint ventures and technology transfers in Northern China, where he remains involved. In 1989 Jonathon embarked on a new career in business publishing, editing and writing a series of international business books with Kogan Page. He has a developing interest in the delivery of adult learning on the Internet. Marat Terterov is an Australian national resident in Oxford, England, though he was himself born in the city of Odessa, Ukraine, at about the time when the Soviet military and other Warsaw pact armed forces were rolling into Prague in 1968. Some three decades after the Prague Spring, during his more contemporary history, he has been editing books for Kogan Page, beginning with his compilation of the text for Doing Business in Kazakhstan, in the summer of 1999. Since his travels to Kazakhstan, he has added a further five titles in the international business country series to his collection, including Doing Business in Egypt, Russia, Georgia, Libya and the Volga region of the Russian Federation. Followers of these volumes will have noted that Terterov has been working on his Doctoral Thesis at Oxford University parallel to his book editing activities for Kogan Page, and has steadfastly been moving closer to obtaining his doctorate. Interested parties can finally be informed that on April 18th 2002, Marat Terterov successfully defended his PhD during the course of a 110 minute oral examination, held at Wadham College Oxford. The examining committee subsequently recommended that he be admitted into the title of Dr of Philosophy in political science, specializing in state management of the economy and the privatization programme in the case of the Arab Republic of Egypt. He is the author of a number of international public policy-related and academic publications, as well as private consultant specializing in the Middle East and the former Soviet Union.

Map 1: National Boundaries and Neighbouring States

Map 2: Major Road and Rail Networks in Poland

Map 3: Poland’s Regions

Part One

The Economy and the Business Environment

1.1

An Introduction to Business and Politics in Poland: On the Threshold of EU Membership Michael Davenport, British Consul-General, Warsaw Introduction Poland entered the new millennium with unprecedented and justified confidence in the country’s economic achievements. Tight fiscal policies and ambitious privatization programmes had helped to produce economic growth in 1999 which exceeded 4 per cent per annum for the eighth year in a row. Poland was attracting more foreign investment than ever before—nearly US$40 billion since 1990. Privatization was continuing apace, with plans already encompassing key sectors such as power, water, refineries, steel and even the railways. Poland was the undoubted leader among Central European countries in driving the political changes that ultimately led to the collapse of Communism throughout the region. Poland’s local elections in 1990 were the first fully democratic elections to be held in the former countries of the Soviet bloc. Poland also led the way in the early 1990s with the tough economic medicine necessary to make a success of the transition from a command to a market economy. Poland, together with Hungary and the Czech Republic, joined NATO in 1999 and by 2000 was calling for a date for early accession to the European Union.

Economic downturn The beginning of this millennium has, however, offered a series of new challenges to the Polish economy. The global economy began to slow down, threatening the pace and range of inward foreign investment and,

4

Doing Business with Poland

taken together with the continuing strength of the zloty (PLN), making some of Poland’s export markets look more fragile. During 2001, this was borne out particularly by the gloomy economic growth figures for Germany, Poland’s most important trade and investment partner. Domestic demand in Poland has also taken a knock. Unemployment began to rise steadily from the beginning of 2001 and reached a nationwide average of 18 per cent in the first half of 2002. Although major reforms had been undertaken in health, education, local government and social security, more needed to be done to remove the bureaucratic and tax burden on business, particularly small and medium-sized enterprises, and to introduce more flexibility into the labour market.

New government Leszek Miller’s government, formed following parliamentary elections on 23 September 2001, took office with the key goals in mind of accelerating Polish accession to the European Union, stimulating the economy and bringing down unemployment. Miller’s government was formed by a coalition of the Left Democratic Alliance (SLD), the Union of Labour (UP) and the Polish Popular Front (PSL). This coalition achieved a crushing victory over the parties remaining in the previous, Solidarity-led government. AWS, the party of the previous Prime Minister, Jerzy Buzek, did not even secure enough votes to retain any seats in the Sejm (the lower house of parliament). Hopes were therefore high that Miller would be able to harness this high level of support to tackle some of the difficult issues which threatened a return to economic growth and even a delay in Polish membership of the European Union.

EU accession The new government moved swiftly to tackle some of the areas of particular disagreement in negotiations with the European Union. In particular, Poland was able to conclude agreements remarkably swiftly on the politically sensitive subjects of land purchase in Poland and free movement of labour between Poland and other EU member countries after enlargement. In both cases, previous efforts had been hampered by entrenched positions and it was necessary to hammer out complex compromises and deal with strong lobbies in both Poland and elsewhere. The result is that, whereas in mid-2001 there were many voices doubting whether Poland could be included in the first wave of enlargement, by Spring 2002 Poland’s place in the first wave looks more secure than ever. Work is under way on closing some of the remaining chapters,

An Introduction to Business and Politics in Poland

5

including transport, fisheries and competition, after which the focus will shift to the most important and potentially difficult sector of all: agriculture. However, the political will, both in Warsaw and EU capitals, to include Poland in the first wave is such that a compromise is likely to be achieved, even at the last minute. There is certainly no higher priority in BritishPolish relations than Polish membership of the European Union—it was Tony Blair who, in a speech at the Warsaw Stock Exchange in October 2000, became the first EU leader to call for enlargement to take place ahead of EU parliamentary elections in 2004.

New economic strategy The new government also announced a new economic strategy, which included three main areas: • promoting entrepreneur ship; • creating jobs; and • developing infrastructure. There are no quick-fix solutions in any of these areas, but already deputy prime minister and finance minister Marek Belka has announced new regulations designed to ease the burden of tax administration, particularly on small businesses. For example, businesses previously required to file monthly tax returns will now have the option to pay on an annual basis. The government has also lent its weight to reforms of the Labour Code, which have been discussed with employers’ federations and leading trade unions and are designed to reduce the burdens on business and make it easier to employ new staff. The unions, particularly Solidarity, see these changes as a threat to existing employees and are determined to fight them. Demonstrations in Warsaw and elsewhere in the first half of 2002 showed the extent to which this issue could spill over on to the streets. Recognizing that the poor state of Poland’s transport infrastructure is a brake on growth and inward investment, deputy prime minister Marek Pol (UP leader) announced a series of measures to help kickstart a realistic road-building programme. His objective is to construct 500 kilometres of motorway and 200 kilometres of expressway by 2005. Funding for this will come partly from the state budget, boosted by a new system of Vignettes’ based on the Austrian and Swiss models, and partly from outside investment and private-sector funding. The government has also taken a close interest in schemes for PrivatePublic Partnership (PPP). Given that the United Kingdom pioneered PPP schemes and has raised more than £20 billion in investment through PPP, it is natural that Poland should look to British firms

6


to provide the benefit of their experience and expertise in implementing these projects. The Infrastructure Ministry is establishing a PPP Infrastructure Task Force, based loosely on the UK model, to be a key source of knowledge and expertise on the Polish market.

Privatization and foreign investment By early 2002, Poland had attracted some US$55 billion in foreign investment. Top investors in Poland have included Fiat, VW, Daewoo, General Motors, France Telecom, Vivendi, Citibank and Allied Irish Bank. British capital invested in Poland amounts to some US$3 billion. Among leading British investors, Pilkington has established a major float glass plant at Sandomierz, GlaxoSmithKline operates a state-ofthe-art pharmaceuticals factory in Poznan, Cadbury Schweppes has established a green-field manufacturing plant in Wroclaw and has acquired the Wedel chocolate factory in Warsaw, and Tesco has opened a network of 16 supermarkets and is still growing. Other major British or partly British investors include BOC, Unilever, BP, Shell, GKN, Reckitt Benckiser, Commercial Union (CGNU), Provident, Cussons, RMC, Energis and British Sugar. A high proportion of the foreign capital invested in Poland has been injected as part of the Polish privatization programme, which has led the way in Central Europe. Indeed, the list of foreign investors participating in Poland’s privatization programme makes similar reading to the list of foreign investors more generally, which is produced by the State Foreign Investment Agency. Nevertheless, state and local authorities between them continue to own considerable stakes in a range of key sectors: power, water and water treatment, defence manufacturing, coal and steel, oil and gas, telecommunications and banking. The Polish government has set itself the target of reducing the level of state ownership in the economy from just over 30 per cent now to around 10–15 per cent by 2005. It has made it clear that no further privatization is envisaged in the banking sector and that health care, the postal service, scientific research and state educational institutions will not be privatized. However, the coal and steel, oil and gas, power, chemicals and pharmaceuticals enterprises are all scheduled for privatization over the next three years. The Infrastructure Ministry is pressing ahead with plans to restructure and privatize the state-owned rail company PKP. It remains to be seen at what pace these plans are taken forward. The State Treasury’s focus during the first six months of this government has been on restructuring and reorganizing those companies in which it still holds a significant stake.

An Introduction to Business and Politics in Poland

7

Local investment opportunities Most water and water treatment companies around Poland are still owned by local gminas (communities). Local officials are becoming increasingly aware that substantial investment will be needed in these companies if they are to meet the stringent environmental standards laid down by the European Commission which will apply after Polish accession to the European Union. Some gminas have already seen the need to involve outside expertise and foreign capital in their water companies, as for example at Bielsko-Biala, where the local authority has formed a partnership with International Water. With local elections all over Poland scheduled for October 2002, newly elected mayors will find themselves facing difficult decisions in this area—legislation on water supply is not yet fully compliant with EU requirements and the privatization of water supply and treatment is often regarded suspiciously by consumers. In addition, local authorities often own considerable assets in the form of district heating companies or property for development, often in desirable central locations. Many assets owned by the State are managed for the State Treasury or other central agencies at voivodship (regional/ state province) level. These include, for example, the regional bus companies and parts of the rail network, both in need of substantial investment and modernization.

Polish international trade When CBI Director-General Digby Jones made his second visit to Warsaw in October 2001, he made it clear that he did not regard his journeys to other EU countries as foreign travel—they were simply to other parts of the European Single Market. From 2004, it seems almost certain that Poland will also be a member of the Single Market and Polish firms are struggling to come to terms with what this means for their business. They are at once excited by the prospect of wider markets across the European Union, but also nervous about their own level of competitiveness. This was the theme of the CBI conference which Digby Jones addressed in Warsaw in October 2001. However, for British firms looking to export to the Polish market there should be no such anxieties. Poland has made considerable progress in harmonizing its legislation to EU requirements across the board. With effect from 1 January 2003, Poland will be fully compliant with EU requirements in product certification. With most if not all customs tariffs due to be removed by 1 January 2004, doing business in Poland should become little different to trading with any other part of the Single Market. British-Polish trade has grown steadily over the last few years, exceeding a total of £2 billion for the first time in 2000. In recent

8


months, Polish exports have been growing faster than British exports. With economic analysts forecasting a return to higher Polish growth levels by early 2003, and with more British companies than ever before looking at opportunities on the Polish market, it is difficult to be anything other than optimistic about the prospects for increased trade.

1.2

Economic Performance and Outlook Jonathan Reuvid1 The Polish economy has suffered a number of setbacks during 2002 following a phase of sluggish growth since 2000 when real GDP growth was last at the 4 per cent level. The 23 July 2002 ‘anti-crisis package’ of Poland’s new finance minister Grzegorz Kolodko is a firm initiative to restimulate growth and increase employment by promoting the restructuring of major companies in difficulty. Whether these measures will be sufficient to keep Poland on track for EU accession in 2004/2005 is not certain. The month of July began badly with the unexpected resignation of Marek Belka as finance minister after the leftist cabinet of Prime Minister Leszek Miller increased the planned budget deficit for 2003 to PLN43 billion (US$10.7 billion), representing approximately 5.5 per cent of GDP in a reversal of Belka’s policy of fiscal austerity. Belka’s departure coincided with publication of the OECD’s highly critical annual report on Poland. As the OECD report points out, the government’s priority is to raise economic growth from the present feeble level of 1 per cent to the 5 per cent or so necessary to generate jobs and make a dent in unemployment currently approaching 20 per cent. The macro-economic policy which the OECD recommends includes further reductions in interest rates (currently 8.69 per cent at end July 2002), strict control of public borrowing and reductions in government spending including an overhaul of the much abused fund for disability pay. Payroll tax cuts to stimulate recruitment and further structural reform through accelerated privatization are also advocated in the report. Before evaluating the recent ‘anti-crisis package’ and the economic outlook, it is helpful to a better understanding of the Polish economy’s current difficulties to look back to the impressive progress made in the 1990s since the beginning of the transition process. 1

The author acknowledges with thanks the use of content from recent publications of Bank Austria Creditanstalt Economics Department.

10


Economic progress in the 1990s Poland was the first economy in Central and Eastern Europe to achieve a turnaround following the transformation recession. By 2001, economic output was at almost 127 per cent of the 1989 level and, over this period, growth was stronger in Poland than in the European Union. The economy peaked in 1997 when GDP growth was at 6.8 per cent with real growth in industrial output at 11.5 per cent and in gross fixed investment at 21.7 per cent. At this point consumer price inflation was at 14.9 per cent and unemployment at 11.5 per cent. However, the cooling global economy from 2000 stunted foreign demand which was unable to provide any further impetus to growth, and the real interest rates of over 10 per cent imposed by the National Bank of Poland to reduce the current account deficit dampened investment activity and private consumption. Sluggish growth, which was a characteristic of 2001, gave way in 2002 to the present economic crisis. Although further restructuring is highlighted as a necessity by the OECD and as a requirement for EU accession, economic structures in Poland have changed significantly since the Polish economy began its transformation into a functioning market economy and have become much closer to Western European standards. The primary sector A major change took place in the primary sector. Since then, the agricultural sector has been sluggish, due to unfavourable developments in the terms of trade and a sharp decline in animal husbandry. In 1990, agriculture accounted for almost 13 per cent of GDP; by 2001 it accounted for only 3.3 per cent. Nevertheless, over 25 per cent of the 16 million people who are employed in Poland continue to work in this sector. The large discrepancy between GDP share and agricultural employment reveals the low level of labour productivity and reflects the significance of subsidiary gainful activity in the agricultural sector, often for the workers’ own consumption. In addition, the small size of agricultural enterprises is a major challenge for Poland’s agricultural policies, which hope to restructure and modernize the sector without destroying agricultural communities. Against this background it is hardly surprising that the negotiations which farm minister Jaroslaw Kalinowski is conducting with the European Union over access for Polish farmers to EU agricultural subsidies are fraught with difficulty. In conflict with the Common Agricultural Policy (CAP), Poland has warned that it could impose protective import duties on EU agricultural products following accession unless Brussels grants Polish farmers larger subsidies than the initial 25 per cent of EU levels offered so far. The European Union will not publish its position

Foreign Trade 11

until Autumn 2002, leaving even less time for a settlement of differences before the December negotiating deadline. The secondary sector Following sharp losses at the beginning of the economic transition, the secondary sector finally found itself on a growth path. In 2000, industrial output achieved a real rate of growth of 7 per cent, reaching a significantly higher level than at the beginning of the transformation process. Although 3.5 million people or about 22 per cent of the workforce is employed by industry, the sector accounts for more than 28 per cent of GDP. Important industrial sectors include the automotive industry, woodprocessing, construction materials, foodstuffs, energy generation and the chemicals industry, as well as coal, steel, shipbuilding and defence, the mainstays of the pre-transformation era. It is in the traditional industries that the present crisis has struck particularly hard. In June 2002, the Szczecin Shipyard filed for bankruptcy in post-communist Poland’s biggest business failure and Poznan-based enginemaker H.Cegleski has since announced the layoff of one-sixth of its workers. EU accession is also posing problems for the Special Economic Zones, which Poland set up in the 1990s to attract foreign industrial investors such as Isuzu, GM, Fiat and Guardian industries with generous tax breaks. Brussels wants to end what it calls the ‘open-aid envelopes’ of EU accession candidates by scrapping their Special Economic Zones or converting state aid into legal aid. The Polish government maintains that the Special Economic Zones are part of its emerging regional policy because of the plants created and the effect on employment. The tertiary sector With a share of GDP of just over 60 per cent, the tertiary sector has developed into what is easily the most important sector of Poland’s economy, now employing some 46 per cent of the entire workforce. Tourism, telecommunications and the banking and insurance sectors are all considered to have good long-term prospects for growth, although their present performance is depressed.

The ‘anti-crisis package’ Kolodko’s intervention is focused directly on the restructuring of industries and companies in difficulty. Companies will be allowed to write off their tax, customs and other arrears to the State in exchange for one-off payments and a pledge to restructure in an effort to break payment log jams. At the same time, the support of the banks has been enlisted by a

12


proposal to write off some of their bad loans in exchange for new financing for struggling companies. Job-creating start-up companies will be offered interest-free tax credits to cover their first year’s operations. In addition to bad loan write-offs, State Treasury guarantees are envisaged for some bank lending to companies in trouble which commit to restructure. However, state guarantees, as yet unquantified, will have an adverse effect on the budget deficit and there are no fiscal strategy measures in the anti-crisis package. The coal and railway industries alone owe the State US$4 billion and US$2 billion, respectively. ‘The persistence of high fiscal deficits in the medium term and a projected increase in the government debt burden, were the justification given by Standard and Poor’s for its downgrade of two key debt ratings for Poland at the end of July 2002. Recently, upgrades have been common for EU accession candidates and the S&P downgrade is the first for Poland since its first rating for its local currency debt in April 1996. Foreign exchange traders responded by marking the zloty and Polish bonds down after the downgrades. A more optimistic view is taken by Kolodko, who as finance minister in a previous leftist government from 1994 until 1997 presided over GDP growth of 6 to 7 per cent. He has expressed confidence that growth could rebound to 2 to 3 per cent in the third quarter of 2002 and is aiming for a fiscal deficit of 4.9 per cent or lower in 2003.

Economic outlook Although four other CEE accession candidates, the Czech Republic, Hungary, Slovakia and Slovenia, largely escaped the global downturn in business and achieved GDP growth rates above the 3 per cent mark, they mirror Poland’s problems in 2002 to some degree with left-wing governments also fighting to overcome heavy fiscal pressures in the lead-up to EU accession. In 2002, not all the economic indicators in Poland have been negative although a marked economic recovery is not yet on the horizon. In a Polish statistical office survey carried out in May, 26 per cent of the industrial enterprises participating expected an improvement of their situation and 26 per cent a deterioration. In the meantime, an inflationadjusted increase in retail sales of 3.1 per cent in April on a year-on-year basis indicated relatively strong private consumption. Despite poor economic growth, cost cutting has slightly improved the position of some Polish companies. In the first quarter of 2002, the aggregate gross profit margin of the more than 15,000 companies employing 50 and more people rose from 1.2 per cent in the same period of the previous year to a still very modest 2 per cent. The improvement in profitability extended

Foreign Trade 13

to most secondary and tertiary sectors except for the construction industry and the hotel and restaurant trade which suffered a sharp drop in profits. Foreign trade and current account deficits At US$3.1 billion or 5 per cent of GDP, Poland’s current account deficit in the first four months of 2002 slightly exceeded the current account deficit of US$2.8 billion or 4.8 per cent of GDP recorded in the same period of 2001. The trade balance deficit, at US$3.3 billion, was lower than the US$3.9 billion recorded in 2001 on account of the continuing weakening of imports. The current account balance for the 12 months to the end of May 2001 was US$7.1 billion compared to US$8.1 billion for the calendar year 2001. Lower inflows of capital The trend to lower inflows through the financial account has continued, but was more than offset in the first four months of 2002 by a decline in the outflow of Polish capital from US$1.6 billion to US$0.4 billion, above all in the form of cash. Over this period, capital inflows totalled US$2.9 billion (1991: US$3.9 billion) while foreign direct investment decreased from US$2 billion to US$1.3 billion. Privatizations Despite the slowdown in privatizations in respect of the banking sector and the oil and gas sector, some heating and power stations are still scheduled for privatization in 2002 together with some 2000 state-owned SMEs. About half of these are chronically illiquid and, in normal circumstances, should be liquidated. Only about PLN0.7 billion of the planned deficit is expected to be financed by privatizations in 2002. Outlook for the zloty Although the government’s high financing requirements will continue to attract capital from abroad, a decline in the inflows of foreign capital must be expected for the remainder of 2002. Lower interest rates and increasing uncertainty about the Central Bank will presumably curb the appetite of foreign portfolio investors while prompting Polish businesses to shift their borrowings increasingly from foreign to domestic markets. The vulnerability of the zloty to uncertainties in the international financial markets may be enhanced if accession to the European Union becomes increasingly difficult. A 10 per cent depreciation of the zloty against the euro cannot be precluded. Kolodko has assured investors that ‘if we change the exchange rate system it will be done only in agreement between the Central Bank and

14


the government’. However, in dollar terms the value of the zloty has already fallen 12.3 per cent in the first seven months of 2002 and 7.3 per cent in local currency.

EU entry The necessary reforms highlighted by the OECD are tough for a government that is also striving to gain EU entry on acceptable terms. There would be no point in completing negotiations and entering the European Union if the economy is too weak to benefit. The European Union can help by making accession conditions tolerable, in particular in the case of agriculture. The faster disbursement of aid projects would also assist greatly. Although the main burden for economic improvement remains with the Polish government, the terms of EU accession offered to Poland are not sufficiently generous to ensure acceptance in the referendum planned for 2003. The Polish people have struggled with painful reforms and restructuring for 12 years; they will expect more now.

1.3

Poland and the European Union: A Progress Report on Accession Foreign Trade Research Institute, Warsaw The process of Poland’s accession to the European Union is approaching its final stage and it is anticipated that Poland will become a member in 2004. The concept of Poland’s accession to the European Union arose shortly after the collapse of the socialist system in 1989. Before that time, the association relations were established, based on a document known as the Europe Agreement, signed in December 1991. Its commercial part entered into force on 1 March 1992. The document as a whole was then subject to a ratification procedure and entered into force on 1 February 1994. The most important provisions of the Europe Agreement concerned the gradual liberalization of foreign trade. Consequently, the trade barriers on almost all industrial products were abolished until the beginning of 1999, the only exception being cars imported from the European Union to Poland, and the last tariff reductions on cars entered into force on 1 January 2002. As a result, since 1 January 2002, there has been free trade in industrial products between the European Union and Poland. The liberalization of agricultural products concerned only a small group of products and consisted of only a partial, not full, reduction of trade barriers. Moreover, these reductions usually only applied to a limited volume of agricultural exports from Poland. On 1 January 2001, a new agreement entered into force providing for the further liberalization of many non-processed agricultural products. The liberalization of processed agricultural products is subject to negotiations that remain ongoing between Poland and the European Union. In addition to the commercial aspect, the Europe Agreement also contained provisions concerning the movement of workers, the supply of services and the establishment of companies, as well as the transfer of capital. With regard to the movement of workers, the Europe Agreement has provided for a very limited opening-up of markets—to

16


self-employed people and key personnel. With regard to the supply of services and the establishment of companies, it has been decided that private individuals can establish companies in the European Union, which implicates their right to run their own business on the basis of the selfemployment rule. Furthermore, companies operating in the partner’s country have a right to employ only key personnel from the country of origin. To eliminate restrictions on the establishment of companies, the rule of national treatment has been applied (the treatment of foreign companies and nationals cannot be less favourable than that accorded to home companies and nationals). With regard to the movement of capital, Poland and the EU member states have committed themselves to ensuring full liberalization of current account payments applying to transactions which have been liberalized pursuant to the Agreement. The liberalization of the movement of capital has also been applied to payments related to foreign direct investments. Other capital flows were to be liberalized gradually. The improved domestic economic situation and the country’s membership of the OECD encouraged Poland to liberalize most capital movements in the second half of the 1990s (the last restrictions on short-term capital flows will be eliminated in Autumn 2002). The most important part of the Europe Agreement concerned the adjustment of Polish law to the acquis communautaire (Community law). In the 1990s, Poland adopted many new laws harmonizing domestic laws with the EU legal system and creating the rules of a free market economy. Important modifications concerned competition and banking legislation, intellectual property rights, customs procedures and the technical requirements of goods. The Agreement has contributed to accelerating the transformation of Poland’s political and economic system. Stable institutions, changes of government on the basis of free and democratic elections, and market economy rules are now present in Poland. Since the beginning of the 1990s, Poland has been making efforts to start accession negotiations. Consequently, in June 1993, the Copenhagen European Council declared that association countries could become EU members if they so wished and if they were able to fulfil the political and economic criteria as well as the obligations resulting from membership (the so-called ‘Copenhagen criteria’). The conditions for membership, set out in 1993 and further detailed by subsequent European Councils, provide the benchmarks for assessing each candidate’s capacity to implement and enforce the acquis on its transposition into domestic law. In April 1994, Poland submitted an application for accession to the European Union. Three years later, the Luxembourg European Council invited Poland and five other accession candidates to commence official negotiations on accession. In March 1998, these negotiations began. As

Poland and the European Union

17

a result of the Helsinki European Council of December 1999, the remaining candidates joined the accession negotiations. The Berlin European Council of March 1999 established a framework for the financial aspects of enlargement during the period 2000–2006, ie the period covered by the present Financial Perspective. Transfers from the EU budget for pre-accession support and for enlargement have been provided for. More precise proposals for financing enlargement were presented by the Commission in January 2002. They were not fully acceptable by Poland and other applicant countries and will be negotiated in Autumn 2002. The European Council of Nice of December 2000 defined the framework for the institutional reform necessary for enlargement. Those financial and institutional changes on the part of the European Union have prepared the Union for enlargement. All issues that are subject to negotiations are divided into 30 chapters. By the beginning of May 2002, Poland had closed 23 chapters. The Polish government strived to close negotiations in four other chapters—fisheries, legal and home affairs, competition policy and transport policy by the end of the first half of 2002. The three remaining areas—agriculture, regional policy and financial and budgetary provisions—will be negotiated last. The final three are the most difficult of the negotiations, chiefly because of their financial implications both for the European Union and for Poland. Agriculture and structural policy are the two fields that absorb more than 80 per cent of the common EU budget. At the same time, Poland and other applicant countries, due to their lower level of development and a relatively high share of agriculture in the national labour force, expect the greatest support in these areas. Agricultural issues are also difficult to negotiate because the outcome of the talks will determine the level of production of basic farm products. This, in turn, will affect employment and incomes in rural areas, as well as the balance of trade in these products. According to the so-called ‘road map’ worked out by the Commission, accession negotiations should be completed by the end of 2002, in order for the bestprepared countries to accede to the European Union in 2004. Two very difficult chapters closed by Poland recently, with transitional periods, cover the free movement of capital and of people. The former includes the following transitional arrangements for Poland: • There is a 12-year transitional period on the purchase of agricultural land and forest. However, citizens of the European Economic Area (EEA, ie EU countries plus Liechtenstein, Norway and Iceland) who want to establish themselves as self-employed farmers and who have been legally resident and leasing land in Poland for at least three years continuously or in Western parts of Poland for seven years, will be allowed to buy agricultural land without permission from the accession date.

18


• There is a five-year transitional period on the acquisition of secondary residences. However, EEA citizens living in Poland for four years are excluded from this transitional period. • No transition period has been proposed on the acquisition of land for investment purposes. With regard to the free movement of workers, transitional solutions have been agreed upon at the request of the EU countries. They provide for the following arrangements: for two years the EU members will continue to apply present rules for Poles seeking jobs, but they may introduce greater freedom of movement of workers. After two years, EU members will notify the Commission of whether they intend to continue applying national measures or want to apply the acquis. After five years, EU members may, in the case of serious disturbances, prolong the restrictions for a maximum of two years. EU members may invoke the safeguard clause until the end of the seventh year following Poland’s accession. The above arrangements also apply to commuters and frontier workers. Poland may apply to nationals from EU member states measures equivalent to the measures applied by those countries with regard to Poland. Together with the negotiations, Poland’s progress in the fulfilment of the Copenhagen criteria has been constantly examined by the European Commission. The results are published in annual Regular Reports. Poland has always been perceived in these reports as a democratic country, respecting human rights and minorities. The state of the Polish economy has also been positively evaluated. More efforts are necessary to speed up legal adjustments and to enforce EU law. The 2001 Regular Report estimated that Poland is expected to be able to compete with the EU economy on the internal market within a short period of time. The Commission will give its evaluation of the readiness of Poland and other accession candidates to assume the rights and obligations of membership in the 2002 Progress Reports. On this basis, these countries will be deemed either ready or not ready to accede to membership of the European Union in 2004. From the beginning of the transformation process, the European Union has assigned financial resources in order to help associated countries develop their economies and, later, to undertake the obligations of an EU member state. Since 1989, Poland has been in receipt of financial transfers within the framework of the PHARE programme. Initially, these transfers were used to support the transformation process. Since 1998, PHARE has been devoted to supporting preparations for membership (mainly institutional buildings and different investments). Since 2000, apart from the increased value of PHARE, Poland and other accession candidates have been benefiting from two other assistance programmes: ISPA (Instrument for Structural Policies

Poland and the European Union

19

for Pre-accession, aimed at protecting the environment and developing transport) and SAPARD (Support for Pre-accession Measures for Agriculture and Rural Development). Due to its large population, Poland is the main beneficiary of the pre-accession assistance provided within the framework of these funds. The practical use of the funds depends however on the fulfilment of a number of conditions: projects have to be agreed upon with the Commission and co-financed by other partners (ie money assigned by the European Union cannot be the only source of capital in the projects). Finally, an important issue concerns the control of the use of the transferred funds and this obliges the Polish government to establish an efficient and transparent system to ensure that the funds are spent correctly. The institution responsible in Poland for the coordination of the process of integration is the Committee for European Integration, created in 1996. Its decisions are executed by the Office of the Committee for European Integration (UKIE). UKIE takes part in the legislative process by analysing the existing regulations and draft laws of the government from the point of view of its compatibility with the acquis. UKIE also participates in all works supporting the process of implementation of the Europe Agreement and the accession negotiations. EU membership is a strategic goal for Poland—a matter of historical importance. Accession to the European Union will be an additional guarantee (alongside NATO membership) of security and the strengthening of democratic order in the country. It will also enhance Poland’s position in international relations. Poland will also enjoy improved credibility next to foreign partners and the right to participate in making decisions on issues directly relating to Poland. It is expected that Poland’s accession to the European Union will accelerate economic growth and increase economic efficiency. As a result of joining the Single European Market, receiving sizeable transfers from the EU common budget, and enjoying improved credibility and alignment with common standards, Poland hopes to make a great economic and social leap forward. After a short period, Poland will also join the euro area, provided that it fulfils the convergence criteria (a specified level of inflation, interest rate, public debt and budget deficit). Poland aims to be a member of the Economic and Monetary Union (EMU) as soon as possible. However, the readiness to become a member of the eurozone will depend to a great deal on the health of the financial system and of Poland’s economy. At the same time, EU membership presents a sizeable challenge for Poland to be able to compete effectively on the enlarged European market. Enlargement will benefit not only new members but also existing EU countries, extending to the east and south of Europe an area of peace, stability and new economic opportunity.

1.4

Privatization and Foreign Direct Investment Jonathan Reuvid1 The shifts that have taken place in Poland’s economic structure, referred to in Chapter 1.2, are largely due to the privatization of state-owned companies. Although the privatization process has slowed down, the private sector now accounts for some 70 per cent of industrial output. In many branches of the services sector this figure is actually higher. Of the 74 commercial banks operating in the banking sector at year-end 2000, as many as 67 (accounting for a market share of almost 80 per cent) were privately held. Some 70 per cent of the total assets in the banking sector are held now by institutions under foreign ownership. Indeed, foreign direct investment (FDI) has been the financial engine for the restructuring and modernization of Poland’s economy, without which the process could not have taken place at such a rapid pace. Poland has become the largest recipient of FDI in Central and Eastern Europe. Following a peak in FDI in 2000 of about €11 billion, the yearend stock of FDI amounted to some €54 billion—corresponding to about 31.5 per cent of the country’s GDP that year. Nevertheless, with some € 1400 of FDI per capita, Poland holds only a middle-ranking position among reform countries in per capita terms, with Hungary heading the list at more than €2000. The largest capital injection, over €8.5 billion, came from France, predominantly in the form of an equity interest of more than €6 billion taken up by France Telecom in TPSA. In terms of overall FDI by country up to the end of 2000, the principal investors have been: • • • •

France United States Germany Italy

17.3 per cent 16.1 per cent 12.9 per cent 7.5 per cent

1

The author acknowledges with thanks the use of content from recent publications of Bank Austria Creditanstalt Economics Department.

Privatization and Foreign Direct Investment

• International institutions • Other countries

21

5 per cent 41.3 per cent.

The main contributors to US investments, valued at almost €8 billion, were General Motors, General Electric and Citibank. Germany’s investment total of almost € 6.4 billion included significant investments by Bayerische Hypo- und Vereinsbank and the Metro trading chain. Nearly two-thirds of FDI up to the end of 2000 was focused on five sectors of the economy: • • • • • •

Financial services Telecommunications Motor vehicles Food Trade Other sectors

22.7 per cent 12.2 per cent 11.3 per cent 10.8 per cent 8.7 per cent 34.3 per cent.

The major investment of some €11.3 billion in the financial services sector was the mainspring for the rapid privatization of the banking sector. The France Telecom investment in telecommunications was supplemented by operators of mobile wireless networks. Investors in the automotive industry have included Opel, Fiat, Isuzu, General Motors, Ford, Daewoo and Michelin. The food and beverages sector has attracted Nestlé, Unilever and British Sugar to the Kujawsko-Pomorskie region, Coca Cola and Carlsberg to Malopolskie, and PepsiCo and Proctor & Gamble to Mazowieckie.

Privatization prospects Since the election of Prime Minister Leszek Miller’s left-of-centre government in October 2001, there has been a marked slowdown in privatizations. The gas monopoly, state lottery, power-grid company and mining giant KGHM Polska Miedz and Poland’s largest insurer Powszechny Zaklade Ubezpieczen (PZU) had all undergone changes of chairmen to appointees of the new government by mid February 2002. The government maintains that such house-cleaning is essential at state companies in advance of privatization and that world market conditions are not conducive to quick asset sales. In the case of PZU, state treasury minister Wieslaw Kaczmarek raised the temperature of a long-running dispute with Dutch-based finance group Eureko by rescinding the government’s agreement to sell it control of Poland’s largest insurer, instead leaving Eureko and Poland’s BBG with a 30 per cent interest apiece. Although the government insists that Poland is committed to lowering state ownership in the economy to EU standards of 10–15 per cent by 2005 from the current

22


level of about 30 per cent, the PZU incident influenced EU member states to include monitoring provisions in their final agreement with Poland over the free movement of capital. According to the government’s latest privatization strategy, presented in mid May 2002, 12 or so large state-owned companies are to be privatized either in whole or in part by year-end 2006. Restructuring measures are to precede privatizations, particularly in the gas, steel and defence sectors, to ensure that these companies are profitable when they are brought to market. There is a stated intention to retain majority interests in three of the remaining state banks—PKO BP, the agricultural bank BGZ and the post office bank—where stakes are expected to be sold in 2003. Presumably, the State will also retain control of PZU. The oil sector is to be restructured by merging Rafineria Gdanska, Poland’s second-largest oil concern, with petroleum giant PKN Orlen, prior to privatization in 2003, as well as the gas sector (PCNiG). As noted in Chapter 1.2, some heating and power stations may be privatized in 2002 and the State is retaining some 2000 SME for later disposal. Privatization proceeds in 2002 will be low but much needed inflows of some PLN6–7 billion (€ 1.5 billion) are predicted for the next few years from 2003.

FDI inflows In Table 1.4.1, FDI net inflows in € million are compared with changes in the end of period value of gross foreign debt. In spite of the weaker trend in FDI, which is expected to recover a little in 2003, FDI is forecast to continue offsetting annual increases in gross foreign debt, as it has done since 2000. Although this is some cause for satisfaction, the weakening zloty (PLN) has increased the cost of servicing foreign debt and any transfer of foreign into domestic borrowings will help to relieve the burden. Table 1.4.1 FDI net inflows against movements in gross foreign debt (€ million)

1999 2000

FDI inflow, net

5434

2001

2002 (forecast) 2003 (forecast)

8996 5600

3300

4100

Increase in gross foreign debt 8 4 1 2 1 3 , 8 8 6 1 5 1 2

2600

400

S1

ONLINE UPDATES - 7 August 2005 Privatization and foreign direct investment (Chap.1.4) Privatization of PGNiG On 5 October 2004, the Polish Government approved a PLN1.5 billion (approximately EUR344 million) plan to privatize the Polish Oil and Gas Company (PGNiG). The PGNiG shares were scheduled for listing on the Warsaw Stock Exchange in 2005, including an initial share issue for small investors. The State Treasury will then sell off a further 20 per cent, while retaining 51 per cent. Although further privatization is not precluded, the State Treasury has identified PGNiG as a company in which it wants to retain its golden share. To comply with EU legislation aimed at creating a genuinely competitive EU energy market, the government also plans that PGNiG should gradually sell transfer its entire gas pipeline to a specially formed company, PGNiG Przesyl. Environmental procedural rules A new Council of Ministers’ ordnance on undertakings with a significant impact on the environment came into force on 8 December 2004, replacing a previous ordnance of 14 September 2002. The Ordnance lists the types of undertaking requiring the preparation of an environment impact assessment and which can only be approved in procedures open to the public. From a developer’s point of view the most important changes are the types of project that are exempted from ‘environmental procedure’ and a provision that the parameters of projects are to be cumulated so that a ‘project’ is understood as a functional whole whether it is developed in one or several phases. Exemptions include residential developments, sewage systems, domestic railways, and high voltage lines less than 15km in length. Subdivisions of agricultural land (below 300ha) and forest land (below 100ha) are also excluded. An end to the legalization of foreign official documents From 14 August 2005, there is no need to legalize foreign official documents in Poland following Poland’s ratification of the 1961 Hague

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Convention in 2004. Subject to the attachment of what is known as Apostille certification, the following documents from any other signatory state will be accepted as authentic: • • • •

documents coming from a court or court official; administration documents; notarial acts; official certifications placed on documents signed by private persons.

The acceptance of foreign official documents is expected to bring a boost to cross-border trade. CMS, Law Now and the Editor, 7 August 2005

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ONLINE UPDATES - 3 August 2005 Competition law (Chap. 1.4) Key changes in competition policy after EU accession In spite of the harmonization of Polish competition law with the European acquis communautaire well before EU accession on 1 May 2004, the EC expressed concerns as to the capability of Polish authorities and courts to enforce the European legislation efficiently post-entry. In contrast to the extensive investigative powers of the EC, including the right to carry out ‘dawn raids’ in business premises throughout Europe, the enforcement of competition law in Poland had left a lot to be desired. The Polish Office for Competition and Consumer Protection had been hampered by the lack of funds and of a sufficient number of staff to carry out investigations. Many Polish companies had been completely unaware of the rules of anti-trust law and had seldom thought about merger control filings. For inward investors, EU accession has meant a more level playing field in Poland, while Polish companies have found out that breaches of competition law are expensive and may make commercial contracts unenforceable. Disinvestment of two press publishers In March 2004, decisions on ‘divestment’ were issued by the President of the Office for Competition and Consumer Protection in two cases of press publishers who failed to notify concentration and infringed competition in the regional press market. The two companies, Polskapresse and Oficyna Wydawnicza Wielkopolski, were each fined EUR50,000. In the first instance, Polskapresse failed to notify its acquisition of the business Dolnoslaskie Wydawnictwo Prasowe. In the second case, Oficyna Wydawnicza Wielkoposki failed to notify its control of Prasa Poznaska (now Wielkopolski Dom Mediowy). Both companies were also required to sell their acquired assets. Johnson & Johnson Poland competition breach In June 2004, the President of the Office for Competition and Consumer Protection found against Johnson & Johnson Poland on two counts of

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having entered into prohibited agreements with the pharmaceutical warehouses Compol and Hurtofarm, which resulted in restricting competition by limiting the market for, and maintaining resale prices of, medication based on erythropoietin (EPO). The parties to the agreements were ordered to cease these activities and assessed money penalties of almost PLN3.8 million were imposed on Johnson & Johnson and of PLN118,000 and PLN33,000 respectively on Hurtofarm and Compol. Roche Poland practices restricting competition In July 2004, Roche Poland and its distributor Hand-Prod were fined more than EUR65,000 (PLN306,000) for illegal resale price maintenance through unlawful distribution agreements fixing the prices of the drugs Recormon and NeoRecormon used in the treatment of anaemia. PKP Cargo anti-competitive practices Also in July 2004, PKP Cargo, a company controlling 70 per cent of all rail cargo transport services in Poland, was fined approximately EUR8.86 million for anti-competitive practices in its long-term freight contracts. PGNiG anti-competitive behaviour In November 2004, the Office for Competition and Consumer Protection fined Zaklad Gazowniczy, belonging to the state-owned Polish Oil and Gas Company (PGNiG), approximately EUR9.5 million (PLN42 million) for abusing its dominant market position. CMS Law-Now and the Editor

1.5

Foreign Trade BOSS Economic Information Agency, Warsaw

Statistically, 2001 was not a bad year Although foreign trade data for 2001 remains fragmented, it is safe to say that the overall trends for the whole year were not far removed from those of the first 10 months of the year—the most important difference being the significantly higher value of exports than of imports, which led to a gradual elimination of the country’s trade deficit. The growth of exports, according to the Central Statistical Office (CSO), exceeded 15 per cent in the first three quarters of 2001, and was just one percentage point lower than in the same period of the previous year. The rate of exports revenue inflows growth reported by the National Bank of Poland amounted, at the same time, to over 10 per cent, and was 2.5 times higher than the period January–September 2000. Exports amounted to US$26.6 billion in Q1–Q3/2001, and after 10 months of the year slightly exceeded US$30 billion. If that tendency had been maintained in the fourth quarter the total value of Polish exports in 2001 would have amounted to approximately US$35 billion. In Q1–Q3, imports increased by just 3 per cent, or only one-third of the growth reported a year before. At the same time, imports outflows growth dropped from 3.2 per cent to 1.7 per cent. The National Bank of Poland reported that, after nine months of the year, the value of Polish imports amounted to US$31.7 billion, and after 10 months it was close to US$42 billion. It is likely that in the whole of 2001, the value of Polish imports could have amounted to in excess of US$50 billion. Thus, the trade deficit might have amounted to less than US$15 billion, which would be over US$2 billion lower than in 2000, and US$3.5 billion lower than in 1999.

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Table 1.5.1 Polish exports, imports and trade deficit, 1999–2001 (US$ billion) 1999

2000

2001 (projected)

Exports

27.4

31.7

35.1

Imports

45.9

48.9

50.0

Balance

-18.5

-17.2

-14.9

Source: Ministry of the Economy

Geographical structure As in previous years, in 2001 Poland’s main trading partners, both as importers and exporters, were EU countries. In the first three quarters of the year, their share in Poland’s exports amounted to 69.8 per cent and was just one percentage point lower than in the two previous years. At the same time, imports from EU countries were a little lower, amounting to 61.4 per cent of the total, or down from 62 per cent in 2000, and 65 per cent in 1999.

Table 1.5.2 Poland’s exports, January–October 2001 (US$ billion) Exports

Y/y growth (%)

Share in total exports (January– October 2000)

Share in total exports (January– October 2001)

10,435.3

13.7

35.2

34.6

Italy

1660.9

0.3

6.3

5.5

France

1612.7

18.7

5.2

5.3

United Kingdom

1495.7

26.5

4.5

5.0

The Netherlands

1440.8

8.5

5.1

4.8

Czech Republic

1189.9

21.7

3.8

3.9

Belgium

934.7

20.3

3.0

3.1

Russia

875.5

25.5

2.6

2.8

Sweden

837.6

17.6

2.7

2.8

Ukraine

788.7

18.7

2.6

2.6

Germany

Source: GUS


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Table 1.5.3 Poland’s imports, January-October 2001 (US$ billion) Imports

Germany

Y/y growth (%) Share in total imports (January– October 2000)

Share in total imports (January– October 2001)

10,078.7

3.0

24.1

24.1

Russia

3760.5

1.5

9.1

9.0

Italy

3463.5

0.6

8.5

8.3

France

2865.1

9.3

6.5

6.8

United Kingdom

1749.3

-4.2

4.5

4.2

The Netherlands

1500.1

1.7

3.6

3.6

Czech Republic

1466.7

10.6

3.3

3.5

United States

1388.2

-14.4

4.0

3.3

China

1315.8

17.9

2.8

3.1

Belgium

1153.8

9.6

2.6

2.8

Source: GUS

Germany retained its position as the main market for Polish exports. During the first 10 months of 2001, Poland exported to Germany goods to the total value of US$10.4 billion, or 34.6 per cent of the total value of Polish exports. At the same time, Germany was the main supplier of merchandise on the Polish market. In this case, however, the distance between Germany’s exports to Poland and exports from other countries was not as great as with Polish exports to Germany and other countries. In the period in question, thanks to a much faster growth of exports than of imports, Poland’s trade balance improved significantly with most leading EU countries. It is worth noting that, for the first time, Poland reported a surplus in trade with Germany. After the first 10 months of 2001, it amounted to US$300 million, as compared to the US$600 million deficit a year before and the US$1.2 billion deficit in 1999. In trading with the four other leading EU trading partners (Italy, France, United Kingdom and the Netherlands), Poland also reported a significant decrease in its trade deficit. The same cannot be said about Poland’s trade with Russia. The negative balance continued to be at a record high, amounting to over US$2.6 billion after the first 10 months of 2001. At the same time, the position of Poland’s trade with the Ukraine was far better, with Polish exports increasing by over US$100 million, while imports decreased by US$50 million. Poland’s exports to Lithuania also increased (by US$150 million), while the growth of imports from Lithuania was 10 times lower.

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The balance in trade with CEFTA (Central European Free Trade Association) countries improved significantly however. Poland’s total exports to countries belonging to the Association increased by over US$400 million during the first 10 months of 2001, while imports from them grew by only US$200 million. Poland reported its most significant improvement in trade balance with its largest partner among this group of countries—the Czech Republic. Poland’s exports to EFTA (European Free Trade Association) countries also increased dramatically in 2001. In the first nine months of the year, they increased by 80 per cent (or by US$320 million), most significantly to Iceland (from US$12 million to nearly US$200 million) and Norway (from US$485 million to US$640 million). With imports growing by a mere US$60 million, this led to a drop in the negative balance from US$260 million to US$130 million. However, the results of trade with developing countries were not so positive for Poland. Not only did the deficit increase, but the increase amounted to as much as US$0.25 billion, up to US$2.6 billion. Of this total amount, 80 per cent covered the trade with four countries only: China (over US$1 billion), South Korea (US$350 million), Taiwan (US$300 million) and Brazil (US$250 million). Poland’s exports to these countries were affected by the poor system of support for exporters, little promotion and lack of export insurance. Without a radical change in this area, Poland cannot count on any increase in its exports and reduction in its trade deficit with this group of countries.

Merchandise structure In the first three quarters of 2001, the results of trading in goods from the electrical and machinery industry had the biggest influence on the reduction of the Polish trade deficit. Exports grew by over 23 per cent, while imports remained unchanged, which resulted in a decrease of the deficit in this group of commodities by over US$1.6 billion. This does not have to be a long-lasting trend, as it was the export of ships, boats and other vessels that had the largest share in this change. These types of products are characterized by a long production cycle and a large unit value. An increase or decrease of sales by a couple of units may cause significant change in the overall balance from year to year. An increase in the export of other goods in this sector (eg cars, engines, TV sets) may be considered far more stable. Within the remaining nine groups of merchandise, any significant changes in trading were reported in only two. One of them was the minerals industry. Exports of coal, coke and oil products increased by US$340 million, while imports grew by a mere US$40 million, which resulted in a reduction of the deficit by approximately US$300 million.


27

The improvement in the trade balance was also a result of a continuous drop in imported oil prices. The other category showing significant change was ‘Various products’, including, first, furniture. The traditionally positive balance in the foreign trade in furniture increased by almost US$230 million in the first three quarters of the year, reaching US$1.4 billion. Table 1.5.4 Changes in the merchandise structure of Poland’s foreign trade, Q1–Q3/2001 (US$ million) Exports

Imports

Type of product

Agricultural

Change Balance

Value

Share (%)

Value

2169.4

8.2

2466.1

Share (%) 6.6

Exports Imports Balance

-296.7

284.8

-109.6

175.2

Mineral

1660.3

6.2

4233.0

11.4

-2572.7

339.9

-41.8

298.1

Chemical

2580.3

9.7

6638.4

17.9

-4058.1

298.1

-267.5

30.6

228.9

0.9

377.3

1.0

-148.4

50.3

-83.3

-33.0

Wood and paper

1816.2

4.5

1687.8

4.5

128.4

151.9

-34.5

117.4

Light industry

2346.5

8.8

2717.2

7.3

-370.7

44.8

-164.6

-119.8

757.5

2.8

746.6

2.0

10.9

80.6

43.5

124.4

Metal industry

3195.6

12.0

3185.7

8.6

9.9

189.8

-173.0

16.8

Electric and

9796.6

36.8

14,271.4

38.5

-4474.8

1843.0

-201.1

1641.9

2062.6

7.8

723.6

2.0

1339.0

231.2

-3.3

227.9

Leather

Ceramics

machinery Various

Source: Ministry of the Economy

Exports structure In 2001, the geographical structure of Poland’s exports did not change from previous years. EU countries dominated as a destination for Polish goods, with a 69.2 per cent share. The value of goods exported amounted to almost US$15 billion. The Central Eastern European countries had an 18.3 per cent share, CEFTA countries 8.7 per cent, EFTA 2.5 per cent, while exports to developing countries constituted 6.6 per cent of the total. Poland’s trade with countries outside Europe, and particularly with Far Eastern countries, is worth noting. In 2001, over a quarter of Poland’s total trade deficit (amounting to US$3.7 billion) was accounted for by six Asian economies (China, Japan, South Korea, Taiwan, Malaysia, Indonesia and the Philippines), while exports to these countries

28


(US$380 million) constituted just over one per cent of Poland’s total exports. Deficit in trade with each of these countries was 10 times greater than the meagre exports. This situation, which resembles one-sided expansion of the Far Eastern countries in the Polish market rather than a regular trade exchange, had already been present for many years, and, considering the level of competition of these economies against the Polish economy, there are slim chances for any improvement over the next few years. Similarly, the rebuilding of the level of Poland’s exports to the Russian market, to at least the level of five years ago, seems equally unattainable in the near future. The growth of Poland’s exports to Russia amounted to US$196 million in 2001 and was only US$45 million higher than in 2000. As a result, the total value of exports to Russia amounted to just over US$1 billion, or was still below half the 1997 level. Meanwhile, the economic situation in Russia has improved significantly, with the country’s GDP growing 8.3 per cent both against the 1999 figure and against the levels recorded before the Russian financial crisis. According to UNECE, the total imports into Russia in the first half of 2001 increased by over 24 per cent. This means that Polish exporters have not taken advantage of the positive changes in the Russian economy, and that the reasons for Poland’s export problems lie on its side of the border. They result from the ailing infrastructure of assistance for exporters, particularly in a financial, promotional and treaty sense, and not at the level of exporters themselves. Table 1.5.5 Poland’s top 10 export partners, 2001 Exports in 2001 (US$ million)

Growth from 2000 (%) Share of total exports(%)

12,411.4

12.4

34.4

France

1953.7

18.9

5.4

Italy

1948.3

-2.5

5.4

United Kingdom

1799.7

26.9

5.0

The Netherlands

1706.5

6.8

4.7

Czech Republic

1431.9

19.5

4.0

Belgium

1114.1

19.2

2.9

Russia

1058.7

22.8

2.9

Ukraine

1002.7

25.6

2.8

Sweden

984.3

14.3

2.7

Germany

Source: CIHZ


29

Table 1.5.6 Poland’s top 20 exported goods, 2001 Exports in 2001 (US$ million)

Growth from 2000 (%)

Share of total exports (%)

Cars and vehicles

1414.9

-3.2

3.9

Piston engines

1290.0

17.9

3.6

Seating

1269.3

20.3

3.5

Other furniture and parts

1130.2

7.6

3.1

Passenger liners, cruise ships 1 0 3 7 . 6 and boats, ferries, cargo ships

25.1

2.9

Car parts and accessories

1032.7

37.8

2.9

Coal, briquettes

916.7

23.9

2.5

Television receivers

907.2

42.8

2.5

Other ships

762.2

523.9

2.1

Wires and insulated cables

735.5

18.1

2.0

Women’s and girls’ clothing

548.5

9.1

1.5

Structures and parts

462.1

27.2

1.3

Petroleum oils

449.0

22.6

1.2

Cargo vehicles

373.1

-16.4

1.0

Refined copper and copper alloys

371.9

-16.2

1.0

Men’s and boys’ clothing

368.0

-4.5

1.0

Toilet paper, cellulose cotton

367.1

57.2

1.0

New pneumatic tyres

345.5

33.7

1.0

Other steel goods

333.0

4.3

0.9

Coke and semi-coke

321.3

22.1

0.9

Source: CIHZ (Centre for Foreign Trade Information)

1.6

Business Risk Assessment Coface analysis Coface

Strengths • Foreign investment inflows allow Poland to continue modernizing its industrial base and banking sector, and partly to cover the large deficit in its external accounts. • Poland’s stability is strengthened by its membership of NATO and future membership of the European Union.

Weaknesses • Persistent substantial deficits of the external accounts and relatively high external financing needs could make international investors wary. • The currency level is hampering the competitiveness of Polish products. • The momentum of reforms is likely to slow down due to political disagreements and the risk of social tensions. Since these reforms have been delayed in some important sectors (agriculture, coal, iron and steel, social security systems), they are now even more essential.

Risk assessment Although household and company confidence should increase during 2002 thanks to easing inflation and interest rates and the expected global economic recovery, growth is expected to remain weak with domestic demand hampered by rising unemployment, a small increase in purchasing power, the lack of room for manoeuvre fiscally, and a somewhat ‘wait-and-see’ attitude on the part of entrepreneurs. The timing and strength of recovery will be closely tied to the pick-up in activity in the European Union, most notably Germany.

Business Risk Assessment

31

The slowdown is worsening the public finance situation. Although not a source of concern in the short term, it could become a problem in the longer term due to the foreseeable increase in public debt. Nevertheless, the external accounts are improving due to weak imports and a relative firmness of exports. However, external financing needs remain not insignificant and direct foreign investment is declining, which increases Poland’s dependency on more volatile capital flows. If the transfer risk seems limited thanks to moderate external debt ratios and a comfortable level of foreign exchange reserves, the risk of a substantial adjustment of the exchange rate, in the event of market confidence erosion, is growing. Table 1.6.1 Poland—selected indicators 1998

1999

2000

2001

2002

2003

Forecast Forecast Change from previous year (%)

GDP (real)

4.8

4.1

4.0

1.0

0.8

3.0

Industrial output (real)

3.5

4.3

7.1

-0.2

1.0

6.0

Gross fixed capital formation (real)

14.2

6.9

3.1

-9.8

-5.0

8.0

Consumer prices (yearly average)

11.8

7.3

10.1

5.5

3.0

3.6

Unemployment (yearly average)

10.0

12.0

13.9

16.2

18.0

18.0

-3.2

-3.2

-2.7

-5.6

-6.3

-5.5

Budget balance (central gov., % of GDP) € million

Merchandise exports1

29,025

28,178

38,842

43,700

44,300

47,600

Merchandise imports1

40,500

42,306

52,158

54,400

53,600

57,900

-6,169

-11,705

-10,816

-8,000

-8,100

-8,100

-4.4

-8.1

-6.3

-4.0

-4.0

-4.0

5,354

5,434

8,996

5,600

3,300

4,100

52,890

61,302

75,188

76,700

79,300

79,700

37.6

42.4

44.1

39.0

39.4

39.9

6.1

5.6

5.6

5.3

5.2

4.7

Average exchange rate: zloty/€

3.92

4.23

4.01

3.67

3.90

4.25

Average exchange rate: zloty/US$

3.49

3.97

4.35

4.09

4.29

4.38

Current account1 Current account (% of GDP)1 FDI (inflow, net)2 Gross foreign debt (end of period) Gross foreign debt (% of GDP) Import cover (months)

1 transaction basis; 2 transaction basis, without direct credit Sources: WIIW, National Bank of Poland, Bank Austria Creditanstalt Economics Department

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Introduction Foreign investors are keen on Poland. Its geographical position, combined with a reformist attitude to growth as well as a considerable domestic market—a population of 38.8 million—makes it an attractive investment prospect. Poland has become such an interesting market as a consequence of several government-sponsored programmes that some Poles now feel that theirs is too attractive a market! However, the gloomy business sentiment globally has meant that investment has been falling at double-digit rates. Industrial output in the last quarter of 2001 rose by only 0.8 per cent at a time of growing unemployment. A recovery is expected in the second half of 2002; exports remain healthy and the financial position of the country remains sound. The present government, which took office in October 2001, is facing pressure from its populist coalition partner PSL (Polish Peasant Party) to increase public expenditure. Second Quarter 2002 Grey Area Dynamics Rating (GAD): 63 (Europe & FSU benchmark GAD Rating: 58.0857) TM

Fighting Index Crime Levels Bureaucracy Cultural Integration Religious Extremism

Low Medium to High Medium to High Low Low

Practice Organised crime The Polish government has promised improvements to public safety, following concerns voiced by the European Commission over issues such as organized crime. Admission procedures to the police force are to be updated. (Until recently, the selection committee responsible for recruitment to the police force was composed of three local government ministers and just two local police officers.) Part of Poland’s eastern border is to be equipped with electronic sensors to help detect illegal border crossings. EU funding is to be made available. Polish illegal narcotics production remains a concern for the government. Poland, Germany and Lithuania are the main sources of synthetic drugs.

Business Risk Assessment

33

Corruption An investigation into corruption and abuse of the protection of confidential data by a former Deputy Defence Minister has been under way, nudged on by the European Commission. Arguably, in no other European country is the government more prone to generously awarding plum jobs to its political allies. The gas monopoly, state lottery, power-grid company and the mining giant KGHM Polska Miedz have all had their chairmen replaced. This has been referred to as ‘economic cronyism’. Unfair competition The Polish government continues to influence the price of products in some sectors. The Finance Ministry regulates and fixes prices on medicines, electricity, gas and heating. Monopolies must report planned price increases to the local tax office on products such as petrol, Pharmaceuticals, pesticides and certain services.

Essentials Serious structural imbalances remain, although the government and the central bank are reluctant to acknowledge it. Particular examples include the bulky steel and coal industries and, more importantly, the huge but inefficient farming sector, upon which much of the employment of rural Poland still depends. Moderate farmers’ groups are becoming increasingly restive. The announcement from Brussels that farmers in the 10 countries seeking EU membership in 2004 should initially receive only 25 per cent of the direct payments made to EU farmers, with parity after 10 years, led predictably to Polish farmers demanding equal treatment with the farmers of the West. With accession negotiations due to be completed by December 2002, the farming dispute could upset the whole process. The European Union continues to press for more agricultural reform, claiming that Poland is lagging behind the Czechs and Hungarians. This, in turn, exacerbates nationalist fervour. In the commercial arena, as foreign investment—particularly German investment—increases, the Poles are becoming increasingly jealous of their economic sovereignty. After Citibank’s agreement to take over the country’s third-largest bank, Bank Handlowy (BH), more than 70 per cent of Poland’s banking sector has passed under foreign control. There are over 80 banks with domestic or foreign capital participation on the market. As a result, right-wing sentiments are taking root and there have been isolated cases of right-wing group activities.

34


Concerns The Polish tax system remains a source of immense frustration for foreign investors. A reduction in administrative interference is a necessary step in order to remove the temptation for corruption among officials. Bids for licences circulate unofficially among politicians and their cronies. Lobbying, intimidation and patronage continue due to glaring deficiencies in legislation, making control of the situation more difficult. The introduction of the new Commercial Code in 2001 is expected to improve the regulatory framework in the medium term. Crime is on the increase while there has been a fall in the crime resolution rate. Most worryingly for business, the largest increase was recorded in crimes against property. The Polish government is trying to crack down on organized crime. There have recently been several highprofile cases and infighting between groups. The banking sector is particularly affected by the increase in ‘cyber crime’. Polish industry and business have had a greater level of contact with Western nationals in the last decade than during the communist era. What appears to many Poles as the ‘saturation’ of their market by foreigners can, on occasion, spark a xenophobic reaction, given the suspicions engendered during some four decades of socialist rule. Foreign businessmen need to be aware that what is sometimes referred to as a sense of pride in the country and its history can be translated as a deeply held suspicion of the foreigner. Understandably therefore, this cultural mindset can adversely affect profit-making and business conduct in Poland. A foreign entrepreneur’s ability to set up a business in Poland may be constrained by the fact that his Polish counterparts may prefer instead to do business with their fellow countrymen.

1.7

Consumer Market Polish Agency for Foreign Investment (PAIZ)

Geographical profile Poland borders Germany to the west, the Czech Republic and Slovakia to the south, Ukraine, Belarus and Lithuania to the east and Russia to the north. The country has access to the Baltic Sea in the north and to mountains in the south and is rich in natural resources.

Population Poland has a population of almost 39 million, making it the largest country in Central Europe in this regard. According to data from the Central Statistical Office (CSO), approximately 30 per cent of Poles live in cities with populations of more than 100,000. The largest Polish cities are Warsaw, the capital, with nearly 2 million inhabitants; £ódz´ (812,300); the conurbation of Gdan´sk, Gdynia and Sopot (756,400); Kraków (740,500); Wroc§aw (639,400), Poznan´ (580,000), Szczecin (419,000) and Katowice (366,800). The Polish population is young, with half the population under 40 and one-third under 19. The percentage of children and young people in the population is greater than that of Germany or the Czech Republic. The average life expectancy for women is 77 and for men 69.

Labour market The Polish labour market is one of the largest in Central Europe with approximately 30 million people. The majority are employed in the private sector. Dynamic economic changes and the shift from the public to private sector resulted in increased productivity and a willingness to learn. The Polish workforce has a reputation of being well educated, quick to learn and flexible. Results of the economic transformation include continual development of skills, punctuality, responsibility, discipline and identification with the employer’s company.

36


Figure 1.7.1 Structure of employed people by ownership sector

Statistical Yearbook, Central Statistical Office (CSO)

Households There are more than 12.5 million households in Poland, the majority comprising three or less people. Households comprising three or more people are rare in urban areas and more frequent in rural areas. The traditional model of a four-person household is declining.

Household income The average gross salary in the enterprise sector in the first quarter of 2001 amounted to almost US$2525. The annual average net income per capita in 1999 was US$2357. The income of families living on retirement pensions was slightly higher than the average, amounting to US$2743 per capita. The disposable income of households headed by blue-collar workers grew significantly and was slightly higher than for other population segments. In general, incomes in urban areas are considerably higher than in rural areas.

Consumers Poland is a vast market with almost 39 million potential consumers. Young people are consumption oriented and influenced by fashion when choosing the brands they purchase. Older people are more traditional and prefer tried-and-tested products. Women make up 51.4 per cent of the population—a ratio remaining almost unchanged since the 1970s.

Consumer Market

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Comparatively more women live in cities, where there are 109 women for every 100 men. In rural areas, the number of men and women is more balanced.

Structure of consumer spending The structure of Polish consumer spending is similar to that in Western Europe. The percentage of income spent on food products is decreasing in favour of other goods and services. Polish consumers are spending increasingly more on brand-name products. Spending on home furnishings and health services is also increasing. Individual consumption expenditure has been rising every year since 1993. This growth trend is expected to continue until Poland reaches the level of consumption of Western European countries. Figure 1.7.2 Sale of goods, 2000 (1999=100)

Statistical Bulletin, Central Statistical Office (CSO), 2001

Consumer durables Wealth has steadily increased in Poland since 1989 and can be measured by ownership of consumer durable goods. The number and quality of goods owned by households has increased. From 1993 to 1999, the percentage of households owning a colour TV set increased from 77.8 to 98.9, a video recorder from 44.1 to 56.6, a computer from 8.0 to 11.5, a washing machine from 55.6 to 70.2, and a microwave from 4.0 to 14.0 Low-quality goods are being replaced with modern and functional products. The number of telephone subscribers has also increased considerably. Mobile telephones have become very popular since first being offered in

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1996. The number of mobile telephone subscribers totalled 6,747,800 at the end of 2000, 70.6 per cent more than in 1999. It is estimated that at the end of 2005 there will be 15 million cell-phone users. This is an important indicator of the improvement in living standards in Poland.

Attitude to money and financial products Poles have changed their attitude towards money. Many of them are likely to invest in some kind of enterprise. Only a small percentage of people now believe that the safest place for savings is at home under the mattress. Credit cards and cheques are becoming increasingly popular. The number of charge card transactions is rising rapidly. Approximately 7 million transactions occurred in 1998 and 32.7 million transactions with a value of 1.47 billion in 2000. According to Visa International, Poland has the highest dynamics of issuing new credit cards. Figure 1.7.3 Number of charge cards in Poland

Polcard

The dynamic growth in the number of credit card holders is an indication that Polish consumers are quickly adapting to innovations and new products.

Buyer behaviour and brand loyalty The purchase of a product is determined by two factors: price and brand name. Young Poles living in urban areas are influenced by the brand name of a product. They are less sensitive to price than their parents and their counterparts living in rural areas. Price is a significant factor

Consumer Market

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for women, people with secondary education, rural consumers, pensioners and blue-collar workers. Promotions are a very effective marketing tool. Half of all purchases are made during various types of promotion. This is particularly so for female consumers. Poles often look at products in stores even though they do not intend to make a purchase. Shopping has become a family activity and a popular way of spending free time.

Consumer attitudes towards advertising Most Poles have a positive attitude towards advertising. It is seen as a good source of information about products, trends and fashions. Poles admit that advertising usually influences them when they choose which products to purchase. Young people pay more attention to advertising than adults. The influence of advertising on consumers generally depends on age, education and income level. Consumers with a higher education and income are more willing to listen to recommendations and are more susceptible to the message and climate of advertising. Interestingly, younger and better-educated people with higher incomes are more sensitive to the emotional elements in advertising. Older and lesseducated consumers with lower incomes are more convinced by rational arguments in advertising.

Influence of children on buyer behaviour The size and influence of the younger generation on the purchasing decisions of parents is considerable. As in the United States and Western Europe, Polish children participate in the purchasing decisions of the family. Children not only decide on the purchasing of children’s products but also exert an influence on purchasing for the whole family—items such as toothpaste, soap and sweets. Not all parents allow their children to make purchasing decisions. In general, it is the young parents up to the age of 24 who are more tolerant in this regard.

Leisure activities Poles have an average of five hours a day free time. Weekends are usually spent at home watching television, which is the most popular pastime. The television is on for most of the time spent at home, for passive viewing while doing other household chores. When not watching television, Poles have an active social life. Women spend much more time on taking care of the household, while men prefer to participate in sport and recreation, social life, entertainment and hobbies. They visit friends, go to the pub or out for a meal. With the introduction of multiplex cinemas, this leisure activity has become very

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popular in the larger cities. Bowling is another way of spending free time and one that is likely to become as popular as the multiplex.

Recreation and tourism Spending holidays away from home has become increasingly popular in Poland. In 1994, more than 50 per cent of the adult population in Poland stayed at home during the holiday season. This figure is steadily falling. The Institute of Tourism estimates that by 2007, Poles will go on 130 million trips annually. Poles frequently go abroad on business trips or for family reasons. Most trips are taken to the neighbouring countries of Germany, Slovakia and the Czech Republic. Figure 1.7.4 Individual border traffic (’000s)

Statistical bulletins: 1999, 2000, 2001, Central Statistical Office (CSO)

Poland is an attractive country for foreign tourists. The Institute of Tourism forecasts that 100 million visitors will visit Poland in 2003. The number of tourists from non-neighbouring countries is steadily rising and is expected to top 5 million in 2008. The main reasons for visiting Poland are business and tourism, while shopping has become less significant.

Main characteristics of the Polish consumer market • As the country with the largest population in Central Europe, Poland is a considerable consumer market. • The Polish workforce is characterized as well educated, disciplined and flexible, and there is a growing rate of productivity.

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• Household income levels are rising and are likely to increase steadily until reaching the levels of Western European countries. • Increasing household incomes and a declining willingness to save result in higher consumption. The individual consumption expenditure of the households sector has been increasing for several years. • Polish consumers are quickly adapting to innovations, new products and are uncritically accepting the ‘American’ or so-called ‘Western’ lifestyle. • There are still some areas that offer plenty of opportunities due to a failure to develop in the past. • There is a positive attitude towards advertising—choosing brands and products under the influence of advertisements is common. • Polish consumers are more frequently choosing brand-name products and are willing to spend more money as they see branding as meaning quality. • Poland is strategically placed in Central Europe and is therefore the perfect location for a company planning future expansion to eastern markets or the markets of the Baltic States.

Part Two

The Legal Structure and Business Regulation

2.1

The Foreign Investment Regime Charles Waddell, CMS Cameron McKenna Freedom to conduct commercial activity Prior to 1 January 2000, foreigners were only able to undertake economic activity in Poland by a) establishing a Polish limited liability company or a Polish joint stock company or b) by acquiring shares in such companies. It was also possible for a foreign company to establish a representative office, but the scope of activity which could be undertaken by such an office was extremely limited. The Law on Economic Activity of 1999 (the ‘Act on Economic Activity’), regulates in one Act all the main issues related to conducting economic activity (concessions and permits, undertaking commercial activity in different sectors and associations of entrepreneurs) which used to be addressed in various acts. The Act on Economic Activity has made it much simpler for foreigners to commence and conduct commercial activity in Poland. It is still, however, also necessary for foreigners (and Poles alike), to register their commercial activity at the Registration Court and to obtain a concession or permit in certain circumstances. Foreign investors have the right to conduct commercial activity using the same forms as are available to Polish citizens, namely: • a civil law partnership (which does not have legal personality);* • a registered partnership (spó§ ka jawna);* • a partnership (spó§ ka partnerska);* • a limited partnership (spó§ ka komandytowa); • a joint stock partnership (spó§ ka komandytowo-akcyjna);* • a limited liability company; • a joint stock company; • a co-operative;* and/or • a branch office.* * subject to the foreign investor satisfying the issue of reciprocity.

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Concessions and permits The Act on Economic Activity has reduced the number of activities for which a concession and/or a permit is required, and certain activities which previously required a concession now only require a permit. Concessions continue to be required by both Polish and foreign entrepreneurs wishing to conduct commercial activity in certain areas considered important for public security. The Act on Economic Activity contains an exhaustive list of such activities. A concession is required to conduct the following commercial activities: • exploration or prospecting for mineral deposits, production of minerals from deposits, open air storage of substances and the storage of waste in the ground, including underground mining excavations; • production and trading in explosives, armaments and ammunition, as well as products and technology of a military or police-orientated character; • manufacturing, processing, storing, sending, distributing and trading in fuels and energy; • protection of persons and property; • air transport and the provision of other air-services; • building and exploiting toll motorways; • managing railroads and operating rail transport; • broadcasting of radio and television programmes. Certain commercial activities can only be undertaken after a permit (required by the particular law) has been obtained from the State. A State body granting a permit has less discretion than a body granting a concession. It can only check the fulfilment by the applicant of the requirements and formal criteria prescribed by law. If all such legal requirements and criteria are fulfilled, a permit must be issued. The Act on Economic Activity sets out the general procedure to be followed in relation to the permit process. The main difference between a permit and a concession is that a permit must be issued by a State body if the applicant conforms with the requirements specified in the relevant law, whereas in issuing a concession, the responsible State body has more discretion—ie it may refuse a concession if it decides that certain interests are threatened, eg the security of the State.

Reciprocity In certain circumstances, the Act on Economic Activity requires a foreign investor to demonstrate reciprocity in the treatment of Polish investors

The Foreign Investment Regime 47

wishing to conduct commercial activities in the home state of the foreign investor (if the foreign investor is to be able to conduct business in Poland in a particular form eg through a branch office). Under the Act on Economic Activity, where reciprocity is to be proved, the foreign investor must present to the Registration Court a statement of the Consular Office in its home country stating that Polish entities are treated equally with local entities in that country. Such a statement is not required if an international agreement has been ratified between Poland and the foreign investor’s home country that provides for reciprocity. Poland signed an Association Agreement with the European Union in 1991 in which Poland agreed to guarantee entrepreneurs from the European Union freedom of establishment of all types of commercial activity (including branch offices) and the member states of the European Union made the same guarantee in relation to Polish entrepreneurs. In practice, companies incorporated in a member state of the European Union can establish a branch office without having to demonstrate reciprocity for Polish companies in that member state.

Minister of Interior permits Prior permission from the Ministry of Interior is required if a foreigner, or a foreign-controlled Polish company, is to acquire land (or a right of perpetual usufruct), or shares in a Polish company that owns land (or holds a right of perpetual usufruct) and as a result of the investment, the Polish target will be controlled by the foreigner or by the foreigncontrolled Polish company or it is already foreign-controlled and any of its shares are acquired by a foreigner, or foreign-controlled Polish company, not already being a shareholder of the Polish target. Such permissions typically take between four to six months to obtain. The parties can sign a conditional purchase agreement before the permission has been obtained from the Minister of Interior. However, the transaction cannot be completed until such permission has been issued. No consent is required from the Minister of Interior for a foreigner to acquire shares in a public company, even if the company in question owns land or holds the right of perpetual usufruct.

Merger control Mergers are regulated by the Anti-monopoly Office. Subject to certain exceptions, the Law on Protection of Competition and Consumers provides that the acquisition of shares carrying 25 per cent or more of the votes exercisable at a general meeting of a Polish target company must be notified to the Antimonopoly Office if the combined turnover of the purchaser (and its capital group) and the target (and its capital group) exceeds the PLN equivalent of 50 million euros. The requirement

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to make a notification applies equally to Polish and to foreign purchasers. Other types of merger are also regulated. As mentioned above, there are various exemptions from the notification requirement in the case of a company acquisition. They are as follows: • the turnover of the target (and its capital group) over which control is to be taken in each of the two preceding financial years did not exceed the PLN equivalent of €10 million; or • the combined market share of the parties to the merger (and the respective members of their capital groups) does not exceed 20 per cent of the relevant market. If the purchaser or the target already have a 20 per cent market share, then this exemption will not be available, even though the notifiable transaction relates to a different market. If an exemption is not available, then the merger must be notified to the Anti-monopoly Office. The transaction cannot be completed until clearance is obtained or a two-month waiting period has expired. In cases where a notification has to be made in the context of an acquisition of a stake in a public company, the Anti-monopoly Office is obliged to issue its decision within 14 days of the notification being submitted.

Preliminary agreements Care should be taken before signing any heads of agreement. The Polish Civil Code provides that in certain circumstances, heads of agreement or letters of intent can, if they contain certain prescribed particulars, be treated as a preliminary agreement. Preliminary agreements are enforceable.

The Polish Language Act The Polish Language Act provides that any contract entered into between two parties—one of whom is Polish—and that is to be performed in Poland, must be. executed in the Polish language in addition to any other language version in which it is executed. If more than one language version of a contract is executed, the parties are free to specify which is the binding language version. It is advisable to establish at the beginning of the negotiations whether the binding language version of the contract is to be English or Polish.

Public company takeovers Takeovers of Polish listed companies are regulated by the Law in Public Trading of Securities of 1997 and regulations promulgated to it.


Notification requirements Any person who acquires shares in a public company (being a joint stock company whose shares are admitted to public trading) which carry 5 per cent or more or 10 per cent or more of the total number of votes exercisable at the general meeting of that company must notify: • the Securities and Exchange Commission; (SEC) • the target company; and • the Anti-monopoly Office, within four days of the settlement. A similar notification obligation arises on a sale that results in person selling through the 5 per cent or 10 per cent barrier. Once the 10 per cent level has been exceeded, any acquisition or sale of shares carrying 2 per cent (5 per cent in the case of companies whose shares are admitted to public trading but which are not listed on a regulated stock exchange market) must be so notified.

Consent of the SEC An acquisition of shares in a public company that would result in the acquirer reaching or exceeding 25 per cent or more, 33 per cent or more, or 50 per cent or more for the total number of votes exercisable at a general meeting of that company, requires the SEC’s prior approval. The SEC is obliged to issue a decision within 14 days of receiving notification. In practice the 14-day statutory period is usually extended. The SEC has a wide discretion in deciding whether or not to issue its approval. It can refuse permission where the acquisition would violate the law. More importantly, it can issue a refusal if it considers that the acquisition would jeopardize an important interest of the Polish state or the national economy. The SEC has interpreted this right to refuse permission extremely widely. Following the introduction of Pillar II Pension Scheme in 1999, the SEC has been concerned to ensure that there is a large as possible number of publicly traded companies listed on the Warsaw Stock Exchange. The SEC seems to have taken the view that it should not be possible for persons to acquire 100 per cent of a listed company and then de-list it. Accordingly, the SEC will usually permit persons to acquire up to 75 per cent of a public company.

Convertible bonds and depositary receipts The consent and notification requirements referred to above apply to the acquisition or sale of convertible bonds and depositary receipts as well as options to acquire or dispose of shares.

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Tender offers Any person intending to acquire shares carrying 10 per cent or more of the voting share capital of a public company in any 90-day period must do so by means of a publicly announced tender. The form of the tender is prescribed by the ordinance of the Council of Minister. The person making the tender must deposit 100 per cent of the total acquisition price of the shares as security with a bank. A tender can be made conditional upon obtaining regulatory approvals such as a permission from the Antimonopoly Office or the SEC. The obligation to make a tender also applies to an acquisition of depositary receipts.

Mandatory offers If a person acquires or otherwise becomes the holder of shares (or depositary receipts in respect of shares) issued by a public company carrying over 50 per cent of the votes exercisable at a general meeting of shareholders, he must make a mandatory offer for all the other shares in the company. The price offered in the mandatory offer must not be lower than: • the average market price for the last six months prior to the announcement of the offer; and • the highest price paid for such shares by the person obliged to make the mandatory offer or by his holding company or subsidiaries or by any concert party (see below). The same minimum price rules apply to tender offers. The obligation to make a mandatory offer can be triggered by an acquisition of shares by a member of a concert party. A concert party arises in respect of a public company between, inter alia, parties to an oral or written agreement regarding: • a joint acquisition of shares issued by that public company or depository receipts issued in connection with those shares; or • unanimous voting at a general meeting of shareholders of that company with respect to substantial matters of the company; or • conduct of an ongoing and common policy to the extent of the management of that company. Concert parties are also deemed to exist between investment funds managed by the same investment fund manager and between a brokerage house and their clients. For these purposes, investment funds can include investment funds incorporated or established outside Poland. The provisions relating to tender offers and mandatory offers do not apply to acquisitions of shares in public companies from the State Treasury.


Acquisition of a business One of the main reasons why business acquisitions are popular in the United Kingdom is that they allow a purchaser to ‘cherry pick’ assets and leave behind the liabilities which he does not want. Persons contemplating the acquisition of a business in Poland need to be aware that the Civil Code provides that the purchaser of an enterprise is jointly and severally liable with the vendor for the obligations incurred by the vendor in connection with the management of the enterprise. There is a statutory defence if the purchaser did not know about these obligations in spite of due diligence on his part. The statutory liability of the acquirer to the creditors of the vendor is limited a) to the value of the purchased enterprise at the time of the acquisition and b) to the amount owing to the creditors at the time of the acquisition. This statutory liability towards creditors cannot be excluded or limited, except with the consent of creditors. The purchaser and a vendor of a business are of course free to agree amongst themselves who is to be responsible for discharging liabilities; however, any such agreement will not bind creditors unless they have given their express consent. An enterprise is defined in the Civil Code as a complex of material and non-material components whose purpose is to perform definite economic tasks and includes, in particular: • the business name, trademarks and other marks which identify the enterprise; • the commercial books of the enterprise; • immovable properties and movable property which belongs to an enterprise including products and materials; • patents, utility models and designs; • obligations and burdens connected with the running of the enterprise; • rights resulting from leasing and holding the premises occupied by the enterprise under tenancy. The question of whether or not an enterprise has been transferred will be question of fact to be determined by reference to the circumstances. If only assets are being transferred, then the purchaser will not be liable for the liabilities of the vendor.

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ONLINE UPDATES - 7 August 2005 The foreign investment regime (Chap. 2.1) European patents From the beginning of December 2003, Poland became a party to the Convention on the Grant of European Patents. As a result the patents of foreign companies investing in Poland are better protected and Polish entrepreneurs are able to obtain a European patent for their products. Temporary appointment of supervisory board members to the management board An amendment to the provisions of Article 383, Para 1 of the Commercial Companies Code at the beginning of 2004 allows a supervisory board of a company to suspend certain or all members of the management board for important reasons (undefined in the Act) and to delegate supervisory board members, for a period not longer than three months, to temporarily fill the positions of those management board members who were dismissed, resigned or for any other reason are incapable of performing their duties. The Act on the Polish language From 1 May 2004, an amendment to the Polish Language Act abolished the requirement to use the Polish language to conclude agreements in Poland, if at least one of the parties to an agreement is Polish. However, the amendment provides for the obligation to use Polish in consumer and labour relations if a consumer or an employee is resident within Poland at the time when the agreement is concluded and if the agreement is to be performed in Poland. In particular, the requirement to use Polish applies to the names of products and services, offers, guarantee conditions, invoices, bills and receipts, warnings and information required for consumers by the other provisions of the law, as well as to advertisements, instructions on usage and information on products’ and services’ quality. In addition, Polish should be used in Poland in relations with public administration and other entities performing public functions. Reducing bureaucracy In August 2004, a new law, entitled The Act on Freedom of Conducting Business Activity, was passed replacing The Business Activity Act of 19 November 1999. The new law reduces the amount of red tape and

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regulation for entrepreneurs who are starting up, carrying on or closing down a business in Poland. The main provisions came into force 14 days after publication of the Act in the Journal of Laws. The new Act provides a statutory definition of key terms, such as ‘business activity’ and ‘entrepreneur’, which applies to the whole framework of business law in Poland. It also introduced the ‘single window’ principle whereby those starting up a business have to complete all formalities at the same place, eg an entry in the Companies Register at the National Court Register or in the Business Activity Register. Squeeze-out rules remain in force It was reported on 1 July 2005 that the rules allowing minority shareholders to be eliminated from a joint-stock company without their consent or approval under Article 418 of the Commercial Companies Code had survived a challenge in Poland’s Constitutional Tribunal. Under the squeeze-out rules, up to five shareholders representing jointly at least 95 per cent of the share capital can pass a resolution allowing them to compulsorily acquire any minority shareholdings (less than five per cent of the share capital). Source: CMS Law-Now and the Editor, 7 August 2005

2.2

Alternative Corporate Structures Charles Waddell, CMS Cameron McKenna Introduction Chapter 2.1, The Foreign Investment Regime, summarizes the various forms of corporate structure which are available for use by a foreigner. The most common business entities used by foreign investors are representative offices, branch offices, limited liability partnerships, limited liability companies and joint stock companies. This chapter summarizes the key issues relating to each medium.

Representative offices A foreign entity may establish a representative office in Poland only for the purpose of conducting advertisement and promotion activity on behalf of the parent company. There is no requirement to demonstrate reciprocity. The limited scope of activity that can be undertaken by representative offices make them an unsuitable medium for most foreign investors.

Branch offices A foreign investor may establish a branch office in Poland, subject to reciprocity for Polish investors in the country of incorporation of the foreign investor, unless an international agreement ratified by Poland states otherwise. A branch office of a parent company may perform activities in Poland if they are in the scope of those of the parent company. In practice, this means that a branch office of a parent company can undertake any activity that its parent company would be permitted to undertake in its home state. Foreign private equity investors that wish to monitor their Polish investments might want to consider doing so using a branch office.

Alternative Corporate Structures

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Limited liability partnership (spólka komandytowa) A limited partnership is founded by two or more partners (individuals or legal entities). At least one partner (‘general partner’) has unlimited liability towards the partnership’s creditors and at least one (‘limited liability partner’) is liable towards the creditors only up to the amount of his limited partnership share. A limited liability partner has no further liability to the creditors once he has paid in the full value of his limited partnership share. If the surname of the limited liable partner is included in the business name of the partnership, he will have unlimited liability towards the partnership’s creditors. Unless the partnership deed or a court decision states otherwise, the limited liability partnership is represented by general partners. A limited liability partner can only represent the partnership under a power of attorney. He/she has no right to participate in the management business of the partnership, unless the partnership deed states otherwise. However, in matters beyond the ordinary scope of business of the partnership, the consent of a limited partner is required, unless the partnership deed provides otherwise. A limited liability partner participates in the profits in proportion to his contribution to the partnership, unless the partnership deed provides otherwise.

Limited liability and joint stock companies Historically, most foreign investors in Poland have undertaken business though a Polish subsidiary, usually in the form of a limited liability company. A foreign investor may incorporate a subsidiary in Poland, either in the form of a limited liability company (Spó§ ka z ograniczoná odpowiedzialnosćiá —the abbreviated form of which is Sp. zo.o.) or in the form of a joint stock company (Spó§ ka Akcyjna—the abbreviated form of which is S.A.) A limited liability company is the Polish equivalent of an English private limited company or a German Gesellschaft mit beschränkter Haftung (GmbH) and a joint stock company is the equivalent of an English public limited company (plc) or a German Aktiengesellschaft (AG). Foreign investors are allowed to own 100 per cent of the share capital in both types of companies. Both types of company are regulated by the Commercial Companies Code of 2000 (the ‘Code’) which came into force on 1 January 2001. The Code replaced the Commercial Code of 1934 (the ‘Old Commercial Code’). The form of a joint stock company is more formalized than that of a limited liability company.

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The registration of companies in the Commercial Register is handled by the Registry Court. Formation of a limited liability company or joint stock company in Poland typically takes between two and three months, depending upon the Registry Court where the company is to have its seat. The minimum share capital of a limited liability company is PLN50,000 and that of a joint stock company is PLN500,000. Pending registration of a limited liability company or joint stock company in the Registry Court, a company in the process of formation can enter into contracts. Rights and obligations entered into in this period are continued by the company following its registration in the Commercial Register. The Code provides that the articles of association of a joint stock company must set out certain prescribed particulars. The articles may contain additional provisions.

Joint stock or limited liability company? The main advantage of trading as a joint stock company as opposed to a limited liability company is that only joint stock companies have the right to apply to the Securities and Exchange Commission to have their shares admitted to public trading. In return for this benefit, joint stock companies -are subject by the Code to more stringent controls than limited liability companies.

Shares A limited liability company cannot issue share certificates. Ownership of a share issued by a limited liability company is determined by reference to its register of shareholders of the company. Shares issued by a limited liability company must either have the same nominal value (which cannot be less than PLN500 per share); for example a shareholder can own more than one share: or the shares may be issued with different nominal values, in which case each shareholder will simply hold one share. Joint stock companies can issue both bearer shares (ownership of which is determined by ownership of the physical share certificate) and registered shares. Share certificates can be issued by a joint stock company in respect of registered shares, although ownership of such registered shares is determined by reference to the register of shareholders and not by possession of the share certificate. The share capital of a joint stock company must be divided into shares of equal nominal value. The nominal value of a share issued by a joint stock company cannot be lower than PLN1.

Alternative Corporate Structures

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Preference shares The Code specifically allows both limited liability companies and joint stock companies to create preference shares, in particular with regard to voting rights, dividends and the manner of participation in the distribution of the assets on a liquidation of the company. Preference shares preferred as to votes cannot be issued by a public company. The maximum number of votes which can be given to a preference share issued by a limited liability company is three votes per share. The maximum number of votes which can be given to a preference share issued by a joint stock company is two votes per share. Bearer shares issued by a joint stock company cannot carry more than one vote. A dividend paid on a preference share issued by a limited liability company and, subject to what is said below, a joint stock company cannot exceed the dividend payable on an ordinary share by more than 50 per cent. The articles of association of a limited liability company can provide that the preference dividend ranks in priority to the dividend payable on an ordinary share. The Code provides that preference shares issued by a limited liability company can be cumulative or non-cumulative. The position is different for joint stock companies, where subject to what is said below, the preference dividend payable on a preference share cannot be given a priority ranking as compared to the dividend payable on an ordinary share. The Code specifically allows joint stock companies to issue non-voting preference shares. There are no restrictions on the amount of dividend that can be paid on a non-voting preference share, whether by reference to the dividend payable on an ordinary share or otherwise. Further, the dividend payable on a non-voting preference share can be expressed to be cumulative (for a period of three years) or non-cumulative.

Personal rights The articles of association of both a limited liability company and a joint stock company can vest certain personal rights in individually named shareholders. Such rights may relate in particular to the right to appoint and recall members of the management board and supervisory board or the right to obtain from the company certain benefits. The articles may make the granting of personal rights to a shareholder contingent upon the performance of certain services for the company and subject to the fulfillment of certain conditions. The statutory limitations on the extent of the rights of preference shares also apply respectively to personal rights granted to shareholders. Personal rights granted to an individually named shareholder expire on the date on which such person ceases to be a shareholder in a company. If a shareholder has been granted

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individual rights, then any amendment to those rights requires his express approval.

Redemption of shares The Code provides for compulsory redemption at the option of the company or the shareholder. The articles of association should set out the circumstances in which redemption can take place and the procedure for redemption. The articles of association may also provide that the shares are automatically redeemed on the occurrence of certain events. Redemption can also be made by agreement between a shareholder and the company. Redemptions must be made out of distributable profits or, provided a prescribed mechanism is followed, out of capital.

Management Poland operates a two-tier management structure comprising a management board and the supervisory board. Limited liability companies do not have to appoint a supervisory board unless it has a share capital in excess of PLN500,000 and has more than 25 shareholders. A joint stock company must always have a supervisory board in addition to a management board. The articles of association of a limited liability company will typically provide that the shareholders appoint or remove the management board. In a joint stock company, the supervisory board will typically appoint or remove the management board and will in its turn be appointed and removed by the shareholders.

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ONLINE UPDATES - 7 August 2005 Alternative corporate structures (Chap. 2.2) Change to the nominal value of shares The amendment of the Commercial Companies Code dated 12 December 2003 came into force on 15 January 2004 introducing approximately 100 changes. One important amendment changed the minimum value of shares in a limited liability company and joint stock company back to PLN50 and PLN0.01 respectively. Previously, on 1 January 2001, the Commercial Companies Code introduced new provisions relating to the minimum value of share capital and the minimum value of shares. Under these provisions, a share in a limited liability company was to have a value not less than PLN500, whereas the minimum value of a share in a joint stock company remained at PLN1. In practice, the change in the value of shares proved troublesome in many cases or even impossible. New registration rules regarding commercial activity From 21 February 2005, anyone practising or wishing to practise professionally as an auditor, bailiff, lawyer, medical doctor, nurse or notary must have registered with the Commercial Activity Record under the Commercial Activity Liberty Act. From 1 January 2007, anyone carrying on commercial activity either alone or in a civil partnership must be registered with the Commercial Activity Record, which will be similar to the National Court Register. New rules on the governing law for contracts On 22 July 2005 it was reported that Poland had signed the 1980 Berne Convention, which determines the law governing contracts where there is a choice between the legal systems of two or more parties from the signatory states of the Convention. It is only open to EU member states; all of the 10 who joined in 2004 are likely to sign. The Convention allows contracting parties to decide for themselves which law will govern their agreement. It also allows them to agree to change the governing law at any time if they so wish. The Convention does not apply in a number of circumstances including: • arbitration agreements; • agreements about the jurisdiction of a court in any country to try contractual disputes; • company law issues;

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• issues relating to personal liability of officers and members of the management board for the obligations of a company; • issues relating to obligations resulting from bills of exchange, cheques, debentures and other transferable securities; • agreements involving one or more parties from a non-signatory country (if no other bilateral or international agreement applies, the Act of 12 November 1965 on international private law will continue to apply). The date when the Convention will come into effect in Poland will be at the start of the third month after ratification documents are submitted; it will only apply to agreements made after that date. CMS Law-Now and the Editor, 7 August 2005

2.3

Employment Law Jaroslaw Król and Aleksandra GawronskaMucha, CMS Cameron McKenna Introduction Polish employment law is dispersed over a number of pieces of legislation. The rules governing the relationship between the employer and the employee are principally regulated by the Labour Code of 26 June 1974. However, many specific labour matters such as redundancies, trade unions, collective labour disputes or unemployment have been regulated historically by separate legal acts.

Structure Employment contract Under Polish employment law, the employment relationship is principally established by an employment contract. There are three types of employment contract: • for a definite period; • for an indefinite period; and • for the completion of a specific task. Each of these contracts may be preceded by an employment contract for a trial period of up to three months. Termination of employment contract An employment contract may be terminated in the following ways: • by the mutual agreement of the parties; • upon the declaration by one of the parties with the observance of a notice period; • upon the declaration by one of the parties without the observance of a notice period; • after the completion of the period the employment contract was for; and • upon completion of the task the employment contract was for.

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Additionally, in circumstances such as the employee’s death or if the employee is absent from work for more than three months due to temporary arrest, the employment contract will expire automatically without any action required from either party. Termination by mutual agreement Termination by the mutual agreement of the parties is an instrument that can be used for the termination of any type of employment contract and at any time. This is a preferred way of terminating employment in Poland as it allows the parties to avoid potential disputes and, with the exception of group redundancies, the involvement of trade unions (if any). Termination with notice The termination of an employment contract with notice is generally applicable to contracts entered into for a trial period or for an indefinite period. In the case of defined period contracts, termination with notice is principally possible where the contract has been entered into for more than six months and the parties have agreed on the possibility of early termination with two weeks’ notice. The following statutory notice periods apply to the termination of contracts for a trial period: • three days if the trial period does not exceed two weeks; • one week if the trial period is longer than two weeks; • two weeks if the trial period is three months. The statutory notice periods required to terminate indefinite period contracts depend on the period of employment with a given employer and are set out as follows: • two weeks if the employee has been employed for less than six months; • one month if the employee has been employed for at least six months but less than three years; and • three months if the employee has been employed for at least three years. The procedure for termination with notice by the employer embraces a number of restrictions. The indefinite period contract may be terminated only for fair reasons specified in the notice. In principle, the employer must also consult with a trade union representing the interests of the employee to be dismissed. Irrespective of the type of contract, the employer may not dismiss certain groups of employees with notice such as employees of a pre-retirement age, on sick or holiday leave. Pregnant women or officials of trade unions may be dismissed only with the consent of unions.

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The employee whose contract has been terminated with notice in breach of statutory restrictions may claim from a labour court to be either reinstated on former terms or paid compensation. Termination without notice (with immediate effect) The termination of a contract without notice is applicable to each type of employment contract. The employer may terminate the contract without notice either due to the fault of the employee or his/her prolonged absence from work for justified reasons (eg for medical reasons). Termination without notice due to the employee’s fault is allowed only in a number of circumstances, including if the employee seriously violates his/her basic duties or commits an offence making it impossible for the employee to fulfil his/her duties. However, the termination may not be carried out longer than one month after the employer learns about the circumstance justifying the termination. Termination without notice for whatever reason must be made in writing with the reasons stated in the termination letter. The trade union that represents the interests of the affected employee must also be consulted. In principle, when it comes to the termination of a contract without notice the employer is not restricted by circumstances such as justified absence (eg sick leave), pre-retirement age or the pregnancy of an employee. In cases of wrongful termination without notice, the employee whose contract has been terminated without notice in breach of the statutory restrictions may claim from the labour court either to be reinstated on former terms or paid compensation. Employing foreigners in Poland Although Polish employers may employ Polish nationals without restriction, they may employ foreigners generally only if a Polish national cannot be found to fill the vacancy. In the majority of cases, before embarking on the process of employing a foreigner, the Polish employer must advertise the position and receive written confirmation from a local labour office that no Polish national is suitable. In order to obtain a mandatory work permit for the prospective foreign employee the employer must apply for a work permit promise. The foreigner should then obtain a visa at the Polish consulate in his/her home country. Following this, he/she may apply for a final work permit. Work permits are issued for no longer than one year although they may be extended.

Practice

Redundancies Employers who intend to dismiss their employees for employer-related reasons are bound by the Redundancy Act of 28 December 1989.

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Redundancy occurs when an employer wishes to reduce its workforce due to economic, production, organizational or technological reasons. The Redundancy Act also applies to the insolvency or liquidation of the employer. It differentiates between group and individual redundancies depending on the number of employees to be made redundant and the size of workforce. The employer intending to carry out group redundancies must provide notification of its intention to trade unions operating at the company and local labour authorities at least 45 days before commencing dismissals. The employer and the unions should also come to an agreement on the procedural rules for the redundancies. If no trade union operates at the company, the employer must issue procedural rules itself and must consult staff on the contents of the rules. Where there are individual redundancies, the employer is neither required to agree upon, or issue procedural rules, nor to inform labour authorities of its intention to reduce its workforce. Some employees (eg pregnant women) are entitled to special protection, which means they cannot be dismissed either during the protection period or without the approval of the trade union. The employer is also required to re-employ a person who was made redundant if he/she has indicated his/her wish to be re-employed and the employer subsequently employs new staff belonging to the same professional group as the person concerned. Employees who are made redundant are entitled to statutory redundancy pay equal to between one and three times their monthly salary depending on the employee’s total period of employment (including employment with all previous employers). However, the statutory redundancy pay cannot exceed 15 times the minimum wage in Poland. In certain situations, such as when the employee conducts his/her own business, statutory redundancy pay is excluded. Transfer of undertaking Following a transfer of undertaking (or part transfer) to another employer, the new employer becomes a party to all existing employment relationships. Additionally, where only a part of an undertaking is transferred both the former and the new employer become jointly and severally liable for the employment obligations created before the transfer. Before the transfer of undertaking (or part transfer) is effected the employer must inform the employees of the intended transfer and its impact on employment relationships. The employees then have the right to terminate within one month their employment contracts without notice, with seven days advance notification. Additionally, the former and the new employer must inform, at least 30 days before the transfer, any trade unions operating at each of the companies about the intended

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date of the transfer and its legal, economic and social effects for the employees. If they also intend to amend any of the employment conditions of their employees they must notify their intention to the unions and undertake negotiations with them in order to come to an agreement on the matter. If the agreement cannot be achieved within 30 days the employers may decide on the employment terms of their employees themselves taking into account any points agreed with unions. Trade unions The rules relating to the establishment and operation of trade unions are determined by the Law of 23 May 1991 on Trade Unions. The Law provides for the freedom to organize and join unions. The minimum number of individuals required to establish a trade union is ten. Unions may be established and joined by all the employees regardless of the basis and scope of their employment relationship. The scope of activities of unions operating at the company includes giving opinions on various individual and collective employment matters as well as supervising the employer to ensure the employer is observing the labour law. The employer is required to provide unions with space and technical equipment to enable them to run their activities. Although the unions have achieved a strong position due to historical reasons there are indications that their realistic influence on employment matters will gradually dimmish.

Essentials Remuneration for work The minimum remuneration for work for employees employed on a fulltime basis is specified by the Minister of Labour and Social Policy. The remuneration must be paid at least once a month on the same day of each month, which is fixed in advance. The remuneration may be paid other than by personal delivery (eg into an employee’s bank account) only after prior written consent of the employee. The employee may not waive his/her right to remuneration nor transfer such right to another person. Employers with at least five employees who are not covered by a collective bargaining agreement must fix the terms of remuneration for work in remuneration by-laws. Working time In principle, working time may not exceed eight hours per day and on average 41 hours in 2002 (40 hours in 2003 and subsequent years) in a five-day working week, within an adopted account period not exceeding three months. Work performed outside those hours constitutes overtime, for which the employees are entitled to an allowance of 50 per cent of their remuneration in the first two hours of overtime per day and

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100 per cent of their remuneration for subsequent hours, at night, on Sundays and on public holidays, in addition to their normal pay. A limit on permissible overtime hours has been set at four hours daily and 150 hours per calendar year. Systems and schedules of working time must be specified in the workplace by-laws adopted by each employer with at least five employees unless the organization is covered by a collective bargaining agreement. Holiday leave The duration of paid holidays is based on the length of employment and ranges from 18 working days (after one year of work) to 26 working days (after 10 years of work). When calculating the length of employment, years of work shall include service with a previous employer and certain periods of higher education. The employee acquires his/her right to a first full leave after one year of work although he/she may use half of this leave after six months of work. The right to any subsequent leave is acquired during each succeeding calendar year. The labour law provides also for other paid and unpaid leave for the employees. Examples include maternity leave or leave designated for special events, such as marriage, birth of a child, as well as a few days off for searching for a new job.

Concerns Time for changes Significant concern about Polish employment law boils down to its inflexibility and its pro-employee leanings. It has been the objective of every political power to create a friendly legal environment for new investments and therefore create more jobs. The recent projects provide, among others, for the possibility of an unlimited number of agreements for a definite period of time until Poland joins the EU, reducing additional payment for overtime work as well as releasing small employers from certain cumbersome requirements. Recent changes with similar objectives have already included reducing maternity leave from 26 to 16 weeks for the first birth and 18 weeks for subsequent births and from 39 to 26 weeks in the case of a multiple pregnancy. Further legislative steps are expected soon. Towards the European Union Material changes to employment law are, at the same time, being introduced to adjust Polish law to that of the EU. Recent changes have introduced the equal treatment of men and women with regard to establishing and terminating employment relationships, employment conditions, promotion and access to training in order to improve

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occupational qualifications, as well as guaranteeing equal pay for equal work or work of equal value, regardless of sex. A person discriminated against by the employer in this way now has the right to claim compensation from the employer. Another major change, which will apply when Poland joins the EU, relates to when the employer refers an employee to work in a EU member country. The employer will be obliged to secure work conditions for the employee not less favourable than those in force in the country in which the employee is supposed to work.

ONLINE UPDATES - 2 August 2005 Employment law (Chap. 2.3) Working hours According to Polish labour law, working hours should not generally exceed eight hours per day and on average 40 hours in a five-day week, in a calculation period not longer than four months. If an employee works more, he/she is entitled to additional remuneration for overtime work. Minimal rest time Amendments to the Labour Code, effective 1 January 2004, entitle an employee to at least 11 hours of uninterrupted rest time per day. This does not apply to the management of a company or employees involved in rescue operations, although the latter have the right to an equivalent rest time during the relevant calculation period. Generally, an employee is also entitled to at least 35 hours of uninterrupted rest time in each week. The management of a company or employees involved in rescue operations are entitled to at least 24 hours of uninterrupted rest in each week. Employees who supervise equipment may work under a 16-hour working day system, and emergency service personnel or guardians may work under a 24-hour working day system. These employee groups are entitled to rest time at least equal to the number of hours worked continuously, in addition to the general entitlement of 35 hours of uninterrupted rest time each week.

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Modification of an eight-hour working day system at an employee request As from 1 January 2004, a full-time employee may work less than five days a week if he/she applies in writing to the employer for a modified working system and the employer accepts. An employee may also apply to work only on Fridays, Saturdays, Sundays and holidays. If an employee is subject to any of these agreed modified working systems, he/she may work more than eight, but not more than 12, hours per day on given days in a calculation period of one month, with no right to additional remuneration. Equal pay The amendments to the Labour Code that came into effect on 1 January 2004 include a ban on pay discrimination. All employees in Poland are entitled to receive the same remuneration as other employees (with the same employer) working in the same job or in a different job of equal value that requires the same degree of skill, effort, etc. The Labour Code bans discrimination based not only on sex, age, race but also on any other criteria that cannot be justified objectively. The ban applies both to basic pay and any other form of remuneration such as bonuses, severance pay, pay rises, etc. Employees bringing an equal pay claim have alternative remedies: • treat it as a fundamental breach of contract, quit their jobs and claim compensation; • remain in their jobs and ask the court to set the level of their remuneration going forward with an award of up to three years’ back pay. All compensation is loss-based without an upper limit. The minimum compensation reflects the statutory minimum monthly pay of PLN824 (approximately EUR187). Anti-discrimination regulations Up to 1 January 2005, the number of anti-discrimination claims in the courts remained very low and had not increased over previous periods before the new Labour Code provisions came into effect on 1 January 2004. The main reasons are probably a lack of knowledge as regards employees’ rights and fear of losing one’s job in a high unemployment environment. However, inhibitions are likely to disappear, and employers should note that the Labour Code does not provide for an exhaustive list of reasons for potential discrimination although harassment and sexual harassment, in particular, are listed. Therefore, employers are urged to ensure that there is a clear anti-discrimination policy in the workplace, which is acknowledged and followed by all employees.

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Ending employment by mutual consent A recent case, decided in the Supreme Court in June 2005, has clarified that an employment relationship can only be terminated by mutual consent while the working relationship still exists. The court ruled that retrospective attempts to modify the basis of termination or to re-categorize the departure in a more favourable way were ineffective once the employment relationship had come to an end. Thus termination arrangements made after the end of an employee’s fixed term contract had no legal effect. Document storage by employers New rules came into force in June 2005 concerning the storage of personal documentation and pay-roll records by employers. CMS Law-Now and the Editor, 2 August 2005

2.4

Dispute Resolution Pawel Pietkiewicz, Neil Aitken, Charles Spragge, CMS Cameron McKenna

Introduction The two principal means for the resolution of commercial disputes in Poland are the Polish court system and (domestic and international) arbitration under the code of Civil Procedure 1964. Essentially, the judicial system in Poland consists of three levels of state courts—district, provincial and appellate—and of the national Supreme Court, which hears cassation applications from the provincial and appellate courts acting as courts of second instance. Hearings must generally be conducted in public, although a court can sit in closed session for exceptional cases involving, for instance, state or trade secrets. There are detailed rules covering pleadings, evidence, judgements, appeals, enforcement and costs. Judges are appointed by the president of the Republic on the recommendation of the Minister of Justice, who in turn acts on the advice of the National Chamber of Judicature. Domestic and international arbitration is governed by the code of Civil Procedure of 1964. There are several permanent arbitration bodies in Poland, of which the most prominent is the Arbitration Court at the National Chamber of Commerce in Warsaw. Besides judges and state criminal prosecutors, there are three other types of general lawyers in Poland: • advocates; • radca prawny (the nearest equivalent to English commercial solicitors); and • notaries public. Although the stirrings of interest in the techniques of alternative dispute resolution (ADR), such as conciliation and mediation, are becoming evident, for the present there is little sign that these techniques will be widely adopted in Poland in the immediate future.

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Civil courts Structure Justice is administered through the state courts and the national Supreme Court. The structure and jurisdiction of the state courts is set out in the Code of Civil Procedure 1964 and in the Act on the Structure of the State Courts of 2001. Within each level of state law court (ie district, provincial and appellate), there are distinct divisions for civil and criminal cases. There are also specialized courts for commercial law, labour law, social insurance and family law disputes. There are 10 regional appellate courts in the major cities, and these hear appeals from the provincial courts. The Supreme Court in Warsaw hears cassation applications (described below) from the provincial and appellate courts acting as a court of second instance. First instance As a general rule, an action should be started in the relevant first instance court for the area in which either the defendant resides or (if it is a firm) has its registered office. If the claim concerns a commercial agreement, an action can also be started in the court for the region in which the agreement was to be performed. The first instance court, in which proceedings are properly begun, will retain a residual jurisdiction. Procedure As previously mentioned, Polish law requires all court hearings to be conducted in public, with specific exceptions. The parties also have a limited opportunity to request a closed hearing in cases where the requesting party can show sufficient reason. This sometimes happens in family proceedings, for example. But it is not clear how willing a court would be to sit in closed session simply to preserve the confidentiality of an arbitration procedure whose award it had been asked to set aside. Pleadings Polish pleadings are less formal than English and set out allegations of both fact and law. The pleadings also refer to and attach the evidence on which the parties rely. Civil proceedings are started when the claimant files the plea, which is similar to the English statement of claim. The chairman of the court examines the plea to check that it meets all the requirements: for example, whether the registration fee has been paid, and whether the legal demand and the grounds for it are defined precisely enough. If the court decides that there are no grounds for rejecting the statement of claim, it examines its own competence and decides whether or not the

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proceedings should continue. The chairman fixes a date for trial and orders a copy of the statement of claim to be delivered to the defendant. Generally speaking, a defendant does not have to make any written reply to the statement of claim, unless the dispute is a commercial one -although in complex cases the court can order a written defence—and may not have to attend any hearing or participate in the trial process in any way. Although a claimant is entitled to respond to a defendant’s reply to the claim in advance of the hearing, in practice the claimant’s response is usually dealt with during the trial. Evidence There is no equivalent in Poland of the common law obligation of discovery that requires the parties to disclose to each other all the relevant documents in their possession. Rather, the disclosure of documentary and other evidence is at the discretion of the chairman of the court. At an early stage, the chairman will question the parties to sharpen the issue in dispute between them. The court may ask to see any document but it may not force the party to present such a document (the only exceptions are for labour and family disputes). Written witness statements are not used and evidence is given orally to the court at the hearing. At trial, witnesses may be questioned by the parties and by the court, which in a commercial case usually consists of a single judge. Evidence may be given under oath, and witnesses may be prosecuted under the criminal code if they give dishonest evidence to the court. Witnesses do, however, have a limited right of silence if there is a danger of selfincrimination or if their evidence might reveal state secrets. Exceptionally, contradictory witness evidence is dealt with by confrontation. The relevant witnesses are summoned to appear before the judge and confront each other about their conflicting evidence. This process has a good record of producing agreement and often results in one party abandoning his/her version of events. If specialized evidence is needed, expert witnesses are appointed by the court and not by the parties. The court will also decide whether the expert should give evidence orally or in writing. All court hearings are minuted by the judge’s clerk, usually in handwritten note form. The minutes cover all oral evidence, submissions, decisions and orders of the court issued during the hearings. Consistent with the principle that it is the court, and not the parties, that controls the action, the proceedings are closed by the court once it considers that it has sufficient evidence upon which to reach a judgement. Judgements Usually, judgement follows immediately after the close of proceedings and is given orally. In complex cases, however, judgement may be


reserved for up to two weeks. The parties can request the court to produce a written version of its oral judgement, which should contain the court’s detailed reasoning. But the request for a reasoned judgement must be made within a week of the judgement. The court will also produce a written judgement if there is an appeal. Appeals There are three types of appeal: • appeal; • cassation; and • complaint. Appeal There is an automatic right of appeal against a court judgement, subject only to the limitation rules. An appeal will be determined on the basis of the evidence produced at the trial hearing. If an appeal is allowed, the appellate court may change the original judgement or, if it rules that the original proceedings were invalid, it can annul the judgement and refer the case back to the court of first instance. Appeals must normally be made within two weeks of the appellant having received a reasoned judgement or within three weeks from the day when judgement was issued if he/she did not ask for such a judgement. The appeal papers are lodged with the court against whose judgement the party intends to appeal and then are transferred together with the files of the case to the relevant upper instance court. The respondent may answer the points of appeal by submitting a written reply directly to the relevant appellate tribunal within two weeks of the appellant’s papers being serviced. The reply may refer to new facts and evidence. However, a respondent is under no obligation to answer the appellant’s case. The quorum of all the appellate tribunals is three professional judges. The appeal is heard by the provincial court if the judgement of the district court is appealed and by the appellate court if the judgement of the provincial court is appealed. Subject to limited exceptions under the Code of Civil Procedure 1964, their judgement will be immediately enforceable. Cassation A litigant can in certain circumstances make a cassation application to the Supreme Court to annul the decision of a provincial court or appellate court acting as a court of second instance. The Supreme Court hears cassation applications from provincial and appellate courts only on points of substantial infringement of law by its wrong application or

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interpretation or on the basis that there was some prejudicial procedural irregularity during the case. The appellant must lodge detailed grounds of cassation within a month of the provincial or appellate court’s judgement. The respondent then has two weeks in which to reply. Once all relevant materials have been lodged, the appellate court will send the case papers to the Supreme Court. It can either confirm the judgement or overturn it wholly or in part. If the Supreme Court takes the second course, then the appellate or provincial court must re-examine its judgement in the light of the Supreme Court findings whose decision is binding for them. Complaint The third type of appeal is known as a complaint and anyone involved in a case, including both parties and witnesses, may raise a complaint against decisions of the court of first instance concluding the proceedings in the case and the injunctions of the presiding judge as well as decisions of the court of first instance in 11 exhaustively listed matters. These are decisions finishing the proceedings, staying up the proceedings or returning the statement of claim on the grounds of formal lacks. Such complaints must be lodged with the court having issued the relevant decision and a court of higher instance will generally hear this complaint in closed session. Complaints must be lodged either within one week of the decision having been pronounced or, in the event that a written version of the decision was requested by the appellant or the decision was issued in closed session, within one week of its’ receipt. The court that issued the decision which is subject to complaint, may change its decision if the complaint is undoubtedly justified. Enforcement The enforcement of court judgements and orders is dealt with by the relevant court’s execution officer. This official takes all the necessary steps to enforce a court’s judgement. If necessary, the execution officer can be assisted in his/her duties by the police. Costs of litigation The losing party is usually ordered to pay the winner’s costs. However, the court has a discretion to make no costs order at all, or to order that a losing party pays only part of the costs. Costs can include court’s fees, the fees of legal representatives and other general expenses. But there is a ceiling on how much someone can recover. In effect, legal expenses that exceed the amount assessed as the reasonable cost of instructing a local lawyer will be irrecoverable.


Speed of litigation The Polish courts are struggling to deal with a growing case backlog. This is partly due to a lack of technical equipment—judges’ clerks still take all notes by hand, for example—and partly due also to the difficulty of recruiting and keeping good judges.

Arbitration Arbitration in Poland is governed by the Code of Civil Procedure 1964 (key points listed below). Many of the provisions of the Code of Civil Procedure are similar to those of the UNCITRAL Model Law on International Commercial Arbitration. Conciliation and other forms of the alternative dispute resolution services are rarely used. So far, Polish parties have been slow to use arbitration for their domestic trade disputes but the number of references, especially to the Arbitration Court at National Chamber of Commerce, constantly grow. A new arbitration act based on the UNCITRAL Model Law is in the pipeline. The legislation has been delayed partly because reform of arbitration proceedings is of low political priority. However, when it does finally reach the statute book, the new act is unlikely to be confined to international disputes. Under the present regime, there is a preliminary issue that has to be decided before a dispute can legitimately go to arbitration. Only disputes involving what are called patrimonial rights—that is, property rights including monetary claims and intellectual property rights (but excluding alimony and labour relations disputes)—can be resolved by arbitration. However, the dividing line between patrimonial and non-patrimonial rights is not always clear. Key points in the Code of Civil Procedure 1964 are: • the Code sets out the formal requirements for a valid arbitration agreement; • state courts must decline jurisdiction in a dispute governed by a valid arbitration clause; • arbitrators can be challenged or removed by a state court; • the court has a discretion to allow the challenge to be held in camera; • the parties to an arbitration are jointly and severally liable for an arbitrator’s fees and expenses; • in the absence of any choice by the parties as to the procedure to be adopted by the tribunal, the tribunal may choose its own procedure for the arbitration; • the tribunal is in any event to undertake a thorough examination of the case before it;

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• an arbitral tribunal has no inherent powers to compel the production of witnesses or evidence; • the Code specifies the form in which an award must be made and requires that the reasons for the award are given; • the arbitrators of an ad hoc tribunal held in Poland must, after the award has been served on the parties, deliver all the case records and the original copy of the award to the relevant local court; • the awards of arbitration proceedings conducted by the Polish permanent arbitration institutions are held by the institutions themselves; • the decisions of the arbitral tribunal on fact or law cannot be appealed and the Code gives the decisions the same status as public court judgements; • a court may, in principle, refuse to declare a Polish arbitral award enforceable if it is considered to be contrary to the legal order in the Republic of Poland or the principles of social community life (this public order type provision is rarely relied on now by the courts); • in certain limited circumstances, a domestic arbitral award can be set aside—the parties have one month from the service of the award to start proceedings to set it aside. Enforcement of foreign arbitral awards Poland is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 and to the Geneva European Convention on International Arbitration 1961. Enforcement of a foreign award can only be refused by the Polish courts on limited grounds. Permanent arbitration bodies There are approximately 20 private permanent arbitration tribunals operating in Poland. The best known are the Arbitration Court at the National Chamber of Commerce and the International Court of Arbitration for Marine and Inland Navigation. Arbitration Court at the National Chamber of Commerce The Arbitration Court at the National Chamber of Commerce traces its modern origins back to 1950. It remains the most internationally prominent of the arbitral bodies. The court’s secretariat is based in Warsaw. As well as administering institutional, international and domestic arbitrations, it also offers a conciliation and mediation services. The court operates on the basis of the Rules of the Court of Arbitration being in force from 1 January 2000, applicable to domestic disputes, international disputes and an ad hoc arbitration administered


by the court. The Rules also provide a regulation of the mediation proceedings. The court maintains a list of foreign and Polish arbitrators who are suitable for appointment either to international or to domestic tribunals. Foreign parties are free to nominate arbitrators that are not included on the court’s approved list. However, if the arbitration is to be held in Poland, the individual chosen must meet certain statutory requirements. International Court of Arbitration for Marine and Inland Navigation Based in Gdynia, the International Court of Arbitration for Maritime and Inland Navigation is a product of the split litigation system adopted by the command economies of Eastern Europe. The court was established under an agreement reached in 1959 by the Polish, East German and Czechoslovak chambers of foreign trade. As its name suggests, the court was given exclusive jurisdiction over disputes between the trading entities of the three states arising from any civil law relationship concerned with maritime and inland navigation. In addition, parties of other nationalities were able to submit their shipping disputes to the court’s jurisdiction. Following the withdrawal of the East German chamber’s participation in the court in 1990, the general collapse of CMEA in 1991 and the division of the Czechoslovak state in 1993, the court has seen its caseload shrink significantly. It maintains its full secretariat, though, and receives the occasional reference. Nevertheless, it is likely to be absorbed by its more powerful cousin, the Arbitration Court at the National Chamber of Commerce in Warsaw.

Organization of legal professions In Poland the legal profession comprises judges, state criminal prosecutors and three types of general lawyer, the aforementioned advocates, radca prawny, and notaries public. Judges Judges are appointed by the President of the Republic on the recommendation of the Minister of Justice, who in turn acts on the advice of the National Chamber of Judicature. The National Chamber of Judicature consists of the judges who are representatives of each level of the court structure and the Minister of Justice. Each member has a single vote in the selection of nominees. The President can decline or accept the National Chamber’s candidates but cannot superimpose his own choice. It is reported that, to date, the President has always accepted the National Chamber’s nominations. The National Chamber of Judicature

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also recommends appointments to the Supreme Court. All of the nominees are eminent legal academics as well as senior professional judges. The independence of the judiciary is guaranteed by the constitution and judges may not accept any other office or engage in any activity incompatible with their judicial role. They are also barred from accepting appointment as arbitrators and must even resign their judicial office if, for example, their spouse begins work as an advocate in private practice in the territory of the court where the judge is appointed. Advocates Advocates are Poland’s nearest equivalents to English barristers. However, they do not enjoy the same near-exclusive right of audience before any court. Nor do they rely entirely on work referred to them by other lawyers. As well as representing clients in court, advocates can give clients general legal advice and may draft documents. Advocates are not allowed to advertise their services and can only practise as selfemployed practitioners. They have no legal immunity, either in respect of the advice they give or of their conduct as legal representatives in court. Polish advocates working for foreign law firms in Poland do so on a consultancy basis and local advocates are either sole traders or working in association with others. They jealously guard their self-employed status as a mark of their traditional independence from the state. Polish advocates must have a law degree, undergo a period of apprenticeship and then pass the bar examination in order to qualify for this professional rank. Radca prawny Traditionally radca prawny were the in-house lawyers for state-owned enterprises and foreign trading houses. They now most closely resemble English commercial solicitors. Not only do they give legal advice and represent clients in court (save in criminal or family matters), they also constitute the majority of qualified lawyers working in the Polish offices of the international law firms. They are generally required to be an employee or to be a shareholder in a limited partnership. Only radca prawny who are shareholders in a partnership are able to advise and represent private clients. After acquiring a degree in law, radca prawny must undertake a set period of legal practice experience before being eligible to sit their regulatory body’s professional entrance examination. Their professional conduct will thereafter be regulated by their particular regional professional association, which maintains a list of its members.


Notaries public This is the smallest of the three branches of the profession. It consists of government-licensed notaries who, as well as giving legal advice, are the only lawyers authorized to notarize documents. They may also complete notarized forms and draw up legal documents. They have no legal immunity in respect of their legal work. The fees of notaries are fixed by the Ministry of Justice and notaries have their own professional associations called ‘notarial chambers’ (izba notarialna). Notaries must work as assistant notaries for two years after acquiring their law degrees before they become eligible to take their professional examinations. If successful, and subject to finding appropriate employment, they can be appointed notaries.

ONLINE UPDATES - 5 August 2005 Dispute resolution (Chap. 2.4) Termination of long-term contracts for the sale of electrical capacity and energy The Sejem’s Economic Commission started work on 4 March 2004 on a government bill on the rules for compensating the costs of terminating long-term contracts for the sale of capacity and electrical energy. A number of such contracts, concluded in the years 1994—1998, were entered into between Polskie Sieci Elekroenergetyszne S.A. (PSE) and 18 power and heat and power stations. The proceeds of the contracts were one of the main means of securing bank loans for the modernization of existing power generation sources and the construction of new sources. At present, long-term contracts account for approximately 60 per cent of the electric energy generated in Poland. Under the Bill, the amount of compensation will be determined on the basis of a decision or the President of the Energy Regulatory Office, subject to the right of appeal in the courts. According to the government’s estimates, the total amount of compensation will be approximately PLN15—17 billion.

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The effect of these changes, which the government had planned to complete in the second half of 2004, would be to curtail the position of PSE as the dominant intermediary in wholesaling energy trading. The work on the Bill has been affected by an investigation which the EC has launched aimed at checking whether it is consistent with state aid regulations. There are also said to be compliance issues with the Polish Constitution and international investment protection treaties, as well as EU regulations. CMS Law-Now and the Editor, 5 August 2005

2.5

Property Ownership Steven Shone and Bartosz Kaniasty,1 CMS Cameron McKenna Introduction The real estate market in Poland has developed dramatically since the fall of Communism. The law on property has developed less dramatically. While some changes in the law relating to mortgages have permitted the development of a commercial property lending market, other reforms are still awaited.

Types of title There are three forms of property title that may be registered in Poland: • wlasnosc; • uzytkowanie; and • uzytkowanie wieczyste. Wlasnosc Wlasnosc or ‘ownership’ equates to freehold or fee simple title. Outside the cities, subject to permit issues (see below), it is often possible to acquire freehold land for development. Polish agriculture was never collectivized and most land in the countryside is in private hands. Because the average Polish farm is so small, however, much effort and care is required in assembling sites, especially as Polish law does not provide for land options. Conditional preliminary agreements to purchase are often used as substitutes for options. In the cities, and especially in Warsaw, it is more difficult to acquire freehold sites. Much of the land in cities, and most of the land in Warsaw, was expropriated under decrees passed immediately after 1

The authors acknowledge the assistance received in writing this chapter from Piotr Szafarz in the Real Estate and Construction Department of CMS Cameron McKenna and Arkadiusz Michaliszyn tax adviser in CMS Cameron McKenna.

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World War II. Much of that expropriated land is now vested in the democratic city authorities that were created by the Law on SelfGovernment of 8 March 1990. Deficiencies in the system of funding for local authorities have created a situation in which these authorities are sometimes reluctant to sell land outright. They often prefer either to contribute freeholds to joint venture companies in which they are shareholders, or to grant uzytkowanie wieczyste interests, retaining the freehold reversion. The joint venture approach was attacked by the Local Public Economy Act or Utilities Act of 20 December 1996, which seems to have been intended to prevent local governments from carrying on purely commercial activities. However, it was so poorly drafted that local authorities and their private sector partners have found no difficulty in circumventing it. Uzytkowanie The uzytkowanie or ‘usufruct’ will be familiar to anyone who has conducted real estate business in a Civil Law jurisdiction. Based on a Roman Law concept, it allows the use of a piece of land and the enjoyment of the literal or metaphorical fruits thereof by the usufructee. It is often unlikely to be of interest to commercial investors because it is not assignable. In some circumstances it may be useful to vest such a title in a special-purpose company so that it can, in effect, be transferred by the sale of shares. Usually, it would be easier and safer to buy a freehold or uzytkowanie wieczyste title. Uzytkowanie wieczyste The uzytkowanie wieczyste or ‘right of perpetual usufruct’ (RPU) is a form of title to land that is peculiar to Poland. ‘Perpetual usufruct’ is a perfectly accurate translation of a misleading name. The RPU is neither perpetual nor an usufruct. An RPU is closer to a common law ground lease than to any Civil Law concept. An RPU may only be created in relation to freehold land owned by state or local authorities. Once granted, RPUs can usually be freely traded, depending on their specific provisions. Usually the local authority has a pre-emptive right to recover the land if the usufructee sells while the land is still unimproved. Interestingly, the freehold reversion to the RPU cannot be freely traded. Under the Property Management Act of 1997, a freeholder of land subject to an RPU may sell only to the holder of the perpetual usufruct. Although no one seems to have taken the point, this should really have called into question the policy of many local authorities. By granting such interests in preference to selling a freehold, they have converted valuable tradable assets to non-tradable interests. In a more

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sophisticated democracy, questions would by now have been asked about the prudence of the officials responsible. The agreement creating an RPU should specify the commencement and completion dates of the development works to be carried out on the site, the types of buildings and facilities to be constructed and the maintenance obligations. If these obligations are not satisfied, the RPU may be terminated. RPUs may be granted for terms of from 40 to 99 years in return for an initial capital payment or premium of up to 25 per cent of the undeveloped value of the land. An annual rent is due, usually three per cent of such value. A higher rent may be specified in the deed creating the RPU. In cases where the land is to have certain public uses, the rent may be lower, typically 1 per cent. If an RPU is granted on developed land, then the usufructee should pay the full value of the buildings. Interestingly, the usufructee is the outright owner of buildings on the land. The annual rent can be reviewed not more than once a year. There is a valuation procedure to deal with this. In the last couple of years local authorities and the State Treasury have started to review actively annual rents. Local authorities and the State Treasury have carried out new valuations of the land held in perpetual usufruct which have caused significant increases. Many perpetual usufructees have appealed against their increases. The appeal procedure is quasi judicial. In the first instance an appeal is decided by the Self Governing Committee (SKO), which is an administrative body. The decision of the SKO may be further appealed against to the civil court. In reality, many appeals are settled by agreement between the parties. The law allows for rent review in a situation where there has been a change in the value of the real estate. The holder of RPU is also entitled to apply for an annual rent review. Obviously this right is only valuable to him in situations where the value of his real estate has fallen. However, there is a statutory limitation on the situations where downwards rent review is possible. The Property Management Act of 1997 states (with some exceptions) that the rent may only be reviewed upwards where the RPU price was originally established by a public tender. Downward reviews are therefore only possible in those cases where the price was not established by tender. Some perpetual usufructors are exploiting a provision of 23 of the Ministry of Council Ordinance For Detailed Rules For Valuing Real Estate and Rules And Method of Preparation of Valuation Estimates of 1998. This provides that, where there is no market in comparable freeholds, the freehold value of the site (on which the annual rent is based) shall be deemed to be twice that of the RPU right in the site. As, in the early stages of what is effectively a long leasehold interest, the difference between the value of the lease and the freehold may be slight, this can


result in artificially high valuations. The irony is that, in such markets as Warsaw, the absence of comparable freeholds to value is the consequence of the deliberate policy of the local authorities not to sell them. Developers have often favoured RPU interests over freeholds. Logically, they reasoned that it was better to pay 25 per cent of site value plus 3 per cent per year than to finance the purchase at 100 per cent of value. However, because of the recent escalation in annual rents, attitudes may change. Developers’ approach to this issue may also be affected by the arrival on the market of some German investment funds unable to buy anything other than freeholds. The law gives the usufructee a right to renew the RPU on expiry. If an extension is not granted, the usufructee is entitled to compensation for the value of the buildings reverting to the freeholder. However, the valuation procedures are less than clear. Given that the first RPUs have not yet expired, there are no precedents for what happens in such a situation. Many developments in post-communist Poland have been financed and executed on sites held under RPU title. The title can be registered, a mortgage taken against it and it is (usually) fully transferable. Financial institutions seem to have had little trouble in accepting RPUs, rather than freeholds, as security.

Registration of title Poland has two land registers. The first, the rejestr gruntow (Land Register) contains details of the location, area and designated use of the property (this is similar to the French cadastre. Indeed, there are proposals to make the system more closely resemble that in France, and then to base an ad valorem property tax on that register). The Land Register is maintained by the land-surveying department of the relevant local authority. Plots are mapped on public plans and identified by unique plot numbers. In theory, this is a public service. In practice, however, there are some elements of ‘regulation’. For example, investors from Common Law countries are often shocked by the requirement in some cases for permission to be obtained to divide their land into smaller plots. This seems to them a blatant violation of their rights to deal freely with their own property. Sales of part plots are delayed by this, and it creates problems for developers assembling sites with a view to sub-selling component parts of the project. Such regulations do exist in other Civil Law countries, where the State often takes a more aggressive role in economic life than Anglo-Saxons would find comfortable. However, bureaucratic delays, and the occasional attempt to extort bribes to avoid such delays, seem to be the main consequences of the system.

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The second land register is the Ksiega Wieczysta (Land and Mortgage Register). In this, the owners and mortgagees of land are identified and details of easements, mortgages and other encumbrances are recorded. The plots comprising the land holding in question are identified by reference to the Land Register, whereas the Ksiega Wieczysta itself deals with the legal description of the land and its associated rights and encumbrances. Although the registers are in physical form and are kept in the local Land Register Court, the recent amendment to the Land and Mortgage Book Act 1982 has paved the way for change by enabling the Ksiega Wieczysta to be maintained, not only in the traditional way but also in electronic form. The Minister of Justice has been authorized to draft regulations for the implementation of an electronic system in the Land Register Courts. The date of release for the regulations is currently unknown. This may prove an expensive way to overcome the inconvenient fact that there is no system of official searches of the register, and no ‘protection period’ during which it is ‘frozen’ to allow a purchaser or mortgagee to be entered into it. This means that there is a risk of entries being made between the dates on which the purchaser inspects the register and applies to be entered as the new owner. Electronic registration could reduce, or even eliminate, that risk. A system of ‘searches’ and ‘protection periods’ could do so at a fraction of the cost. In the meantime, this problem continues to be addressed in ingenious ways by Polish lawyers and notaries. These days, closings often involve junior employees of the purchaser’s law firm being stationed in the Land Register Court with mobile telephones to confirm that the registers are unchanged at the time of purchase.

Leases The lease is the key to the creation of a real estate investment. Real estate investors hope to buy an income stream and/or -capital growth, not just bricks and mortar. Yet leases are regarded as lowly and insignificant documents in many Polish law firms and handed to junior people to be negotiated. There are no standard forms in use, save those developed by individual real estate companies or major law firms. Every day, serious errors are made. This is doubly dangerous for the international investor, as the ‘default’ forms of lease provided for by the Civil Code are poorly adapted to the conditions of a modern property market. If not carefully modified to institutional requirements, they fall far short of a ‘triple net’ or ‘FRI’ lease. There are two main types of lease relating to the real estate in Poland, called respectively dzierzawa and najem. Some write these as ‘lease’ and


‘tenancy’ in English, as if this distinction imparted any useful information. It does not, and the Polish names are used throughout this chapter. Lawyers in Poland have been creative in erecting legal superstructures on the foundations of dzierzawa and najem. If this work is done carefully, it is possible to create Polish leases that are institutionally acceptable. The growing presence of foreign institutional investors has accelerated the development of such forms. However, it can still be hard to find investments based upon ‘triple net’ leases. Confusingly, there is also a new type of lease, known as leasing. This was created by statute in 2000 and is regulated by the Civil Code. Leasing is more frequently used for non-real estate assets. It is, however, also possible to use it for real estate. Dzierzawa The dzierzawa is a form of lease capable of being granted for a fixed term of up to 30 years. It was designed mainly for use in agricultural tenancies. Some authorities believe that the maximum term may be extended by including a right to a further term in the initial lease, or by granting ‘serial leases’. These are sometimes called ‘30 plus 30’ leases in Polish real estate circles, and some people think that, as they then give a reasonably long term, they form a useful basis for real estate investment. They do not. Whether or not the ‘30 plus 30’ device works, a dzierzawa is subject to insuperable objections as a basis for a property investment. It creates only contractual rights between the parties, not rights in the property itself. While it may be noted on the register of the superior title, it cannot be registered as a separate property interest, nor can it be mortgaged. It may be possible to assign it, depending on its contractual terms, but the assignment is like that of any other contract. If unmodified, the dzierzawa imposes substantial obligations on the landlord. However, since the najem is the type of lease more often used for occupational tenants, it is more relevant to discuss the possibility of modification to institutional requirements in that context. Najem The najem is a lease designed for occupational users such as tenants of houses, apartments, shops and offices. Again, it is a purely contractual right, not an interest in land. The maximum fixed term for such a lease is 10 years. A najem can only be used safely for the purpose for which it was intended, as an occupational lease. Just as the ‘30 plus 30’ dzierzawa has its supporters, there is a school of opinion in favour of the ‘10 plus 10’ najem. Investors from countries where longer occupational leases are common may favour attempting to extend the life of the leases in their development. This device has

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been quite widely used, and may work, especially if backed up by penalties on the tenant and by guarantees from a substantial parent company in the case of default. However, most occupational leases in Poland have terms of from five to seven years. In the current market, a 10-year lease would be considered quite long. The normal Civil Code provisions relating to a najem are far from the institutional norm of ‘triple net’. If specific provisions to the contrary are not negotiated, the landlord will have substantial obligations in relation to repairs, maintenance and services. There are some mandatory provisions of the Civil Code that cannot be overridden by the wishes of the parties as expressed in the contract. For example, a tenant will always be able to terminate a lease on health and safety grounds. A landlord with ‘Legionnaires’ Disease’ in his air-conditioning system, for example, would find it difficult to prevent a tenant from terminating his lease. In these cases, prudent landlords include provisions in the lease allowing notice periods and ‘cure periods’ sufficient to allow such problems to be rectified. For the most part, however, the qualities of a ‘triple net’ lease can be replicated in a Polish najem. Time, experience, and the failure of landlords to sell their investments to institutions because of their lawyers’ mistakes, are gradually educating the market and the advisers who serve it.

Leasing The term ‘leasing’ has two meanings in Polish practice: tax leasing and leasing under the Civil Code. Although in the majority of cases civil leasing corresponds to tax leasing, there are cases where they differ. For example, the landlord must be the owner of the asset under Civil Code leasing, but not necessarily under tax leasing. As in any other jurisdiction, leasing is basically a form of financing business assets (including real estate). The leasing company plays much more the role of a financial service provider than that of a landlord. This is why leasing contracts are ‘net leases’ with the lessee being responsible for all repairs, maintenance, improvements, fitness of the lease, object for use, supply of services etc. The leasing company is not even responsible for defects in the leased object, unless they result from the leasing company’s acts or omissions. The second advantage of leasing assets is the tax benefits that can be obtained if certain conditions are met. Leasing can be an interesting tool in tax engineering (see section below). Leasing contracts must be concluded for a specified period of time and be in writing. However, unlike najem and dzierzawa, there is no time limit as to the duration of such a contract. The aggregate amount of the leasing fees should correspond to at least the initial value of the asset leased.


Real estate leasing structures are sometimes quite sophisticated as they involve a long-term property risk and sometimes quite a considerable residual value risk (corresponding to the amount of the outstanding principal). Sometimes, double lease structures are applied in order that a new SPV restarts depreciation of the building at a more advantageous rate. Taxation of leasing Leasing now plays an important role in real estate tax planning. Normally the tax deductibility of expenses incurred in purchasing real estate is not very efficient. Buildings may be depreciated over 40 years, and the price of land may only be deducted for tax on its resale. Using a leasing structure (often by way of ‘sale and lease back’) a real estate investor can release the value of his real estate to finance other business and accelerate the tax deductibility of his expenses in acquiring it. From a tax perspective, leasing agreements can be divided into three kinds: • operating leases; • financial leases; and • najem/dzierzawa leases. Operating leases are often the most tax efficient. Under this kind of leasing, the lessor depreciates the building for tax, and the lessee treats the leasing fees as tax deductible costs. Tax benefits come from the fact that some part of the purchase price will be included in the leasing fees. Normally, the lessee would have to depreciate the purchase price as explained above. Under an operating lease agreement, the part of the purchase price ‘hidden’ in the leasing fees will be fully deductible for the lessee. The tax regulations limit the proportion of price which can be ‘hidden’ in the leasing fees. Financial and najem/dzierzawa leases are currently less interesting from a tax point of view. Financial leases have tax implications similar to a sale with payments deferred over time. As a result, although the lessor is the legal owner of the real estate, the lessee depreciates its value. For this reason, finance leasing of real estate is economically only slightly different from a loan. The ‘najem/dzierzawa leasing’s’ tax implications are the same as a regular najem or dzierzawa. The lessor depreciates the real estate and the leasing fees are tax deductible costs of the lessee. It is not possible to transfer any part of the sale price into leasing fees under such leases.

Mortgages A hipoteka (mortgage) is a limited right in property. It must be created by a written agreement in the form of a notarial deed. This must identify

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the property on which it is to be secured and comprise all the essential terms of the loan. A hipoteka must be registered in the Ksiega Wieezyste to be effective. A subsequent purchaser of the land will be bound by a hipoteka as it is a right in property. The hipoteka may be of two different kinds—Hipoteka zwykla (‘simple mortgage’) and hipoteka kaucyjna (‘capped mortgage’). Hipoteka zwykla secures the principal debt together with the interest accruing on such debt pursuant to the agreement. Hipoteka kaucyina provides a cap for the amount secured. The principal debt, accrued interest and other claims may not exceed the capped amount. The position of the mortgagee has considerably improved in the last few years and a hipoteka now confers security comparable to that given by mortgages in many other jurisdictions. The concept of a ‘statutory lien’ securing unpaid taxes and social security contributions which did not need to be registered in the Ksiega Wieczysta has finally been eradicated from Polish law. This was a matter of great concern to lenders in the past. The Polish authorities now have to apply to the Land Register Court for registration of a ‘compulsory mortgage’. A compulsory mortgage is effective against each owner of the real estate and has priority over mortgages established to secure other dues. However, the compulsory mortgage does not have priority over an existing mortgage to secure a bank loan. This confers a privilege on banks over other lenders. Recent changes to the Act on Land and Mortgage Registers and Mortgages of 1982 have reintroduced the concept of a contractual joint mortgage. Creditors can take a mortgage over more than one piece of real estate to secure a single debt. The creditor has discretion to claim for any proportion of the debt due from each or all of the properties. According to some commentators, lenders must take care, as there is a danger that courts might invalidate such mortgages as being ‘overprotective’. This might happen if the properties mortgaged are worth a lot more than the loan. A further problem relates to enforcement of a mortgage security. The Polish courts have little track record in enforcement, but it is generally expected that it will usually be a slow and difficult process. The enforcement of a hipoteka requires an ‘enforcement title’. This may be a court order, arbitration award or a voluntary submission to enforcement executed by the debtor in the form of a notarial deed. Concerns about the time a court would take can therefore be alleviated by using either arbitration provisions or by voluntary submission to enforcement. However, it is understandably difficult to persuade a borrower that he/she must submit to enforcement without the right to challenge it, merely because the tender is concerned about the effectiveness of the Polish courts.


A court is obliged to issue an enforcement order within three working days of due presentation of the enforcement title. The enforcement of a claim secured by a mortgage involves a forced sale of the encumbered property. The proceeds from the sale of such a property are then paid to the claimants according to the priority of their claims. The sale of the property must be announced at least one month in advance in accordance with a statutory procedure. The sale is made by public tender supervised by a judge. A similar procedure is followed during a sale of a property in the case of insolvency, unless a committee of creditors approves a private treaty sale outside the usual procedures. However, the proceeds from such a sale are then transferred to the bankruptcy estate and creditors are paid out according to the priority of their claims.

Permits to acquire land In order for foreigners to acquire a freehold or RPU (or to acquire shares in a company holding a freehold or RPU) in Poland, permission must first be obtained from the Ministry of Internal Affairs and Administration. This ministry will in turn consult with other ministries if the land is considered to be of importance. There are some minor exceptions but these generally have little effect on significant projects or investments. It is important to note the definition of ‘foreigner’ for the purpose of land acquisition. Under the Law on Acquisition of Real Estate by Foreigners a Polish legal person or Polish corporation will also be considered a ‘foreigner’ if it is controlled directly or indirectly by an individual who is not a Polish citizen or is a legal entity with its registered office abroad. Thus the law does not apply only to foreign individuals and corporations. Furthermore, a Polish corporation is deemed to be ‘controlled’ if a foreign person or foreign corporation has a ‘dominant position’ in that corporation. The term ‘dominant position’ is extensively defined in the Code of Commercial Partnerships and Companies of 2000. Significant changes in relation to the necessary permission for acquisition of real estate will take place once Poland becomes a member of the European Union. It has been agreed between Poland and the European Commission that from the date of accession to the European Union there will be no restriction on foreigners intending to acquire land for investments (including leisure areas for tourism), real estate intended for the permanent domicile of EU citizens, or houses for EU citizens who have been living in Poland for four years. Five years after Poland’s accession to the European Union it will cease to be necessary to acquire a permit to buy recreational land. In relation to agricultural land and forests, it has been decided that permission will still be required for the 12 years following Poland’s accession. However, farmers may lease agricultural land or forests for

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at least three years in southern and eastern parts of Poland or seven years in other parts of the country. It is intended that after this period, no additional permission for acquisition of this type of land or forest will be required by those farmers. Permission for acquisition of land by foreigners is generally forthcoming and is not viewed as a particular impediment to property investment. It is usually more in the nature of an administrative hurdle.

Restitution claims Many business people looking to do real estate business in Poland are concerned about potential restitution claims. This is more of a political than a legal issue. Numerous draft laws have been proposed to deal with claims of the former owners of land expropriated by the Communists. To date only a minor piece of legislation returning to the Jewish community land used for synagogues or other community purposes has been passed. Claims for ‘reprivatisation’ (as it is more commonly called in Poland) that have succeeded to date were founded on administrative irregularities in the original expropriation proceedings. The Communist authorities did not always trouble themselves to follow their own rules. There is no current legal basis for the reprivatization of land that was properly expropriated in accordance with the legal procedures in force. All the plausible drafts of a reprivatization law have in common the principle that former owners will generally be compensated in some way, rather than having their ownership restored. In the absence of a law to resolve the situation once and for all, it is quite common for former owners or their descendants to try to capitalize on the situation by approaching developers or investors for money to ‘buy out’ their interests. Often the basis for such claims is very flimsy. This is an issue that needs to be considered and cleared up on a site-by-site basis, but it is rarely an obstacle to investment.

Professional services As of 1 January 1998, when the Property Management Act of 1997 came into force, a new legal framework for real estate professionals (surveyors, agents/brokers and property managers) was established. The law sets a high standard of knowledge, ethics and professional conduct for all those professions. All practitioners must meet the requirements specified in the Act to get a license. Those who act without a licence may be subject to a fine of PLN5,000 (approximately € 1400). A register of licensed practitioners is maintained for each of these professions by the President of the Office of Housing and Urban Development.


For improper conduct or breach of professional standards a practitioner may face disciplinary proceedings which could lead to the revocation of their licence. In addition, surveyors, agents and property managers have to maintain third party liability insurance. Foreigners intending to obtain a licence must also prove their proficiency in the Polish language. It should be noted that, as in many European jurisdictions, estate agents take fees from both seller and purchaser, and from both landlord and tenant. This can lead to misunderstandings when clients come from countries where this does not happen and believe that they are receiving independent advice. Some firms, including most of the wellknown international names, do act only for one side or the other, and do give impartial advice. A prudent client would check on this issue before giving instructions, and buyers or tenants should check what fees, if any, are expected of them before they make any commitment to buy or lease.

The market By comparison with the early days of the post-communist market, there is now a plentiful supply of market data. All the well-known professional names of the real estate industry publish their research, often keeping it up to date and available on the Internet. Outside Warsaw, the office market has still to develop. As the companies that established themselves in the capital city look to open regional centres, and as local Polish companies develop, the demand for such space can be expected to increase. Some attempts have already been made to meet it. Poland is now so amply supplied with retail centres that legislation colloquially known as ‘the anti-hypermarket law’—has been introduced to discourage large-scale developments. An effective, if rather reactionary, lobby of small retailers has developed. Mostly, the existing developments are simple—and often rather ugly—combinations of supermarkets, DIY stores and boutiques. However there are now some developments more worthy of the name ‘shopping centre’, and there are more in the pipeline. Although the economy took a downturn in 2001 and unemployment rose, disposable income for leisure purposes remains surprisingly high. Most Polish people spend less than is typical in Western Europe on their housing. Few consumers have the opportunity or inclination to take on much in the way of debt. Disposable income is therefore often higher than might be expected. Many leisure developments (including the surprising importation of US-style bowling alleys) have sprung up to meet demand. Poland has a young population and this adds to the demand for leisure and entertainment. Most of the world’s major multiplex cinema operators have entered the market, often in retail

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developments. In the current market, some of those operators appear to be struggling. The health and fitness craze has still not caught on, but some developers hope to catch that wave by providing sports clubs and gyms now, before most Poles know that they want them. The warehouse and industrial sectors have also seen some progress and, indeed, one of the very first acquisitions of a Polish development by an institutional investor was a warehousing and industrial park. Much is still lacking in this respect, especially in places other than Warsaw, and these markets remain to be tapped. Poland is an interesting, challenging place for real estate developers, investors and lenders to do business. As in any market, it is vitally important to learn to understand the local business culture and to take advice from those familiar with the country, whether good local partners or good local professionals.

ONLINE UPDATES - 2 August 2005 Property ownership (Chap. 2.5) Acquisition of real estate by foreigners On 18 March 2004 an amendment to the Act on the Acquisition of Real Estate by Foreigners adopted by the Sejem was signed by the President and came into force on 1 May 2004, bringing Polish legislation broadly into conformity with the acquis communautaire. The validity period of the permit to purchase real estate was extended from one year to two years, and the validity period of a promise for the permit from six months to one year. Amendments to the Building Code On 30 May 2004, the amended Building Code, which changed the designated use of building, came into effect. The purpose of the amendments was to remove inconsistencies between the Building Code and the Land Planning and Development Act. The key issue is the actual use of the premises rather than altering the physical structure. A change in the way in which premises are used should be consistent with the zoning plan. Where there is no zoning plan, as is generally the case in Poland, a planning permit must be issued, and the owner of the building should give the required notifications to the relevant starosta. Failure to follow the required procedures may result in an obligation to pay a legislation fee, as well as restoration of the previous planning status of the buildings.

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Abolition of perpetual usufruct In July 2005, legislation was being processed through parliament to simplify property rights and is expected to become law shortly. The new law will abolish perpetual usufruct (the permanent right to use and profit from land without actually ownership) and will automatically convert all existing perpetual usufructs into freehold titles. Upon confirmation of the conversion, the former perpetual usufructee will have to pay a premium to the former owner of the land to be calculated as the difference between the market value of the freehold and of the perpetual usufruct (each to be valued on a case-bycase basis). Any annual payments due on the perpetual usufruct (usually

Part Three Finance, Accountancy and Taxation

3.1

Financial Services Kevin R Smith, AWS Structured Finance Limited

Introduction As with any sector in an emerging economy, the financial services sector has undergone massive change in recent years and this change is far from over. Poland has attracted a considerable amount of interest, not least because it is by far the largest country in Central Europe. With a population of around 40 million, it is four times larger than any of the other leading countries in the region. Investment has been broadly based, but a reasonable amount of inward investment has been made in the financial services sector. Privatization of the banking and insurance sectors is nearing completion and has been very successful in attracting foreign strategic investors. There is a common misconception that the Polish currency (zloty, PLN) is in some form restricted. This is not the case as the zloty has been fully convertible for some years.

Banks The Polish banking sector is one of the most developed in Central Europe and has undoubtedly been helped by the advanced level of privatization. There are over 50 major banks and many more smaller banks, with the majority of the larger banks being either fully or partly owned by foreign banks. Foreign capital amounts to some 75 per cent of the total assets in the Polish domestic banking sector. As in other countries in this region, many of the banks are competing in the same sector and the majority of foreign banks initially focused on foreign companies operating in Poland and the larger local corporates. Competition has been fierce, particularly in the larger corporate sector, and this has resulted in a number of banks now looking at smaller corporates and the retail sector. However, as the market is so much bigger than in neighbouring countries, the consolidation has largely been the result of mergers and acquisitions of the Western

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parent banks on a global or regional scale or by mergers of smaller local banks trying to gain market share and critical mass. As the minimum capital requirements have been increased in recent years, many of the smaller banks have actually been forced to merge in order to survive. Overall, the banking sector is both well developed and sophisticated. It offers the majority of products and services that would be expected in any developed market economy. Telephone banking is widely available and Internet banking is being introduced by many banks. Indeed, some very good services are routinely available in Poland that are not available in the United Kingdom at present. However, the total size of the banking sector, as a proportion of GDP, remains smaller than Poland’s neighbours and, indeed, much smaller than Western Europe. For this reason alone, significant overall growth is still expected over the next few years. One part of the banking sector that has yet to make much progress is the provision of residential mortgages. There is no doubt that this market will become very important in the future, not least because of the size of the population, and it is beginning to expand rapidly, albeit from a very small base. Development has been slow due to factors such as legislation that made it difficult for the lender to repossess the property when necessary and the lack of long-term loans, but these barriers are being removed and the mortgage sector in Poland is expected to see continued future growth. Demand for commercial mortgages is high, being driven primarily by foreign companies investing in factory and office accommodation for their own operations. The foreign banks are the largest providers of commercial mortgages, while it is the Polish banks that lead in the provision of residential loans, although a number of other banks are now trying to increase market share. Poles, like many people in the region, are not as conditioned as Western Europeans to borrowing in order to make purchases, although this sector of the market is now becoming more established. At present, only 10 banks issue credit cards, although this is expected to rise to 18 in due course. While some 7.4 million Visa bank cards are in circulation in Poland, less than 10 per cent of these are actually credit cards, with the remainder being debit cards. Credit cards are already widely accepted for payment and significant growth in their use is expected over the next few years. While most aspects of the banking market are fully catered for, there has recently been rapid expansion in a number of niche areas, most notably the market for home-collected credit. This market was created in Poland by a British company in the last few years but has already grown very rapidly and is expected to continue to do so for the foreseeable future.

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Financing trade and projects Approximately 90 per cent of all trade in the European Union is conducted on an open account basis, although many companies have some form of credit insurance. Trade with Poland has not yet reached this level but already some 75 per cent of trade is conducted on this basis, this being even higher for lower-priced transactions. Over the years there have been many successful projects financed on a non-recourse project finance basis. These have been structured both with and without assistance from the British Export Credit Guarantee Department (ECGD) and other export credit agencies. In recent times, ECGD has changed its policy on financing projects in the region in order to secure more business and this means that projects that were previously unable to obtain cover can now do so. Perhaps the most important change is that in many cases ECGD no longer needs a government guarantee but will accept municipality or large local corporate risk. The trend towards financing major projects by way of partnerships established between central and/or local government and private companies has not been ignored in Poland. There is growing recognition of the impact that Public-Private Partnerships (PPPs) can have in developing infrastructure such as roads, rail, water treatment plants and many other large projects. This type of financing is being considered for a number of current projects. Indeed, the city of Warsaw is widely regarded as being one of the most advanced in its thinking and is actively considering a number of PPP projects. Typically, laws need to change and attitudes and ideas need to become more flexible in order to make these projects happen. However, PPPs offer the most realistic way in which to finance the many projects required and, as this becomes more widely understood, the number of PPP projects in the country will increase dramatically. As Britain and British-based firms are world leaders in this type of finance, the development of this sector in Poland should be regarded as offering many opportunities in the future.

Investment funds Investment funds and providers of private equity have been active in Poland for many years. In very simple terms, the preferred scenario for a fund is to invest between US$1 million and US$5 million in a joint venture company with a local partner and a foreign strategic investor. Clearly, this is an over-simplification and, for the right project, both smaller and much larger funds can be found; in theory, any commercially sound project can attract funds. A number of the locally based funds are effectively subsidiaries of the more global funds or are linked to banks. As the market continues to

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mature and stabilize, the growing demand for this type of funding is being met by the creation of new funds and the expansion of existing ones. The European Bank for Reconstruction and Development (EBRD) fully recognizes the important role that investment funds play in the development of an emerging economy and has co-invested in a number of investment funds in Poland.

Insurance Taken as a whole, the insurance market is underdeveloped when compared with the European Union and the majority of interest from foreign firms has been in the life insurance sector. However, sales of all forms of insurance policies have grown rapidly in recent years and will continue to improve over time, with the life sector leading the way. As with the banking sector, the privatization and opening up of insurance markets to foreign competition has ensured healthy competition and the provision of a wider range of products. There are some 70 insurance companies active in Poland and the majority of these are at least part owned by foreign insurance groups. Indeed, the sector continues to attract foreign competition as there is still major future potential. Despite the growing competition, PZU, which has a market share of more than 50 per cent and is majority state owned, continues to dominate the market. The development of private pensions in Poland has made very good progress in recent years and over 80 per cent of the eligible population have invested in pension funds. While there are over 20 such funds, the market is dominated by the three largest providers. As with every country, there is an urgent need to move away from the provision of pure state systems and the Polish government has readily accepted this imperative. The speed of reform and the rapid development of private pension funds have had a very positive impact on other aspects of the financial services sector; but most specifically the Warsaw Stock Exchange has benefited greatly.

Legal Part Two of this book is dedicated to legal issues, but given the impact of legislation on doing business in the financial services sector a brief outline is appropriate here. The legal sector, or more correctly the law, has perhaps undergone more change than any other sector. Most of the large international law firms are present and many have been instrumental in adapting old legislation and writing new laws. As the Polish economy moves ever closer to a market-driven economy, the need for changes in legislation to allow the economy to expand and foreign companies to invest and

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trade in a safe environment becomes ever greater. The scope and depth of these changes has increased significantly as EU membership beckons. It is true that many of the laws are not directly comparable with UK or EU legislation, but much progress has been made.

Accountancy One of the requirements for any company wishing to raise debt or equity funding, trade finance, or establish any form of partnership with a foreign party has been the need to produce accounts to international accounting standards (IAS). All the large foreign accountancy firms are present and the trend towards international accounts continues to percolate down towards ever-smaller companies. Accountancy and audit issues are addressed in Chapter 3.2.

Stock exchange Not surprisingly, given the relative size of the country, the Polish stock exchange is the largest and most liquid exchange in the region. This is largely due to the privatization process and the flotation of the bigger previously state-owned enterprises and flow of long-term investment from the private pension funds. The situation is enhanced further as the market has been the most successful in the region at attracting foreign portfolio investors. There is a cooperation agreement in place with the London Stock Exchange and five Polish companies are listed in London.

Corporate governance The way in which business is conducted, the transparency of transactions and relationships, minority shareholder rights and general financial management are some of the main concerns behind corporate governance. As with many aspects of the financial services sector in Poland, much has been done but much more still needs to be done. The overall level of corporate governance is, however, considered to be far better than in many of the other countries in the region.

Regulation The banking sector is regulated by the National Bank of Poland, which also has a duty to set interest rates and control inflation. In contrast with a number of other countries in the region, the government has recently increased the level of independence currently enjoyed by the National Bank.

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Regulation and supervision of the various parts of the financial services sector is generally regarded as being relatively good and continues to improve, although it is recognized that the lack of experienced professionals is a limiting factor.

Summary The financial services sector has been totally transformed over the last 10 years and, while mistakes have been made and there is still much to be done, the progress made has been remarkable and past mistakes are now being recognized and rectified. In comparison with some of the other countries in Central Europe, Poland’s financial services sector can be seen as strong, developed and well regulated, in addition to being very open and of considerable interest to foreign competition.

ONLINE UPDATES - 28 July 2005 Financial services (Chap. 3.1) Post-accession legal changes to the Polish finance sector The process of adjusting Polish legislation to the requirements of the EU began in the late 1980s and proceeded through the 1990s and up to formal EU accession on 1 May 2004, at which date new draft amendments to the Banking Law entered into force and the provisions of EC Directive 2000/12/WE were fully introduced into the Polish system. The banking sector During the process of adjustment a two-tier banking system has been developed, consisting of a wide network of commercial banks operating on the basis of market rules on the one hand and, on the other hand, a largely independent central bank with prerogatives of setting and enforcing monetary policy and of supervising and regulating the development of the complete financial sector. Among many amendments to Polish law concerning a wide variety of issues, some of the most significant have been:

S13

• the own equity (both basis and supplementary) of a crediting institution and its components; • the capital adequacy requirement for a bank at a ratio of eight per cent (Polish law demands higher ratios of 15 per cent and 12 per cent during the early months of a bank’s existence; • bank supervision and mandatory consolidation of every institution with shares held by a financial institution; • the granting of ‘large loans’ (ie those exceeding 10 per cent and up to a maximum 25 per cent of a bank’s own capital) provided that the total sum of the loans does not exceed 800 per cent; • the deposit security system, providing guarantee of deposits at a minimum of EUR20,000; • for purposes of money laundering prevention, the identification of individuals engaging in transactions with a value in excess of EUR15,000 (Polish law applies this requirement to much lower sums); • Consumer protection in loan transactions involving a nonprofessional. Changes affecting foreign banks The major post-EU accession change is the manner in which foreign banks can launch their businesses. Since 1 May 2004, foreign banks are free to establish a branch office after merely notifying the Banking Supervisory Commission. The previous discriminatory requirement that all the members of a management board must have a ‘proven knowledge of the Polish language’ has been deleted from the provisions of Banking Law. The capital market The main act regulating the securities market in Poland, the Public Securities Act of 1997, has been amended so that the Polish legal framework for capital markets is consistent with EU law including the Directive on Brokerage Houses. As before, stock broking activity can be carried out only by a licensed brokerage house, but the scope of activities is seriously extended to include advisory services relating to mergers and acquisitions (M&A), underwriting agreements and the offering of securities. In effect, the role of a brokerage house has been made similar to that of an investment bank.

S14

Most detailed changes concern the admission of securities to public trading. The new regulations have introduced the ‘single passport rule’ into Polish law by which securities that have already been admitted, or are subject to an admission procedure in one member state, will be admitted into the Polish market without prior permission from the Polish Securities and Exchange Commission after notification. The insurance market The old, frequently amended Act on Insurance Activity dating from 1990 was replaced by four new insurance acts that came into force on 1 January 2004, as follows: • The Insurance Activity Act; • The Insurance Brokerage Act; • The Act on Compulsory Insurance, the Insurance Guarantee Fund and the Polish Bureau of Motor Insurance; • The Act on Insurance and Pensions Supervision and the Insurance Spokesman. The four Acts bring the Polish insurance market in line with EU requirements and are in compliance with the third generation EC Insurance Directives. However, a range of secondary legislation (about 150 regulations) is being prepared which are necessary to bring Polish law in line with the acquis communautaire. Source: CMS Law-Now and the Editor, 28 July 2005

3.2

Accountancy and Audit Deloitte & Touche

Accounting regulations Due to the most recent amendments and interpretations, Polish accounting standards do not differ significantly from international standards. Furthermore, in cases where there is no national accounting standard, the appropriate International Accounting Standards may be applied. Accounting can be run by the business entity itself (at the company’s registered office), or by another entitled entity providing an external service. In the latter case, the tax office should be informed. All accounting (documentation, records and reports) must be prepared in Polish and maintained in the Polish currency (PLN). Only primary documents need not be translated into Polish. However, at the request of the control authorities or an auditor, a reliable translation of indicated book-keeping vouchers made out in a foreign language should be provided. All primary documents, records and reports for the last five years of activity (including tax returns) must be retained by the company. The approved annual financial statements must be retained permanently. Entities must apply the accounting principles provided for in the Accounting Act to ensure a true and fair presentation of their property and financial position, as well as their financial results. In the application of the accounting rules an entity may adopt certain simplifications, provided that these do not significantly affect the attainment of the above objectives. The manager of an entity is responsible for the fulfilment of duties regarding accounting. The accounting year (which must coincide with the tax year) covers 12 sequential months. If it does not coincide with the calendar year, the proper tax office should be informed. Company financial statements The annual report consists of a balance sheet, profit and loss account, additional information including an introduction to the financial statements, as well as supplementary information and explanations.

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Entities audited in a given year must also include a cash flow statement and a statement of changes in the entity’s own capital. Together with the annual financial statements, the managers of the entity must prepare a report on the entity’s activities containing, in particular, information on major events of significance for the entity, the expected development of the entity, major achievements in the area of R&D, and the entity’s present financial condition and projections. Depending on the number of employees (usually 10 or more) and the performed activity, enterprises may be obliged to prepare the following reports for the regional office of the Central Statistical Office (GUS): • the F-01 report (turnover, costs, profits/losses and investment outlays) for a given period, (1) quarterly (by the 20th after the quarter and by 5 February with the annual date) or (2) biannually; • the SP or F-02 report (turnover, profit and loss account), obligatory for legal persons employing ten or more staff members (by 31 March); • the F-03 report (detailing changes in fixed assets and investment outlays by 10 February). Audit Annual consolidated financial statements and annual financial statements of joint stock companies, banks, insurers and investment and pension funds must be audited. Other companies must be audited if two of the following three conditions were met in the preceding financial year: • average annual employment was equal or exceeded 50 people; • the total of net turnover and financial income exceeded € 5 million; • the value of assets at the end of the accounting year exceeded € 2.5 million. The euro/PLN exchange rate announced by the National Bank of Poland on the last day of the fiscal year is used for the calculation. An audit must be conducted before the financial statements are accepted at the meeting of shareholders and must be performed by an independent entity with a licence to perform audits. All entities obliged to have an annual audit must publish (in the Monitor Polski B) their balance sheet, profit and loss account, statement of changes in the entity’s own capital, and cash flow, together with the auditor’s opinion, discharge granted by the meeting of shareholders and a decision on profit distribution. The manager of an entity must submit to the appropriate court register all the above documents within 15 days from the date on which annual financial statements were approved.

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Insurance regulations Under the Polish law, the following insurance is obligatory: • insurance against Civil Code liability lawsuits (OC) for motor vehicle owners; • insurance against fire and other natural disasters for buildings in agricultural farms; • insurance against Civil Code liability lawsuits for farmers; • other types of insurance prescribed in the valid acts, or based on international agreements ratified by the Republic of Poland. The Commission for Supervision over Insurance and Retirement Pension Funds, the Insurance Guarantee Fund, the Commissioner of the Insured and the Polish Insurance Chamber were introduced to protect the interests of policy holders by monitoring the funding and financial position of insurance funds. The insurance market is monitored by the Commission for Supervision over Insurance and Retirement Pension Funds. The Commission’s main objectives include the protection of consumers and prevention of the occurrence of instances when insurance companies become unable to meet outstanding insurance portfolio claims. The Commission also issues licences to insurance agents and brokers and screens the activities of all branches of existing insurance companies. Social security system Social security insurance in Poland consists of the following kinds of insurance: pension, disability, accident, and sickness. Contributions to the pension and disability insurance are payable until the gross cumulative annual remuneration of the given individual exceeds the cap amount (PLN64,620 in 2002). Contributions to the sickness and accident insurance are paid at all salary levels. The mandatory social security (‘ZUS’) contributions are payable on a monthly basis. The employer’s part amounts to 20.41 per cent of the employee’s gross salary and the employee’s portion is 18.71 per cent. The amounts of contributions payable by an employer and an employee to each kind of insurance are shown in Table 3.2.1 below. Under the current social insurance regulations, the Polish social insurance system consists of three pillars: • Pillar I—each individual or employee has a separate account at the ZUS office, into which pension contributions are paid. An entire or partial contribution to the pension insurance is paid to this account, depending on whether the individual is entitled/obliged to participate in pillar II. Participation in pillar I is mandatory for all individuals covered by social insurance.

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• Pillar II consists of Open Pension Funds. Participation in pillar II is mandatory for individuals born after 21 December 1968 and optional for individuals born between 31 December 1948 and 1 January 1969. Individuals born before 31 December 1948 may only participate in pillar I. A part of the pension contribution of individuals participating in pillar II is transferred from their ZUS accounts to the Open Pension Fund chosen by them. Table 3.2.1 shows a split of pension contributions between the first and second pillar. • Participation in pillar III is voluntary. In this pillar, contributions are paid into life assurance, either by an employee himself or by an employer (employee pension funds), to an investment fund or for extra insurance in a pension fund. Employees born before 1 January 1949 are not subject to the new social security regulations. They remain under the old social security system, where all social security contributions are paid to the ZUS office and their pension benefits are calculated and paid according to the rules applying before 1 January 1999. The Office of Pension Funds Supervision maintains control over pension funds to assure profitability of this type of insurance. Table 3.2.1 Social security contributions paid by the employee and the employer Contribution split Category of insurance % contributed Employer

Employee

Pension

19.52% of the salary including: 12.22% of the salary to Pillar I 7.3% of the salary to Pillar II

9.76% of the salary split into: –Pillar I–9.76% of the salary –Pillar II–no contribution

9.76% of the salary split into: –Pillar I–2.46% of the salary –Pillar II–7.3% of the salary

Disability Accident Sickness

13% of the salary 1.62% of the salary 2.45% of the salary

6.5% 1.62% –

6.5% – 2.45%

2.45% 0.08%

– –

Additional contributions: Labour Fund Employee Benefit Guarantee Fund

2.45% of the salary 0.08% of the salary

Effective from 27 September 2001, foreign nationals working in Poland under an employment contract or personal services contract concluded

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with a Polish entity are subject to mandatory health insurance contributions. The health insurance contribution amounts to 8 per cent of the basis for assessment. The assessment basis for calculation of health social insurance equals the gross remuneration less the amount of social insurance contributions paid or withheld from the individual’s gross remuneration. The contributions to health insurance are deducted from the amount of individual’s tax liability; however, such a deduction cannot exceed 7.75 per cent of the assessment basis described above.

Currency and exchange controls The new Act on Foreign Exchange Law binding as from 1 October 2002 is much more liberal than the previous one. The Act introduces the notion of “third-party countries” defined as foreign countries that do not belong to the European Union, given that the members of the European Economic Area and Organisation for Economic Co-operation and Development are on a par with the European Union member countries. In general, the restrictions instituted by the act apply only to transactions with non-residents originating from third-party countries. Foreign exchange permits issued by the President of the National Bank of Poland are required for the following operations (among others): • establishing or receiving receivables by residents from nonresidents in the currencies other than convertible currencies or the Polish zloty; • running a money exchange office; • loans resultant in obligations if more than half of the obligation becomes payable within a period of less than one year from the day of the loan agreement, providing such loans are granted by or to non-residents from third-party countries; • settlements between residents in foreign currencies; • opening bank accounts by residents in banks or branches of banks seated in third-party countries; • purchasing or selling certain securities or debts by non-residents from/to third-party countries; • purchasing of the following by residents: real estates located in thirdparty countries, shares of companies seated in third-party countries, certain types of securities issued by non-residents from third-party countries and certain debts sold by non-residents form third-party countries. In special circumstances the Council of Ministers may also impose additional, extraordinary restrictions.

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If transfers of sums outside Poland or settlements in Poland with nonresidents are subject to taxation, such transfers/settlements may be executed after a confirmation of paying due taxes is presented. The residents are obliged to make money transfers outside Poland and settlements in Poland with non-residents through banks if the value of those transfers / settlements exceeds EUR 10,000. The residents are also obliged to produce the entitlements on the grounds of which the payments are affected. Each payment of over EUR 10,000 must be supported with the respective evidence and if the permit for the transaction is required it should be also presented to the bank.

ONLINE UPDATES - 28 July 2005 Accountancy and audit (Chap. 3.2) Invoices without signature admitted A draft amendment to the Accounting Act was submitted to the Parliamentary Commission of Finances in September 2004 for consideration, which will allow an invoice without the signature of the issuer to be considered as an accounting document. This change results from the necessity of adjusting accounting regulations to the new VAT Act, which abandoned the obligation to sign invoices. Source: CMS Law-Now and the Editor, 28 July 2005

3.3

Business Taxation Deloitte & Touche Taxes in Poland The taxation system is uniform across the Republic of Poland and only small differences may occur in local taxes. Generally, foreign companies and individuals pay the same taxes as Polish legal or natural persons. The exceptions to this rule apply where taxation is regulated by international treaties concluded by Poland (Agreements on Avoidance of Double Taxation). The main taxes in Poland are: • • • • •

corporate income tax (CIT); personal income tax (PIT); tax on goods and services (VAT); excise tax; and stamp duty/tax on civil law transactions.

All companies intending to operate a business, or undertake business activity, are given a taxpayer identification number (NIP) after registration with the appropriate local tax office. In order to calculate tax, the taxpayers are obliged by law to maintain accounts and calculate tax independently.

Taxation system and ordinance All taxes in Poland are imposed by the Parliament in taxation acts, which establish the rules for imposing taxes, their rates and duties and the responsibilities of taxpayers. The Minister of Finance may be authorized by an act to decree regulations. The Tax Ordinance is the most general tax statute that determines: • • • •

the tax administration structure; general taxation regulations, eg payment deadlines, tax arrears; tax liabilities of third parties; tax information;


• tax proceedings; • fiscal confidentiality. Taxes in Poland are administrated by: • Tax offices—units supervising the collection of taxes on their territories. They also issue individual administrative decisions in taxation cases. Tax control offices also exist, which perform taxation and procedural checks on fiscal accounting. • Tax chambers—supervising the tax offices. They are empowered to review administrative decisions of tax offices and tax control offices. • The Minister of Finance—responsible for Polish budgetary policy and supervising the entire taxation system. Taxpayers may appeal against decisions of the local tax office or tax control office. An appeal against a decision of the tax chamber may be directed to The Supreme Administrative Court. Taxpayers are not formally able to receive advance rulings. The Minister of Finance is entitled to interpret tax law ex officio. At the request of taxpayers, tax offices are obliged to provide written information about the application of the tax law to their individual cases in which tax proceedings or tax audit proceedings have not yet commenced. Such information, however, does not constitute a binding ruling and cannot necessarily be relied upon by the taxpayer.

Corporate income tax (CIT) Companies and organizational units (with the exception of partnerships) pay corporate income tax. Taxpayers that have their registered office or their management board in Poland are liable to CIT on their worldwide income. If a corporate taxpayer does not have its registered office or Management Board in Poland, the tax is levied only on income derived in Poland, unless double taxation avoidance treaties state differently. Companies may apply to establish a ‘fiscal unity’—a group of companies being treated as a single CIT taxpayer, but must first satisfy rather onerous conditions. Taxable income and tax rates The aggregate of all revenues—both financial and operational (with exceptions) net of deductible expenses—in a given tax year constitutes the basis for the calculation of taxation. Tax deductible costs are generally the costs that are borne in order to generate taxable revenue. Some expenditure, however, is not tax deductible (eg certain advertising and representation costs).

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Fixed assets and intangible property may be fully depreciated by taxpayers. Where their value is less than PLN3500, they can be deducted at the time when they are brought into use. Certain assets, such as land and works of art, cannot be depreciated. Income, as calculated in accordance with the tax provisions, was taxed at the rate of 28 per cent in 2001. Over the following years, the tax rate will be decreased, according to the following schedule: • 2002–28 per cent; • 2003–24 per cent; • 2004 going forward 22 per cent. Income generated by a partnership is taxed in the hands of each partner in proportion to the share of the partner in the given partnership. A company may select its tax year-end. Where the company has not selected a tax year-end, the calendar year-end applies. Taxation of dividends Income arising from a share in the ‘gains’ of a legal entity with its registered office in Poland, including income from dividends, is taxed at a fixed rate of 15 per cent. This tax is withheld and remitted by the company paying the dividends. Where a dividend is paid to a legal entity that is a taxpayer with residency in Poland, the tax credit can be offset against corporate income tax of the recipient of the dividend. If the tax credit cannot be used in a tax year, it can be carried forward. When a dividend is paid to a foreign entity, the relevant double taxation treaty may provide a lower rate of withholding tax. From 1 January 2001, utilization of the lower treaty rate is conditional upon presentation of a ‘certificate of residence’ issued by the tax authorities in the beneficiary’s country. A certificate of residence is needed in order to use lower withholding tax rates or tax exemption. Taxation of interest The general rule is that interest on loans constitutes a tax deductible cost for the debtor when paid or capitalized. For a creditor, interest is assessable when it is received or capitalized. Interest paid to a person who has no residence or registered office in Poland is subject to withholding tax at 20 per cent, unless a double taxation treaty fixes a lower tax rate. The person paying the interest withholds and remits the tax. A certificate of residence is needed in order to use lower withholding rates or tax exemption.


Carrying losses forward The CIT regulations allow taxpayers to carry forward losses to subsequent years. It is not possible to carry losses back and offset them against prior year income. The right to carry losses forward is always linked with the legal entity that incurred the losses, rather than with particular assets of the entity. If a legal entity incurred a loss in a tax year that began before 1 January 1999, it might offset the losses against income earned in the following three consecutive tax years. The amount of losses utilized in any given tax year might not exceed one third of the aggregate of total losses. If a legal entity incurred a loss in a tax year beginning after 31 December 1998, the losses may be offset against the income earned in the subsequent five tax years. The amount of losses used in any given tax year may not exceed 50 per cent of the aggregate of total losses. These are some limits within which the taxpayer may decide how to carry forward his losses. Losses cannot be accumulated. This means that there is no possibility of increasing the losses in a given tax year by the losses arising from the previous tax years. Fiscal unity The CIT Act allows for the creation of a ‘fiscal unity’ under which companies in a group are treated as a single taxpayer for corporate income tax. The group is required to consist of at least two companies with legal personality (ie a limited liability or a joint stock company) and there are several restrictive conditions specifying the following: • there must be at least a 95 per cent capital control (excluding employees’ shares and the State Treasury’s reprivatization reserve); • in each tax year, the group maintains the share of income in its revenues at the level of at least 6 per cent; • the average share capital of the companies must be at least PLN1 million. The advantages of creating a fiscal unity are as follows: • the provisions concerning transfer pricing do not apply to transactions between the companies within the group; • gifts between the companies within the unity are deemed to be a tax deductible expense in the books of the donor.

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Thin capitalization The Polish CIT Act contains provisions on thin capitalization and applies a ratio of debt to equity of 3:1. Interest paid on loans in excess of this ratio is not tax deductible. These provisions apply when the loans are granted to a company by: • a shareholder owning at least 25 per cent of the voting shares; • shareholders jointly owning at least 25 per cent of voting shares; • another company, if the same shareholder owns at least 25 per cent voting shares in each of the companies. Transfer pricing Poland has also introduced provisions dealing with transfer pricing. If entities with common shareholding conclude transactions with terms different from market practice, resulting in a Polish entity disclosing less income than it would otherwise disclose, the taxable income of the entity will be adjusted by the proceeds from the non-arm’s length transaction. Moreover, if intangibles or services are the subject of such a transaction and the benefits rationally expected from the transaction are obviously lower than expenses borne, then such expenses are not deductible for tax purposes. Documenting transactions with related parties There are certain notification requirements on taxpayers transacting with foreign related parties. These rules are additional to the transfer pricing rules and apply to all transactions between Polish entities and foreign related parties. The requirements are as follows: • where a taxpayer and a related foreign party engage in transactions exceeding € 300,000 in the tax year, the tax authorities must be informed of the transaction within three months of the year end; • where the foreign party has also a representative office or permanent establishment in Poland, the tax authorities must be informed if the value of transactions exceeds € 5000. From 1 January 2001, a new law on documenting transactions with related parties and with entities with seats in tax havens was introduced. According to this law, the obligation to prepare documentation arises from a transaction (or transactions) concluded between related parties where the total amount arising from the contract or the amount due (and actually paid) in the tax year exceeds:


• € 100,000—if the value of the transaction does not exceed 20 per cent of the share capital determined in compliance with the provisions concerning thin capitalisation; or • € 30,000—in respect of services, sales or use of intangibles; or • € 50,000—in all other cases. The obligation to prepare documentation also relates to transactions concluded with entities with a seat in a tax haven if the total amount arising from the contract or the amount due (and actually paid) in the tax year exceeds € 20,000. The documentation obligation refers to transactions performed after 31 December 2000. Taxpayers must present the documentation within seven days of the tax authorities’ request. If the authorities determine that the taxpayer’s profit is higher (or the loss is lower) than the amount declared by the taxpayer and the taxpayer does not provide the authorities with the documentation required, the difference between the profit declared by the taxpayer and the profit determined by the authorities may be subject to tax at 50 per cent. Branches of foreign companies From 1 January 2000, branches of foreign entities can also be established in Poland. The scope of the activities of these branches is limited to the scope of activity of the foreign entity. Registration in the National Court Register is required to establish a branch. Such branches are subject to the same tax rules as those imposed on limited liability and joint stock companies. Foreign entities can also operate in Poland in the form of representative offices. The scope of activity of representative offices is limited only to representation and advertising.

VAT—rates and regulations Tax on goods and services (VAT) is a broad-based tax levied on the sale of goods and services in Poland. An entity is required to register for VAT once its annual turnover on VAT-able transactions exceeds € 10,000. VAT is imposed on each supply of goods and services at a base or reduced VAT rate, unless the transaction is exempt from VAT. The base VAT rate is 22 per cent and is charged on most goods and services. A reduced VAT rate of 7 per cent is imposed on sales of: • • • •

certain foodstuffs; certain goods used in health care; certain goods for children; construction materials up to 31 December 2003;

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• tourism and air transportation services; • communal services (eg water distribution, street/square maintenance etc); • fertilizers; and • certain newspapers and publications. Some of the reduced (0, 3, 7 and 12 per cent), may be increased in the near future. A 0 per cent VAT rate is levied on the export of goods and services. A reduced 0 per cent VAT rate may be used on some international transportation services, agricultural machinery and some fertilizers etc up to 31 December 2005. The 0 per cent rate allows the seller (exporter or producer) to recover input VAT incurred on related purchases. A 3 per cent VAT rate is used on raw materials produced by the agricultural industry and, up to 31 December 2003, on computer equipment delivered to schools and pre-schools. A 12 per cent rate, up to 31 December 2002, is levied on specific goods for children. Financial and insurance services, cultural services, research and development services etc are VAT exempt, which disallows the taxpayer to recover input VAT incurred in relation to such services. Transactions between VAT taxpayers must be documented with a VAT invoice. Supplies to a natural person (ie not a VAT taxpayer) must be registered by a fiscal cash register if turnover with natural persons exceeds a specific threshold. The tax due to the tax office is calculated as the surplus of output VAT over recoverable input VAT stated on purchase invoices. VAT due must be paid by the 25th day of the month following the month in which the VAT obligation arose. When crossing the border, foreigners (tourists) may apply for reimbursement of certain types of VAT paid in Poland. From July 2001, foreign business entities may apply for a refund of input VAT incurred on purchases in Poland, on a reciprocity basis.

Excise tax Excise tax was introduced, together with VAT, in 1993 and is charged on particular groups of goods imported to Poland and produced domestically. Excise tax is imposed on: • • • • •

cars; engine fuels; alcohol and beverages; tobacco products; yachts and boats;


• hi-tech audio-video (electronic) equipment; • perfumes and colour cosmetics; and • electricity. Generally excise tax is levied on a producer, importer, seller of nontaxed excise goods, entities rendering manufacturing services of excised goods and some other entities explicitly enumerated by the law. It is calculated either as a percentage of the value of goods produced (or the customs duty value of the commodities) or on a quantity basis (constant rate per unit). The Minister of Finance may alter the excise rates within given limits throughout the year.

Withholding taxes Natural persons Income received from financial capital and proprietary rights is subject to personal income tax (PIT). Depending on the source of income, it can be either subject to a 20 per cent lump-sum tax which equals the final tax liability (such income is not aggregated with income from other sources); or it can be taxed according to progressive tax rates. In such a case, a tax advance of 19 per cent, 30 per cent or 40 per cent should be paid during the tax year. The final tax liability would be assessed in the annual tax return. The income could be from: • the sale of shares in a company; • the sale of shares in a joint stock company (purchased offers other than public); • the sale of shares in a joint stock company not quoted on the stock exchange; • interest earned on the assets in bank accounts held in connection with the business activity of the individual. This is subject to personal income tax according to progressive tax rates. However, during the tax year the advance towards personal income tax on income from the above mentioned sources is paid at 19 per cent. The final tax liability is assessed in the annual tax return. Interest earned on the assets in bank accounts, which are not held in connection with the business activity of the individual, is subject to personal income tax at a flat 20 per cent rate. The same rule applies to income from investment funds and mutual funds. Interest on loans is subject to a 20 per cent flat rate tax. Dividends are subject to a 15 per cent flat rate tax as at January 2002. The amendment to the PIT Act introduced a flat 20 per cent tax on personal income from interest and other revenue acquired from assets

Business Taxation

109

deposited on a taxpayer’s account or collected in other forms of saving, storing or investing, run by the entitled entities on the basis of separate provisions, with the exception of money obtained from a taxpayer’s business activities. The following items are exempt from taxation of income from interest: • income from interest paid out to (or left for the disposal of) the taxpayer from the assets gathered until 1 December 2001 on the basis of terminated contracts concluded before that date; • income from interest paid out to (or left for the disposal of) the taxpayer from the assets gathered after 1 December 2001 and before 1 March 2002 on the basis of terminated contracts concluded after 1 December 2001. • income from interest paid out to (or left for the disposal of) the taxpayer from the assets gathered after 1 March 2002, on the basis of terminated contracts concluded after 1 December 2001 is subject to the flat 20 per cent tax. The amended Act also introduced a flat 20 per cent taxation rate of the income of individuals derived from their participation in capital funds. The taxation will not, however, cover the income paid out to a taxpayer under the contracts (or their provisions) concluded before 1 December 2001. The exemption applies to income gained under the contracts concluded after 1 December 2001, but acquired by the taxpayer before 1 March 2002. From 1 March 2002, tax is imposed on the income received by a taxpayer from investing his insurance contribution in a capital fund under an insurance contract complying with the provisions on insurance activity. In such a case, the amount of taxable income is defined as the difference between the payments made to the taxpayer by the fund and the amount of insurance contributions delivered to the insurance company. Interest on Treasury bonds and bonds issued by the municipal authorities, which were acquired by the taxpayer before 1 December 2001 are indefinitely exempt from taxation.

Personal income tax (PIT) An individual generally becomes a tax resident in Poland if he is domiciled in the country. An individual has his usual domicile in Poland when he is present in the country for at least 183 days in a calendar year. Tax residents are taxed on their world-wide income. Individuals temporarily present in Poland for more than 183 days may be taxed as non-residents if employed by a company established with a foreign participation or by a Polish representative office of a foreign enterprise or bank.


A non-resident is an individual who does not reside in Poland for more than 183 days (except as noted above). Non-residents are taxed only on their Polish source income. Remuneration for employment carried out in Poland is considered Polish source income, regardless of where the remuneration is paid. Poland has concluded a number of double tax avoidance treaties with other countries, which permit the avoidance of double taxation of income. The provisions of the tax treaties concluded by Poland are based on the OECD Model Convention. The tax year for individuals is the calendar year. In general, all income and benefits put at the individual’s disposal constitute his or her taxable income. However, certain income reliefs and tax deductions are available, such as: • • • • • •

charitable donations (except for donations to natural persons); membership fees (only professional mandatory membership); contributions to a Polish social security scheme; expenses for rehabilitation; expenses for the taxpayer’s education; expenses for extending and renovating a house or an apartment.

Most of the deductions and reliefs are subject to limits defined by law. The personal income tax rates for 2002 are as follows: Table 3.3.1 Personal income tax rates for 2002 Taxable income

Personal Income Tax

Up to PLN37,024 (US$8,815)

19% minus PLN518.16 (US$117)

PLN37,024—PLN74,048 (US$8,815—US$17,630

PLN6,516.40+30% over PLN37,024 (US$1,557+30% over US$8,815)

Over PLN74,048 (US$17,630)

PLN 17,623.60+40% over PLN74,048 (US$4,201+40% over US$17,630)

The following items are subject to a flat rate of tax: • interest—20 per cent; • dividend—15 per cent; • proceeds from the sale of real estate (if sold within five years of acquisition)—10 per cent; • Polish source income derived by non-residents from independent artistic, literary, scientific, educational and journalistic activities, copyright and inventions—20 per cent.

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111

Tax is generally due on a monthly basis. Polish employers are obliged to calculate, withhold and pay to the tax office the tax due on their employees’ remuneration. Individuals who receive income from abroad or who perform independent services are personally responsible for disclosing the income on a monthly basis and for the payments of taxes. At the end of the tax year, each taxpayer is obliged to file an annual tax return disclosing his aggregated annual income. The deadline for filing and payment of the annual tax liability is 30 April of the following year. A taxpayer may file jointly with his/her spouse if the following conditions are met: • spouses must remain married throughout the entire tax year concerned; and • both individuals must have ‘unlimited tax liability’ in Poland for the tax year concerned.

Double taxation avoidance treaties The personal income tax and corporate income tax regulations provide that the credit method is used to avoid double taxation, unless double taxation treaties specify otherwise. Poland has signed double taxation avoidance treaties with over 70 countries. Most of the treaties signed by Poland are based on the 1977 OECD Model Convention, however, some exceptions in several treaties occur.

Local taxes and charges Local taxes include: • • • • • •

real estate tax; transportation tax (imposed only on lorries and trucks); inheritance and donations tax; agricultural tax; forestry tax; and dog ownership tax.

Local communities are entitled to establish rates for certain taxes. However, these cannot exceed the upper limits set by the Parliament or decrees of the Minister of Finance.

Stamp duty Stamp duty is payable on certain transactions, including the following: • official applications; • official acts;


• certificates; • permits; • other documents, eg confirmations of authorization issued, bills of exchange.

Tax on civil law transactions The following acts are subject to tax on civil law transactions: • sale agreements and agreement on the exchange of objects and property rights; • loan agreements; • agreements for surety; • donation agreements—in the part concerning the acquisition by the recipient of debts and encumbrances or obligations of the donor; • annuity agreements and agreements for the establishment of pensions in return for consideration; • inheritance division agreements and agreements for co-ownership dissolution—in the parts concerning repayments or additional payments, • spouses’ property agreements; • mortgage institution; • institution of usufruct for consideration, including improper usufruct and servitude for consideration; • improper deposit agreements; • company deeds (articles of association). Generally, the tax obligation arises when the transaction takes place. The tax rates are as follows: • on sale agreements: a) real estate, immovable property—2 per cent; b) other property rights—1 per cent; • on loan agreements—2 per cent; • on surety agreements—PLN7; • on mortgage institution: a) to secure the existing liabilities—0.1 per cent of the amount of the secured liability; b) to secure a liability with an unfixed amount—PLN19; • on company deeds: a) on the value of the contributions to the capital of the company, its registered capital; b) on the increase in the value of the contributions made to the capital of the company or its registered capital;

Business Taxation

113

c) on loans and additional payments, the aggregate value of which amounts to: Up to PLN20,000

1%

From PLN20,000 to PLN30,000

PLN200+0.5% of surplus over PLN20,000

Over PLN30,000

PLN250+0.1% of surplus over PLN30,000

d) On usufruct of objects or property rights vested in the company without consideration—1 per cent. The taxpayer is obliged to calculate and pay the tax within 14 days from the day when the tax obligation arises. The tax remitters are: • notaries—on civil law transactions effected in the form of a notary deed; • purchasers of objects—on sale agreements, if the purchaser buys the objects for the purpose of processing or resale. Together with the payment, the taxpayer is obliged to submit a tax declaration (PCC-1). All parties involved in the transaction must sign the declaration. Therefore, it is advisable to proceed with the signatures at the time when the transaction takes place.

ONLINE UPDATES - 27 July 2005 Business taxation (Chap. 3.3) Harmonization of tax rates Published in mid-March 2005, the government’s ‘Strategy for Public Finances 2005—2008’ focuses on expansion of the tax base in parallel with additional annual public spending cuts equivalent to 0.6 per cent of GDP until 2008. Tax rates are to be harmonized to a comprehensive flat tax rate, as in the Slovakia model, by 2008, although the Polish flat rate is to be 18 per cent (compared with 19 per cent in Slovakia). Whatever the outcome of the election this year, it seems certain that the country is moving towards a flat-tax system, with the likely future governing party in the next coalition, the Citizens’ Platform (PO) advocating a ‘three times 15 per cent tax system’, with VAT, income and corporation tax rates set at a uniform 15 per cent. The final tax rates and their timing will, of course, only be determined after the election on 26 September 2005.

S15

April 2005, Bank Austria Creditanstalt CEE Report 2–2005 and the Editor Thin capitalization rules In an amendment to the Corporate income Tax Law, introduced on 1 January 2005, the scope of the thin capitalization rules (proportion of loan interests deductible from borrower’s revenue) is extended to include loans granted by Polish companies to their Polish related parties, not just the loans from foreign entities as previously. The change in Polish legislation follows a judgment issued by the European Court of Justice. Taxation of dividends As foreshadowed on 9 September 2003 and in compliance with EC Directive 90/435/EEC, the Polish Parliament has increased the basic rate on the withholding tax of dividends from 15 per cent to 19 per cent. At the same time, the amendment provides that dividends received by dominant companies holding shares in companies seated in Poland are exempt from taxation. The exemption applies only to dominant companies from European Union countries that do not have a registered office or management board in Poland. A dominant company is defined as a company holding at least 25 per cent of the shares in a dependent company, for at least two years. The tax deduction of salaries and related costs As of 1 January 2005, the cost recognition rules applied to salaries and related expenses are changed, in as much as the tax deduction of salaries and social security contributions covered by the employer are deferred until their actual payment to employees or for the benefit of the social security collection office. Previously, salaries and social security contributions were recognized as tax deductible when work was done, irrespective of when they were actually paid. The same exclusion from tax deduction until actual payment also applies to the Labour Fund and the Fund of Guaranteed Employees’ Benefits. VAT On 16 December 2004, the Sejm (Parliament) passed an amendment to the VAT Act, which changed the place of supply of energy and gas with effect from 1 February 2005. Another major amendment of the VAT Act that remained subject to the legislation process would change among other things: the definition of the taxpayer, rules of taxation of supply of goods from the input VAT deduction rules for the acquisition of personal cars while introducing bad debt relief.

S16

An amendment to the scope of excise duty is also foreshadowed– the exclusion of personal cars from the scope of excise duty to be offset by the introduction of new car tax. The level of the new tax would be determined by engine capacity as well as the level of pollution emission evaluate on a year of production basis. Proposals were also made to reform the VAT system by lowering the basic VAT rate to 18, 19 or 20 per cent at the cost of limiting the catalogue of goods that would be subject to the seven, eight or 10 per cent VAT rate, and limiting lower VAT rates (three and seven per cent) exclusively to food. However, the government decided not to adopt these ideas. Bad debt relief In September 2004 the Finance Subcommittee of the Sejm considered the introduction of bad debt relief, ie the option to reduce output tax if the recipient fails to pay for the supply. However, the draft provided for a number of criteria that restrict the possibility of taking advantage of the relief, eg the buyer’s obligation to adjust the recovery of input VAT resulting from a transaction that could be a major hindrance to the practical application of the relief. Cancellation of invoices In a ruling of 7 June 2004, the Administrative Court (WSA) confirmed that a VAT invoice may be cancelled if it has not been introduced into legal turnover, for example by delivering it to a business partner (No.III S.A. 238/02). VAT on land transfers Under the VAT Law (in force since 1 May 2004), the transfer of land is subject to VAT. The transfer of perpetual usufruct is treated as the provision of a service and is therefore not subject to VAT as well. However, VAT is not applicable to undeveloped plots of land, other than ‘construction plots’ and ‘plots zoned for construction purposes’. Unfortunately, there is no clear definition as yet of either category and it may take time before consistent practice is established. If the transfer of land is exempt from VAT, it will be subject to stamp duty of two per cent. Healthcare services From 1 January 2004 the tax position of employers who pay medical insurance to provide healthcare services to their employees changed significantly. In the majority of cases, payments to medical institutions to provide healthcare services are no longer tax deductible for the employer. An exception is made for mandatory services required under the Polish Labour Code, such as medical checks of employees.

S17

Payments for medical health insurance rather than buying the product directly from the medical health providers would be tax deductible for the employer, but the insurance would be seen as income for personal income tax purposes for the employee. Fuel tax The Act of 14 November 2003 amended the Act on toll motorways and other Acts by introducing a fuel tax amounting to PLN105 per tonne of engine fuel (including LPG), and is paid by producers and importers of fuels. Proceeds of the tax go to the National Road Fund created in the National Economic Bank, which is aimed at gathering finance for the purchase of real estate for road construction purposes and the construction and operation of motorways and other national roads. The Polish-German tax treaty On 14 May 2003, the governments of Poland and Germany signed a new double tax treaty consistent with the OECD model. The main changes were: • taxes and amounts due under licences may be taxed in the country where the beneficiary is based, but the tax rate may not exceed five per cent. (Exceptions to the rules include the tax-free status of interest on account of a bank loan); • tax on profits from the sale of shares in companies may now be taxed in the country where the company whose shares are being sold is based, provided that its assets mainly comprise of real estate. Source: Deloitte Touche Tohmatsu CMS Law-Now and the Editor, 28 July 2005

3.4

Foreign Trade Regulations Deloitte & Touche

Import licensing requirements All economic entities active in Poland (including foreign companies) have equal access to international trade. Licences and permits for trade in goods that require such permits or licences are issued by the Minister of the Economy or by the Council of Ministers. A licence is required for trade in: • certain explosive and inflammable materials; • certain types of weapons and ammunition, as well as parts thereof or accessories thereto; • certain types of wines as well as other fermented or alcoholic beverages; • certain alcohol concentrates and other alcohol products used in the production of alcohol and beverages; • cigars and cigarettes; • petroleum, diesel engine fuels and other driving oils (with some exceptions, such as natural gas); • technologies, goods and services strategic in respect of national security. Permits are required for the import of: • the above mentioned goods; • goods, the exports and imports of which are quantitatively and temporarily restricted or restricted on the basis of value of the trade volume. The law on foreign trade administration introduces various quotas and trade limitations regarding list of goods as determined by the Minister of Economy.

Foreign Trade Regulations

115

Import quotas and tariffs Customs tariffs are determined by the conventional (for WTO countries), autonomous (non-WTO countries), preferential (developing countries), reduced (based on bilateral agreements such as CEFTA or EFTA) or lump-sum (gifts etc) customs duties. They are applied to specific countries depending on the origin of the product, eg preferential customs duties would apply to goods originating from a developing country or less developed region. The most important customs duties are included in the reduced customs duties group, since they are applicable to the EU and EFTA countries, as well as to CEFTA countries and Estonia, Lithuania, Latvia, Israel, Faeroe Islands and Turkey. In the case of goods originating in these countries, the customs duty is generally 0.

Customs and duties The following customs procedures are available in Poland: • • • • • • • •

free circulation procedure (final customs clearance); transit; inward processing; outward processing; temporary clearance; customs-controlled processing; customs bonded warehousing; and exports.

Inward and outward processing, temporary clearance, customs-controlled processing and customs bonded warehousing are all ‘economic customs procedures’ and in order to take advantage of them it is necessary to have a customs authority permit. An importer does not need to pay customs duty and VAT, but must deliver a guarantee to the customs office. Free circulation procedure This is granted after fulfilment of all the conditions of the customs law, in particular the provisions of payment of transportation customs duties and granting a foreign product the customs status of a domestic product. Transit This allows for the transportation of non-domestic goods from one customs point to another within Poland, provided that the destination is outside the jurisdiction of the Polish customs office. The maximum transit


period is 14 days. A security equivalent to the amount of the customs duties that would be due (and possibly other charges) is required on transit shipments. In some cases, it is possible to waive those provisions. Customs bonded warehousing This allows companies to store the following goods in a public or private customs warehouse: • non-domestic goods which at the time are not subject to any customs duties or any special restrictions or prohibitions; • domestic goods which have been cleared for export. There is usually no time limit on the warehousing; however, in some cases the customs office may limit the time or revoke the permit to stock the goods. Inward processing This allows for the performance of one or more value-adding processes in the Polish customs area with respect to: • non-domestic goods destined for markets outside the Polish customs area in the form of compensation products, without charging customs duties on those products or applying measures of the Polish trade policy; • goods admitted to economic exchange with reimbursement or cancellation of customs duties for those goods, if they depart from the Polish customs territory in the form of compensation products. Inward processing is: • processing of goods, including assembly or installation in other goods; • renovation of goods, including restoration and segregation; • utilization of some goods not being part of the compensation products but enabling or facilitating their production, if those goods are fully or partially used in the process, excluding tools, equipment and furnishings. Customs-controlled processing This allows for the use of non-domestic products in the Polish customs area in processes altering their form or substance, without applying customs duties or measures of the Polish trade policy. It enables the free circulation of products resulting from those processes, applying the then proper customs duty charges for incoming goods.

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117

A permit for customs-controlled processing can be issued to domestic entities when the following conditions are met: • it is possible to confirm that the incoming goods will form a part of the final processed goods; • the incoming goods, after being used in the processing procedures, could not be returned to their previous state without incurring substantial costs; • application of this procedure will not constitute a circumvention of regulations regarding the origin of goods or quantitative restrictions applicable to the end products being admitted to economic exchange. Temporary customs clearance This allows a complete or partial exemption from customs duty charges in respect of non-domestic goods to be used in Poland, provided no changes are made to the goods, with the exception of regular wear resulting from the use of those goods. The customs office designates a date (not later than two years), after which the goods should leave Poland or receive a new customs status. This period can be extended. The ATA carnet can be used for import/export of some goods, i.e. promotional goods, goods destined for exhibitions, etc. Outward processing This allows for partial or complete exemption of customs duty charges in respect of goods exported temporally, to be subject to a process which will increase their value, and then returned for sale in Poland. These permits would only be issued to domestic entities if it can be proved that the goods sent outside Poland will form part of the final products imported to Poland. The procedure of outward processing cannot be applied to goods: • the departure of which would entail reimbursement or cancellation of customs duties already levied; • which before their departure were admitted to free circulation with total exemption from customs duties because of their destined use (this remains in force as long as regulations granting such exemptions remain in force). Exporting from Poland The procedure of export enables Polish goods to leave the Polish customs area. Admission for export can be effected after satisfying all the requirements of the customs law, including the measures of trade policy, as well as the regulations regarding departure customs duties payable.


Each domestic good intended for export should be subject to this procedure, with the exception of goods that are subject to outward processing procedures. Applications for export procedures should be filed with the customs office appropriate to the registered office of a company, the place of residence of an individual, or the place were the products were loaded or packed. The relevant customs official will determine the basis for calculating the customs duty. Polish customs offices use EURO 1 as the certificate of the product’s origin and any information about the exported/ imported commodity is to be entered into the document called SAD.

3.5

Investment Incentives in Poland Deloitte & Touche Foreign investment policy Foreign companies with foreign shareholdings run their business in general on the same principle as Polish firms. A rule of equal treatment of all the entities applies. However, strategic investors may obtain real estate tax exemption or reduction, as well as additional local incentives. All these exemptions would need to be negotiated with the local authorities.

Special Economic Zones (SEZ) Special Economic Zones (SEZ) are separate administrative areas designated for conducting business activity on favourable terms. The zones are not ex-territorial by nature, nor are they physically separated, but they enjoy special tax reliefs and are furnished with the infrastructure necessary to start a business. They are usually located in territories with high unemployment and for this reason companies willing to invest there are granted various tax deductions and allowances. Entities wanting to exercise the incentives have to obtain special permission. The managing authorities of SEZ issue the permit, based on the result of a tender for doing business in the Zone. The most important incentives for investors in the SEZ are as follows: • Large enterprises can obtain regional aid (public subsidy) of 50 per cent of the investment value (except for the Technology Park in Krakow, where the threshold is set at 40 per cent). The subsidy is fulfilled by means of an exemption from corporate income tax (CIT) or personal income tax (PIT). • Medium-sized and small enterprises can obtain regional aid (public subsidy) of up to 65 per cent of the investment value (except for the Technology Park in Kraków, where the threshold is set at 55 per cent). The subsidy is fulfilled by means of an exemption from corporate income tax (CIT) or personal income tax (PIT).


• Enterprises can obtain a public subsidy of up to 50 per cent of the value of two-years’ labour costs for new employees taken on for the purpose of the investment; new workplaces must be maintained for at least five years. • Enterprises can take advantage of either type of public subsidy (or a mix of these), but the total value of the subsidy cannot exceed 50 per cent of the investment (for large investors) and 65 per cent (for medium-sized and small enterprises). Apart from the above incentives, companies investing in the SEZ are often granted exemptions from real estate tax by local authorities. Local Employment Offices offer a wide range of labour force programmes and special training schemes for the unemployed that are financed by the Labour Fund. Investors can also count on free assistance with all formalities related to the intended investment. In order to take advantage of these favourable terms, the investment should be of at least € 100,000 and should last for at least five years. Entrepreneurs doing business within the SEZ are obliged to inform the Office for the Protection of Competition and Consumer Interest about the subsidy received. Poland has 14 SEZ (including one Technology Park), each of which is composed of several sub-zones, thus giving a prospective investor a choice of several possible locations. See Table 3.5.1 below. The nature of Special Economic Zones in Poland may change in the future due to Poland’s accession to the European Union (EU). The SEZ rules will need to comply with the EU’s regional policy, which allows for the financing of even 50 per cent of the investment in regions where the level of development is less than 60 per cent of the average in EU. For the time being, all zones meet this requirement, so the future of SEZ seems to be secure.

Duty-free zones Duty-free zones are separated parts of a Polish customs area in which products are treated as beyond the customs area. Both foreign and domestic goods may be introduced into duty-free zones. Polish and foreign entities are permitted to run businesses in these territories. There are several duty-free zones in Poland, which are mainly situated on the main communication routes (such as airports and border-crossings): Warsaw International Airport—Okecie (duty-free shops), Gdansk International Airport (duty-free shops), Katowice International Airport (duty-free shops), Gdansk, Szczecin, Swinoujécie, Gliwice, Malaszewicze (close to Terespol border-crossing) and Premyél-Medyka.

Investment Incentives in Poland 121

Bonded warehouses A bonded warehouse is a storage facility for goods which, during the storage period, are not subject to either customs duty or to the regulations applied to imported or exported wares. The bonded warehouse can be open to the general public or a private entity (with a limitation to the authorized entities). The following requirements are necessary to apply for a bonded warehouse: • written application submitted to the President of the Central Customs Office; • registered office or residence in Poland; • being a VAT taxpayer; • no arrears in customs duty or taxes; • a positive opinion on the corporate financial standing from the company’s bank.

Table 3.5.1 Special Economic Zones in Poland Zone

Active until year

Maximum tax exemption of total value of investment (%)*

Total area

Internet page

SEZ ‘Euro-Park’ Mielec

2015

50 (65)

749 ha

ww.europark.com.pl

Katowicka SEZ

2016

50 (65)

1017 ha www.ksse.com.pl

Suwalska SEZ

2017

50 (65)

268 ha

www.ssse.com.pl

Legnicka SEZ

2017

50 (65)

381 ha

www.cuprum.com.pl/strefa

Wa³brzyska SEZ

2017

50 (65)

473 ha

www.invest-park.com.pl

£ódzkie SEZ

2017

50 (65)

283 ha

www.sse.lodz.pl

Kamiennogórska SEZ

2017

50 (65)

251 ha

www.ssemp.pl

Kostrzyñsko-S³ubicka SEZ

2017

50 (65)

462 ha

www.zone.shaco.pl

S³upska SEZ

2017

50 (65)

167 ha

www.parr.slupsk.pl

SEZ ‘Starachowice’

2017

50 (65)

303 ha

www.sse.com.pl

Tarnobrzeska SEZ

2017

50 (65)

702 ha

www.tsse.pl

Warmiñsko-Mazurska SEZ

2017

50 (65)

371 ha

www.wmsse.com.pl

Pomorska SEZ

2017

50 (65)

349 ha

www.sse.gd.pl

Business (Technology) Park (Krakow)

2017

40 (55)

122 ha

www.kbp.pl

* Numbers in brackets are for small and medium-sized companies


Loss carry forward rules The CIT regulations allow taxpayers (entities) to carry forward losses to subsequent years. But it is not possible to carry losses back and offset them against the prior year income. The right to carry forward losses is always linked with the legal entity that incurred the losses rather than with any particular assets of the entity. If a legal entity incurred a loss, this can be offset against the income earned in the subsequent five tax years. The amount to be claimed cannot exceed 50 per cent of loss in any given year. These are the limits within which the taxpayer may decide how to carry losses forward. However, losses cannot be accumulated, which basically means that there is no possibility to increase the losses in the given tax year by the losses arising from previous tax years.

Grants for creating new jobs and for employing the disabled Entrepreneurs providing new jobs may obtain support from the central and local authorities for creating new employment opportunities. Special grants are also offered for employment of unemployed disabled. An entrepreneur creating new jobs and training employees may obtain: • the reimbursement of up to 50 per cent of employee training costs; • the reimbursement of social security contributions up to the level of three times the minimum remuneration; • loans for employers to create new jobs; • the reimbursement of costs incurred when employing graduates (remuneration, awards, social security contributions) up to 12 months, or 18 months if the reimbursement applies to alternate months; • the reimbursement of costs incurred when employing unemployed persons (for a maximum of 12 months). An entrepreneur employing the unemployed disabled may obtain: • the reimbursement of social security contributions (pension, disability pension, health and accident contributions); • the reimbursement of costs incurred when employing unemployed disabled persons (equivalent of an 18-month compensation); • financing the creation or adjustment of the workplace for disabled persons. Applications for the above privileges should be submitted at the local administrative bodies appropriate to the residency of the employer.

Investment Incentives in Poland 123

Other subsidies and incentives The State seeks to assist companies in Poland manufacturing for the local and export market. The assistance is focused on the support of new investments and creation of new jobs from them. In some cases the assistance can be obtained if certain investment time and capacity restrictions are met. The following subsidies and incentives have also been introduced to attract foreign investors: • contributions in-kind from abroad (made by a foreign investor to a company operating in Poland) are exempt from duty. Generally, import VAT paid (payable within 7 days from the moment of crossing the border) may be deducted; • reductions in depreciation rates; The main depreciation rates and their groups of goods are: – 1.5 per cent for buildings and apartments; – 10 per cent for technical appliances; – 14 per cent for metal working machines, plastic, chemical and food industry etc.; – 20 per cent for motor vehicles; – 30 per cent for computer hardware. Brand new machines can be depreciated at the rate of 30 per cent in the first tax year in which they were entered into the records. • the possibility of decreasing the property tax rate; sometimes a total exemption is possible; • the possibility of decreasing the motor vehicle tax rate; sometimes a total exemption is possible; • subsidies to interest rates for the credits taken for: – farming purposes; – purchase and storage of sea fish stock; – financing export contracts. • subsidies/credits for scientific/research work; • subsidies, credit guarantees, preference credits for innovative entrepreneurs introducing new products, processes or technologies; • bank credit guarantees for investment credits and for the purchase of materials used in the production; • the reimbursement of commuting and accommodation costs for persons who have been employed or received training outside their place of residence, in regions with particularly high structural unemployment (for no more than 12 months).

Part Four

Key Sectors of Trade and Investment

4.1

The Polish Metallurgy Sector Bohdan Bary§ ko, Jacek Frá czyk, Euromoney Polska SA/Internet Securities

Iron and steel sector Once a flagship industry, the Polish steel sector is facing serious problems that might lead to bankruptcy of several steel mills if they are not helped by quick restructuring and privatization. The impression of a dismal state of the sector is reinforced by response of the trade unions in the steel sector to the government’s plans. The unionists have threatened large-scale demonstrations, strikes and road blockades in defence of the jobs that need to be slashed. Employment in the sector dropped from 147,000 in 1990 to 38,000 by the end of 2000, and by 2003 a further 8000 jobs are to be cut. At the end of July, a group of workers went on a hunger strike at the Katowice-based mill Huta Baildon, following the May decision to close the mill, although it is one of the best and most modern plants in the sector. The steel industry suffered heavy losses in H1/01 with steel prices going down on international markets, lower demand and high inventories. Since H1/00, the net loss of all Polish steel mills tripled to PLN676 million (US$160.9 million) and revenues fell 10 per cent to PLN7.5 billion (US$1.77 billion). The overall industry’s debt amounted to PLN9.5 billion (US$2.3 billion). In H1/01, the steel mills produced 4.6 million tonnes of steel, which was 14.1 per cent less than in the same period of 2000. These figures allowed the Steel Industry Chamber of Industry and Commerce (HIPH) to forecast the whole year’s raw steel output at 9.6– 9.8 million tonnes, as compared to the 10.5 million tonnes produced in 2000. In H1/01, 1.9 million tonnes of steel was exported, which means a 7.3 per cent y/y decrease. See Table 4.1.1 below.


Table 4.1.1 The iron and steel sector’s financial results (PLN million) H1.00

H1.01

Revenues from sales

8385

7505

Gross financial result

-192

-553

Net financial result

-230

-676

Liabilities

9895

9500

Dues

3146

2280

140

112

Investment outlays Source: HIPH

World production of steel amounted to 846 million tonnes in 2000, with nearly 200 million tonnes of overproduction, including 40 million tonnes in the European Union. Overproduction in the CIS countries and the Czech Republic amounted to 96 million tonnes. In this situation the Polish mills were losing their markets, even the ones that so far had been considered stable, eg markets of long products. Since last year, inventories have increased by 11 per cent and in some kinds of products even over 30 per cent. Moreover, the mills have been facing increasing import of steel products. The share of imported steel products increased to 40 per cent of the domestic consumption. Imports fell by 29.8 per cent y/y in H1/01, while at the same time exports decreased by 7.3 per cent. The deficit in foreign trade in steel products amounted to US$400 million. The Ministry of Economy recently said it would speed up the sector’s restructuring process, which envisages creating the steel holding company Polskie Huty Stali (PHS). This is to combine the steel mills Huta Katowice (HK), Huta Sendzimira HTS), Huta Florian, and Huta Cedler, accounting for 60 per cent of the country’s total steel production and for about a half of the sector’s debt. The steel giant’s annual sales would be worth PLN8 billion (US$4 billion). The bill on the steel and iron industry, which facilitates the creation of PHS was passed by the Sejm in July. The Senate introduced a few amendments to the bill, including a provision that financial restructuring will cover debts incurred until the end of the last quarter before the enactment of the law. The Sejm version of the law covered only debts incurred before the end of last year. The holding is to be created in September, instead of two or three months later as planned before. However, the programme has been already delayed, as it had been planned that the sell-off of the four mills would go through in Q2. The merger itself is to be done through share acquisition, but the Ministry of Economy has not revealed details of this plan yet. The earlier plan to group smaller steel mills with larger ones according to

The Polish Metallurgy Sector 129

their specific sub-sectors has been abandoned. The restructuring processes are to be aided with PLN600 million bonds issued by the Industry Development Agency (ARP) at the beginning of next year. PHS will take over only those assets that are directly connected with production. Redundant property not connected with steel production will be separated before consolidation. Any property impossible to separate will be transferred after consolidation for separate management and then redirected from PHS. The redundant property will be managed by the financial group Towarzystwo Finansowe Silesia (TF Silesia), established at the end of last year by ARP to assist in providing current financing for HK. Over half of the sector’ s PLN1.2 billion (US$) debt will be written off or deferred. Up to PLN300 million of interest owing will be written off, while repayment of a further PLN400 million will be delayed until 2006– 2009. However, the steel mills will have to meet exacting conditions to qualify for the debt relief. They will have to pay off all their other debts and present restructuring plans to the Ministry of Economy for approval. The mills have been given until 2005 to pay off debts amounting to PLN540 million (US$128 million). The amount may be lowered by PLN170 million (US$40 million), since the original estimate assumed that the restructuring programmes of all the companies would be accepted. The country’s steel works owe a total of PLN1.2 billion (US$284 million) to the Treasury. A new business plan for PHS provides for PLN2 billion (US$472.6 million) projects, which include modernization of HTS’s hot rolling sheet mill, construction of a new continuous steel casting mill at HK, modernization of a rod mill at Cedler and construction of a sheet coating line at Florian. Deputy Economy Minister Edward Nowak said that a framework agreement on the sale of PHS might be signed with India’s company Ispat by the end of this month. Ispat, which has been enjoying exclusivity in negotiations, made an offer in July to pay US$400 million in various modernization projects in the plants. Ispat also declared it would carry out the PLN2 billion (US$473 million) investment programme for the four steel manufacturers, that had been prepared by the government, and was likely to finance a US$600 million integrated hot casting and sheetrolling line in HK. However, Ispat said it would buy the plants only if they were consolidated into PHS, which would mean the mills’ obligations to the budget institutions cancelled. Nowak also said that if talks with Ispat fail, a new bid, likely to be placed by an European consortium of Arbed, Usinor, Thyssen Krupp and Salzgitter, would be studied. The EBRD confirmed that it was ready to financially support the winner of the privatization tender for the steel mills. EBRD, which had been engaged in the Polish steel sector’s restructuring since 1993, believed the restructuring process in the sector should be accelerated,


since underdeveloped and ineffective steel mills may become a major obstacle to Poland’s accession negotiations with EU. After nearly 10 years of negotiations, the European Commission has found the government’s programme reliable. Thanks to this, the Polish steel mills will be able to receive aid from the state and Poland will take a big step toward finishing its accession negotiations concerning competition. It might be worth remembering that foreign investors have withdrawn before finalizing the privatization deal twice already. One of them was Austria’s steel-maker Voest-Alpine Stahl (VAS), considered one of the most certain candidates for the purchase of one or all of the steel mills, who backed out in March 2001. Earlier, VAS had said it would participate in the privatization together with three other European steel-makers: France’s Usinor, Luxembourg’s Arbed and Germany’s ThyssenKrupp. The Austrian steel-maker’s decision probably followed a merger of Usinor and Arbed, which was announced in February, and which would give the two too much weight in the planned consortium. Also last year’s withdrawal of the British concern Corus from a privatization deal with HK was a heavy blow for the steel sector and the Ministry of Economy. Meanwhile, the financial consortium KFI Colloseum started a billboard campaign to advertise itself as the best remedy for rescuing the Polish steel mills. The billboards say it is the Polish capital that has to be used for that purpose. Colloseum already owns Huta Ferrum and Huta Pokoj, but so far it has failed to provide a successful restructuring plan for the companies. It also offered to invest in the steel trading company GCB Centrostal Bydgoszcz but withdrew from that offer after two days.

Non-ferrous sector Although the non-ferrous metals industry (especially the non-ferrous metallurgy with its substantial export revenues) had been in good condition for many years in comparison to the steel sector, its situation has recently also deteriorated and new problems have surfaced due to various domestic and external factors. Despite a fall in the industry’s share in GDP, the non-ferrous metals industry continues to play a strategic role in the Polish economy, as it supplies raw materials and semi-finished goods to other sectors, including the automotive and communications industries. Poland is one of the major world producers of silver and copper, with its share in the global production of silver reaching 8 per cent in 2000, while the share in the global production of refined copper and lead was 3.3 per cent and 1.2 per cent respectively. In 2000, Poland’s share in the production of aluminium, which is the fastest growing segment of the global market of non-ferrous metals, was low—at 0.2 per cent. Polish production meets almost entirely the domestic demand for copper, zinc,

The Polish Metallurgy Sector 131

lead and silver, but Poland has to import ores for production of tin and aluminium, as well as raw aluminium and tin. Imports also cover rare and precious metals (including gold, titanium, tungsten, molybdenum, magnesium, cobalt). Unfortunately, Poland’s deposits of non-ferrous ores have been almost exhausted. It is estimated that zinc and lead ores will be mined for another 10 years, whereas copper ore will be depleted over the next 30 years. See Table 4.1.2 below. Table 4.1.2 Production of non-ferrous metals (in ‘000 tonnes)

1990

1995

1997

1999

2000

H1.01 Change from H1.00

Copper (refined and not processed) 430.2

451.0

465.7

496.4

517.8

263.0

2.0%

Zinc

132.1

166.4

172.9

178.0

161.8

86.0

5.5%

Lead (*refined)

64.8

66.4

64.7

64.0

45.4*

94.9

–

Aluminium

46.0

55.7

53.6

51.0

46.9

22.0

-3.2%

832.0

1001.0

1038.0 1100.0 1148.0

597.0

7.2%

Silver Source: GUS

However, as a supplier of raw materials, the industry is dependent on business climate in the different branches of industry and, generally, on the economic situation in Poland and abroad. In addition, the industry’s results are largely determined by prices of metals on the world’s metal exchanges and especially on the London Metal Exchange (LME). Since the mid-1990s the sector has been undergoing radical structural changes connected with privatization and ownership transformations, as well as consolidation processes. Consolidation efforts have been launched mainly by the strongest capital groups: Impexmetal, the copper conglomerate KGHM Polska Miedz, and the light metals company ZML Kety.

4.2

Construction Market Polish Agency for Foreign Investment (PAIZ)

Current and future attraction for foreign investment After the political changes of 1989, significant opportunities were created for foreign investors, particularly with regard to the construction and real estate markets. Many restrictions on foreign investors have been eased in the construction sector, allowing them to enter and operate in Poland. The opening of borders to foreign companies has resulted in an increased demand for office, retail and residential space from companies looking to conduct business in Poland. The current situation remains largely unchanged and firms are still seeking commercial space, which keeps the demand for property high in Poland. The situation on the residential housing construction market is stable and no symptoms of collapse are evident as at least half a million new apartments are needed to match current domestic demand. This gap between supply and demand appears to be a long-term trend as the potential of Polish construction companies is estimated at 150,000 apartments annually.

Present situation The value of production sold in the construction sector in Poland, including building materials (calculated in current prices) amounts to in excess of US$22 billion. Building construction and civil engineering as well as building installation accounted for the largest shares in construction and assembly production (approximately 80 per cent and 20 per cent of sold production, respectively). In 1999, the value of construction products sold totalled US$15 billion, an increase of 50 per cent since 1995. Construction and assembly production far outpaced industrial production during the 1995–1999 period.

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133

Future of the construction industry In 1999, the value of construction industry output was very high, amounting to US$12 billion, and accounted for 7.7 per cent of Poland’s GDP. 2000 brought a slight decrease in industry output, which amounted to US$11.5 billion, 7.3 per cent of GDP. Experts believe that due to Poland’s imminent accession to the European Union, the Polish construction industry has more opportunity than impending decline and, as a result, expansion in this area can be expected.

Increased foreign investment The sector has been growing rapidly for several years, primarily due to foreign companies entering the Polish market. At present, more than 2500 joint venture firms operate in the construction sector in Poland. The scale of foreign investments in this sector has propelled it into fourth place in the list of sectors according to size of investment—behind industry, finance and trade, but ahead of such sectors as telecommunications and agriculture. Foreign construction firms already engaged in business activity in Poland include Bilfinger and Berger, Bau AG, Hochtief, Bouygues, Skanska, PORR, Ilbau, Brickhardt, Teerbau, Strabag, Herman Kirchner, Ferrovial, Holzmann, Cerutti Lorenco and Sacic. Some of these firms entered into partnerships with Polish construction companies, others made direct investments, and others remain only capital, strategic investors in the sector. This attitude is not only characteristic of construction companies but also of companies from the building materials industry, which through direct facility investments aim to strengthen their position on this rapidly expanding market. Among these firms are Henkel, Pilkington, Saint Gobain, Roeben Tonbaustoffe, BTS Baukeramik, Raab Karcher AG, Danfoss, Rautaruukki, Rockwool and Lafarge. Polish construction firms are well known across the world as trustworthy partners offering high-quality services. They export services to over 50 countries, including Russia, the Czech Republic, Ukraine and Libya. The leading importer of Polish services is Germany. Despite difficulties, Polish enterprises are winning and realizing contracts often valued at millions of deutschmarks or US dollars. The largest Polish construction firms can realize any, even very specific, investment projects on time and at reasonable cost.

Business characteristics At present, almost 309,000 companies operate in the sector and employ almost 930,000 people. More than 95 per cent of these firms employ up to 20 people. In order to keep up with increasing competition, the firms are merging into holdings and groups, the largest of which are Exbud,


Budimex, Mostostal, Polimex, Energopol, Elektrobudowa and Warbud. Large companies, employing more than 100 people, account for only 0.5 per cent of all business but generate more than 34 per cent of the sector’s total output. The overall financial condition of companies in the sector is quite good. Financial indicators in construction had systematically been improving since 1994, but this positive trend was broken in 1999. All financial indicators have fallen, but only slightly in relation to figures from the previous year. Between 1994 and 1998, the number of companies generating a profit increased from 61.7 per cent to 75.4 per cent. In 1999, the turnover profitability ratios, both gross (3.7 per cent) and net (2.2 per cent), were much higher than the average ratios for all businesses in Poland (overall average gross ratio was 1.4 per cent, net 0.1 per cent). The production of building materials is widely scattered in Poland, hence it is difficult to give precise and comprehensive figures. In financial terms, production is valued at more than US$2.53 billion, but fluctuates with market demand for building and assembly contracts. The minerals, steel, chemicals and wood industries have the highest shares in this field of manufacturing. The rapid growth rate of construction in 1995– 2000 resulted in an increased demand for building materials, particularly carpentry products, bricks and roofing tiles. Foreign trade in building materials primarily occurs with EU countries (Germany, the Netherlands, Belgium, France, Italy, Denmark and Austria), but also with the United States, Russia, Ukraine, Belarus, the Czech Republic, Slovakia and Hungary. Foreign trade turnover in building materials cannot be itemized precisely, but is estimated to exceed US$1 billion. Table 4.2.1 Production trends of major building materials, 1990–2000 Production

1990

1995

1998

1999

2000

Cement (million tonnes)

12.5

13.9

15.0

14.4

14.8

Lime (thousand tonnes)

3200

2526

2406

2116

2192

Bricks (millions)

1234

131

1031

606

678

Architectural glass (km2)

57.2

37.8

21.1

16.8

14.3

Source: Central Statistical Office (CSO)

The majority of the largest investments in building materials were made in the production of cement. The biggest investor is Lafarge Group, which owns majority stakes in three Polish cement plants. Other significant cement producers in Poland include Heidelberger, CBR and Dyckerhoff. BPB Gypsum, Norgips and Rheinische have made

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135

considerable investments in the production of plasterboards. The best way to establish business contacts with Polish construction enterprises is to attend one of the 60 specialized fairs or exhibitions. These events attract some 10,000 domestic and over 1,000 foreign participants annually and are held in almost all of Poland’s major cities, making it relatively easy to establish relationships with locally operating companies. Several such venues are listed below: Fair

Town

Domestic participants

Foreign participants

Visitors

Budma

Poznan ´

1200

280

70,000

Targbud

Katowice

1000

17

25,000

Tarbud

Wroc§aw

600

30

40,000

Householding

Gdan ´ sk

500

15

25,000

Bud-Gryf

Szczecin

400

40

16,000

Wiosna

Krakow

400

12

13,000

Interbud & Nieruchomos ći

£ódz´

350

11

40,000

Instal—Expo

Warsaw

250

45

20,000

Polexpobud

Bydgoszcz

n/a

n/a

n/a

Price variations Property prices in Polish cities are similar to European levels. This is particularly applicable to Warsaw, where monthly leasing rates reach US$27 per square metre. In smaller towns, prices are significantly lower than European levels, while in rural areas property is quite inexpensive. Considerable price differences also occur within specific areas depending on location (the closer to the city, the more expensive), size (the smaller the property, the higher the price per square metre), type (houses tend to be more expensive than flats) and usage (office or industrial space is more expensive than residential property). According to experts, opportunities to purchase property at rock-bottom prices will cease within two or three years.

Trends in the market for commercial office space • The demand for new office blocks continues, as it is difficult to refurbish and lease space in buildings from the communist era. • The market has developed mainly in major cities: Warsaw (more than 90 per cent share), Szczecin, Wroclaw, Cracow, Poznan and the Tri-Cities.


• Office leasing rates are extremely high in Warsaw, due to a strong demand for office space. Current rates are expected to stabilize slightly below present levels in the long term. In other areas, prices are far lower, reflecting the weaker demand for office space. • Demand for ‘class B’ office space is high, but it currently accounts for only 18 per cent of total office space.

Trends in the industrial market • According to estimates, the value of industrial construction should increase from US$2.4 billion in 2000 to approximately US$4.8 billion by the end of 2010. • According to a Eurobuild Poland report, the increasing foreign direct investment (FDI) plus high levels of domestic investment by Polish firms (between US$1.3 billion and US$1.4 billion) have made industrial construction the construction sector’s largest sub-sector. • Most FDI is in the form of green-field investments, resulting in high output of this kind of industrial construction in Poland. The fact that many existing factories are unable to meet the requirements of modern production and safety regulations, and the demand for new construction and modernization of existing sites, should increase in Poland in the near future. • Due to high demand and insufficient supply, prices for modern industrial and warehousing space are relatively high. • The demand for quality light industrial warehousing space is growing, primarily due to foreign trade companies entering the Polish market.

Trends in the market for retail space • The average retail area per capita is 3 square metres in Poland, which is very low in comparison to other European countries (more than 100 square metres in some countries). • As a result of the increasing affluence of Polish consumers and the relatively large amounts they are able to spend on consumer goods, the development of retail construction can be expected to continue. Over 48 per cent more retail space was completed in 1999 than in 1998. • The value of retail investments exceeded US$600 million. • Large international chains specialized in retail sales have emerged on the Polish market and have rapidly attracted the attention of Polish consumers. These retail chains include Metro AG, OBI, HIT

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137

(Germany), Jeronimo Martins Holding (Portugal), IKEA (Sweden), Casino, Auchan, Geant, Carrefour, Castorama (France) and Tesco (United Kingdom).

Trends in the market for residential housing • Approximately 1.5 million families in Poland are waiting for their own apartment. In 2000, there were almost 88,000 homes constructed, which is significantly lower than in most Western Europe countries. However, in comparison with 1999 the number of completed homes increased by 7.5 per cent. According to estimates, 0.5 million new homes will be completed by 2010. • According to statistics, Poland is recovering from the crisis of 1996 when only 62,000 homes were constructed. • The activities of banks and building societies are contributing to an increased supply of housing credits and, by the same token, to an expansion of residential housing construction in Poland.

4.3

Fuel and Energy Sector Polish Agency for Foreign Investment (PAIZ) Investor benefits Poland offers potential opportunities to foreign companies and capital investors willing to take a long-term approach to the market. Due to some remaining Polish government control of the fuel and energy sector, pricing is not entirely liberalized. Having a comprehensive and cooperative financing package is a distinct advantage when approaching the sector. Poland is encouraging foreign investment in its upstream oil and gas sector and has obtained loan assistance from the World Bank and the European Investment Bank to finance a US$310 million technical restructuring programme in the oil and gas sector. Approximately US$200 million will be allocated to the oil industry to purchase new equipment for geophysics, drilling and production installations.

Petroleum sector Characteristics and trends The petroleum sector—a strategic branch of the Polish economy, contributing the largest share of taxes (about 10 per cent of budget revenue), directly employing over 20,000 people and several tens of thousands indirectly—is on the verge of completing a five-year reorganization and privatization process which would not have been possible without the assistance of the State and foreign investors. The structure of primary energy production and consumption has not changed significantly in recent years. Demand The petroleum sector is very important for the Polish economy as it generates revenues of approximately US$8 billion. The annual growth rate is estimated at about 4 per cent (a mere 1.5 per cent in Western Europe), although in 2000, gasoline and diesel sales dipped slightly as a result of shrinking demand in the automotive sector, by 7 per cent and

Fuel and Energy Sector

139

11 per cent respectively (however, in the third quarter of 2001, gasoline demand showed a modest rebound). Steady growth is the main reason why this sector of the Polish economy is so significant for foreign investors. The Polish fuel market has expanded vigorously since the beginning of the 1990s, mainly due to a rapid growth in car ownership and the dynamic expansion of the entire Polish economy, which has resulted in increasing demand for all types of fuel. Gasoline consumption has increased by over 18 per cent since 1996, totalling 5.5 million tonnes in 2000, while in the same period, sales of diesel fuel fluctuated between 6 million tonnes and 6.5 million tonnes (6.1 million tonnes in 2000). Figure 4.3.1 Gasoline and diesel consumption, 1996–2000 (‘000 tonnes)

Source: Bulletin of Industry 2001, Central Statistical Office (CSO)

Figure 4.3.2 Changes in the share of gasoline and diesel imports in overall consumption, 1996–2000 (%)



Figure 4.3.3 Domestic production versus imports of gasoline and diesel, 1996–2000 (’000 tonnes)


Supply To meet the increasing demand on fuel, massive investments aimed at extending the refining capability of the petroleum sector have already started. This has resulted in a steady decrease in the share of domestic demand covered by imports—currently just over 14 per cent of aggregated gasoline and diesel consumption originates from imports, compared to 23 per cent in 1996. Despite the above-mentioned figures, further investments are essential in order to improve this situation. Producers There are only seven Polish refineries that produce various engine fuels. The two most important are PKN Orlen S.A. (created from the merger of Plock Refinery and petrol retail chain CPN) and Gdan´sk Refinery. Both refine over 14 million tonnes annually, accounting for almost 92 per cent of the Polish market. The remaining five refineries—Czechowice


141

Refinery, Glimar Refinery, Jaslo Refinery, Jedlicze Refinery and Trzebinia Refinery—are rather small and refine some 1.2 million tonnes of crude oil annually, focusing on approximately 350 specialized products (eg lubricants, specialized oils for metal production and paraffin). In previous years, CPN had a near monopoly in the field of petrol retailing (with almost 2000 petrol stations), but the situation changed with the privatization and liberalization of the Polish fuel market—Polish concerns expanded their networks, private petrol stations emerged and foreign concerns actively penetrated the market. This tight competition led to the fast development of support services. Figure 4.3.4 Structure of the Polish fuels market according to number of petrol stations, 2000

Source: Polish Chamber of Liquid Fuels

Although the number of petrol stations has grown by almost 1700 since 1995, there is only an average of half a station per square kilometre. Predictions are that the boom for petrol stations has come to an end and the growth rate will remain subdued. Figure 4.3.5 Number of petrol stations in Poland, 1996–2000

Source: Rzeczpospolita


Fuel sector regulations Today, the market sets the price of petroleum products in Poland, but other moderating factors also play a role, such as indirect taxes (VAT, excise) and currency levels. To begin business activity in the petroleum sector, it is necessary to obtain specified concessions—for example, a 10–25 year concession for the production, transportation and wholesale trade of fuels (issued by the Energy Regulation Office) or a concession to import crude oil and liquid fuels (issued by the Ministry of Economy). Polish regulations treat every fuel company on an equal basis, regardless of its country of origin.

Opportunities for foreign investors Foreign capital investments are essential for privatization Active privatization of the sector began in 1999 following the preparatory stage which was launched in 1996 with the establishment of Nafta Polska S.A., a state-owned company set up to restructure and privatize the petroleum conglomerates in order for them to be able to compete on the liberalized international market. At present, the company owns shares in key Polish oil concerns, but will be dissolved once the privatization process is complete. PKN Orlen, the largest refinery, has already been privatized and is quoted on the Warsaw Stock Exchange. A second issue of shares (including a stake for a sector investor) was introduced on the market in 2000. Other large oil companies, including Gdan´sk Refinery (the second-largest refinery), PERN (the owner of practically all 600 kilometres of pipeline), Naftobazy (the owner of the majority of storage and distribution depots) are likely to be privatized soon. Dipping duties imposed on fuel had opened the Polish market to foreign penetration. Since April 2001, fuel imports have been duty free, as the result of the adoption of treaties based on removing customs duties on petroleum products between Poland and the European Union. Planned development in the refinery sector in Poland aims at the modernization of existing facilities and the creation of additional processing capacity. Due to the European Union’s obligation to secure Polish fuel supplies with a permanent 90-day fuel reserve, 8 million cubic metres of storage capacity must be built in the next 10–12 years. The cost is estimated at more than US$1.5 billion. An additional 2000 new petrol stations are necessary for realizing the aim of creating one of the largest petrol retail markets in Europe.

Foreign investment The first foreign investors are now benefiting from the growth of the Polish petroleum sector.


143

In 1995, the first foreign concerns entered the Polish petroleum market. Foreign competition is today widely visible. Profits are being earned as sales of their products in Poland are increasing. In general, foreign companies sell their products through Polish distributors, while simultaneously expanding their own sales networks. Brands such as BP, Aral, Statoil, Shell and Esso—the current market leaders—act as perfect incentives for foreign capital to set up business in Poland.

Gas sector Demand The quantity of gas distributed through the domestic gas network has remained steady in recent years, with only small fluctuations of approximately 1 per cent. Sales totalled 10.9 billion cubic metres in 1999 and over 12.1 billion cubic metres in 2000. Industry purchased approximately half of the gas sold, followed by domestic households with 35 per cent. Retail and service consumers purchased approximately 11 per cent of total sales. Network losses are accounted for at about 3 per cent and should not exceed 0.5 billion cubic metres. Figure 4.3.6 Polish gas consumers and losses according to their share in overall gas supply

Polskie Górnictwo Naftowe i Gazownictwo S.A. (PGNiG)

Resources Natural gas resources in Poland are estimated at 147 billion cubic metres. The methane content of Polish gas varies from 15 to 98 per cent. Annual gas production, including natural gas with a high methane content, currently totals 3.7 billion cubic metres. According to estimates, it will be possible to produce some 2.8 billion cubic metres of gas in 2010 from current reservoirs and 1.4 billion cubic metres from future sources. Currently, domestic gas resources meet only 30 per cent of Polish demand, with imports accounting for the remaining 70 per cent.


Forecasts of demand and supply—from Poland’s existing limited gas sources—indicate that supplies should increase from 8.4 billion cubic metres in 2000 to 18 billion cubic metres in 2010, and to 27 billion cubic metres by 2020. Poland has already taken steps to diversify its gas supplies—the limits in 2020 will require that the supply from one country cannot exceed 49 per cent of total supply. Figure 4.3.7 Forecast for gas demand in Poland, 2000–2020 (billion cubic metres)

Source: Central Statistical Office (CSO), Rzeczpospolita

Energy sector Poland’s energy situation is similar to that of other former communist countries relying heavily on fossil fuels to meet energy needs, but the Polish power generation sector, with a total installed capacity of more than 34,000 megawatts, is the largest in Central and Eastern Europe. Projections show that domestic demand for electricity could grow by as much as 50 per cent by 2020. Currently, Poland’s installed power generation capacity exceeds domestic demand by approximately 30 per cent and some of the excess electricity is exported to neighbouring countries. Figure 4.3.8 Major power plants in Poland (total power installed, megawatts)

Source: Power Plants, Polskie Sieci Energetyczne (PSE)


145

Characteristics The energy sector can be divided into three main sub-sectors: • generation sub-sector (representing 50 per cent of electrical sector assets), consisting of 54 power and heating plants; • transmission sub-sector (10 per cent of assets), encompassing the transmission grid, wholly owned by Polskie Sieci Energetyczne (PSE); • distribution sub-sector (40 per cent of assets), encompassing 33 companies that buy electricity from PSE and transfer it to final users. Expanding demand Polish energy consumption of above 100 million toe (tonnes of energy equivalent) ranks it first among Central European countries, with a share of one-third of the total for all these countries. According to analysts, Polish demand for electricity could double in the next 20 years, but this will depend on the dynamics of the Polish economy. There are three scenarios assuming various annual GDP growth rates as presented in Figure 4.3.9. Despite increasing production, the per capita consumption of electricity remains lower than in most European countries, amounting to only 70 per cent of the EU average per capita consumption of energy.

Figure 4.3.9 Forecast for electricity consumption in Poland until 2020 (TWh)

Source: Policy Assumptions for the Energy Sector for 2020

Poland is an inefficient energy consumer, as up to 30 per cent of all electrical energy generated is lost.


Energy market trends Modernization is directed to sources of energy alternative to coal in order to follow EU trends to reduce emissions and promote more advanced and environmentally friendly sources. The gas market in Poland is expected to assume a greater importance in the country’s economy as natural gas replaces coal in the industrial and electric power sectors. Almost all (94 per cent) power plants in Poland are coal fired. The dominance of coal as the major energy carrier results in a great deal of environment pollution. Power from renewable resources accounts for only 6 per cent of all power generated, mainly from hydroelectric and gas power stations. Other renewable resources (including wind, biomass, geothermal) are insignificant. However, their role will increase in the next 20 years to match EU requirements of 12–15 per cent. Energy production in 2000 totalled 142.2 TWh; imports and exports were only 3.5 TWh and 8.4 TWh respectively. The network losses exceeded 14.6 TWh. Figure 4.3.10 Sources of electrical power installed in Poland, 2000

Source: Polskie Sieci Energetyczne (PSE)

Figure 4.3.11 Sources of electrical power produced in Poland, 2000

Polskie Sieci Energetyczne (PSE)

The liberalization of the energy market in Poland began in 1998 with the introduction of a new Energy Law. The market is to function


147

according to the principle of third party access, which focuses on gradually giving consumers the choice of where to buy electricity. In coming years, access to the power grid will be obtained by an increasingly broader number of end-users, legally allowing the progressively smaller number of users to have a choice in the selection of a supplier. In 1998, customers purchasing 500 GWh of electricity annually, which accounted for 21 per cent of electricity consumption (the 20 largest customers), obtained direct access to the grid. A year later, this number increased to 36 per cent (the 80 largest customers), as customers purchasing over 100 GWh of electricity annually obtained the right to choose a supplier. According to estimates, the 179 largest customers, accounting for some 43 per cent of energy consumption, obtained this right in 2000. The goal of energy market liberalization is to be completed in Poland by 2005 when more than 60 per cent of electricity should be distributed according to the third party access principle. Moreover, 37 per cent of Polish domestic demand will be opened to foreign suppliers in 2005. The current process of demonopolization and privatization is possible due to decisions made in September 1996. Privatization is seen as the key to modernizing and increasing the efficiency of the electricity sector. Analyses indicate that after world prices for natural gas are introduced, production of biogas will be fully profitable. The annual production of Polish biogas is estimated at about 5–6 billion cubic metres annually.

Foreign investors Large international concerns have examined investment and sales opportunities in Poland. ABB (Swiss-Swedish), AEG (German) and Ahlstrom (Finland) have made acquisitions among the Polish power generation equipment manufacturers and have acquired control of the market. The Westinghouse Power company (owned by Siemens of Germany) has engaged in several power plant refurbishment projects and in 1997 bought a power generation equipment manufacturing plant in the south of Poland. Electricité de France is one of the larger investors in the Polish electricity sector. It owns a 45 per cent stake of a co-generation company which serves Gdansk, a controlling stake in another serving Krakow, and a smaller stake in a co-generation group in Wroclaw. Sweden’s Vattenfall is planning to invest in Poland’s electricity distribution sector through the privatization of Zak§ad Elektroenergetyczny, Poland’s largest distributor. Belgium’s Tractabel acquired a 25 per cent stake in the Polaniec power plant, which is Poland’s fourth-largest power generator. Foreign investors are also involved in joint venture projects to build new power plants, mainly using natural gas to generate both heat and


electricity. These include Enron’s Nowa Sarzyna plant and another in Zielona Góra being developed by Eurogas and National Power International. A new coal-fired plant is also planned to replace an ageing existing plant in Belchatów. Among other investors are Pam-Gas BV, Linde AG, Swepol Link AB, IVO, Hedeselskabet and the Failuer Group.

4.4

Shipbuilding Industry BOSS Economic Information Agency, Warsaw

Introduction After three prosperous years for the Polish shipbuilding industry, a combination of various negative economic phenomena observable since 2000 resulted in the sector becoming unprofitable. Some of these phenomena intensified further in 2001 and are still present in 2002. This situation poses a threat not only to the development of the shipbuilding industry, but also to the existence of some shipyards and cooperating enterprises. Paradoxically, Poland’s leading shipyards have secured themselves orders that will keep them busy until the end of 2004.

Sector characteristics With its high employment, impressive volume of production and exports, as well as cooperation ties with numerous enterprises, the shipbuilding industry plays an important role in the Polish economy. According to data from the Central Statistical Office (CSO), the Polish shipyards and repair yards employed approximately 36,800 workers at the end of the third quarter of 2001. Of the total number of those employed, 25,000 worked for large shipyards, as estimated by the Shipbuilding Forum of the Employers’ Union (ZPFO). The shipyards also have cooperation agreements with some 800 production and service enterprises, which jointly employ 70,000 people. The production potential of Polish shipyards is put at 800,000 CGT.1 This potential had been growing since the late 1990s, owing to increased labour productivity, improvements in the organization of work, shortened production cycles and investments in modernization. 1

CGT indicates the complexity of work done on a ship by a shipyard. The ship’s deadweight capacity (DWT) or gross tonnage (GT) is multiplied by an index adopted for individual types of vessel. The highest CGT index characterizes passenger ships, ferries and similar, technically complicated vessels whose construction requires great effort in terms of technological solutions and labour.


Investments were possible owing to the fact that the sector became profitable after 1997 without any financial support from the State, which is an uncommon situation on a global scale. Before that, in the early 1990s, the shipyards had managed to avoid the shutdown that threatened them as a result of the loss of traditional outlets for their products (Comecon countries) and a change in the settlement system. Most of them were privatized, reached agreement with creditors and implemented restructuring programmes. All these changes and the low cost of labour have allowed Polish shipyards to become competitive on the international market. Since 1998, the shipbuilding industry has ranked among Poland’s leading export sectors (third out of five). In 2000, the shipyards had a 3.3 per cent share in Poland’s overall exports, while their share in overall imports was relatively low. Exports were the only possible way to ensure the shipyards the preservation of production potential and development because the domestic market for their products shrank rapidly in the 1990s. Polish sea transport turned out to be less competitive than railway and road transport in a situation where the majority of trade in commodities is accounted for by close EU countries. Polish ship owners also began to lose competition to their foreign counterparts due to the less favourable financial operating conditions present in Poland. A proportion of Polish ship owners went bankrupt as a result in the 1990s or, following restructuring, became divided into smaller entities and moved operations to countries where shipping was less expensive. It should be noted that Poland was left with old vessels whose average age exceeded 17 years in 2000. Unfortunately, the Polish ship owners that are planning to modernize their fleet seldom use the services . of domestic shipyards. For example, Poland’s largest ship owner, PZM of Szczecin (which owns 83 vessels), is planning to buy 20 new ships in 2003–2004, but will most likely place its orders with shipyards in the Far East. Poland’s deep-sea fishing fleet has also been reduced. As a result of the imposition of fishing limits in most parts of the world and the introduction of high fishing fees, the Polish enterprises cut the number of their vessels from 65 in 1990 to 24 fish-factory trawlers in 2001. Although these vessels, operated by three large state-owned enterprises, are 16 years old, replacements are only sporadic. The development of exports, stimulated by economic necessity, and a fairly high competitiveness allowed the Polish shipbuilding industry to win a considerable share in the global shipbuilding market in the late 1990s. In 2000, this share reached 2.5 per cent (according to calculations based on CGT units), which ranked the Polish shipbuilding industry eighth in the world. Poland’s three main shipyards also rank high among the world’s producers of ships.

Shipbuilding Industry

151

Regrettably, since 1999, the share of the Polish shipbuilding industry in the global production of ships has been decreasing again, mainly as a result of the growing share of Korean and Chinese yards, which are outrunning all competition, and growing demand for new types of vessels whose construction is still a relatively new concept to Polish producers. In 2000, a combination of other negative economic phenomena which surfaced in Poland and in different parts of the world led to the loss of profitability of the Polish shipbuilding industry. In this situation, the absence of direct state assistance for the shipbuilding industry in Poland (subsidies are not applied in many other countries) has practically deprived the sector of its trump cards in competing with foreign rivals. Although orders placed with Polish shipyards to date will ensure them work in the next two or three years, their losses may increase during this time. The experience of two medium-sized yards—Cenal and Ustka, which went bankrupt in 2001—confirms such predictions. The problems and losses of the shipyards impact negatively on the operation of domestic enterprises cooperating with the shipbuilding industry, as they do not receive payments on time and are forced to reduce the price of the components they supply.

Global economic factors The Polish shipbuilding industry depends heavily on exports and its operation is determined by the development of the global economy and trends prevailing in global trade, which have a direct influence on demand for sea transport and purchases of new vessels. The terrorist attack on the United States in September 2001 led to a fall in global commodity turnover and to increases in freight and the cost of insurance of transported goods, which in turn curbed demand for new vessels. However, this tendency proved only temporary, which can be attributed to the fact that the cycle of placing an order and constructing a ship takes two or three years. Since it is forecast that the situation in global trade will improve in 2003–2004, ship owners, taking advantage of the poor business climate in the vessels market, have recently begun to sign more contracts for the construction of ships. Unfortunately, the operating conditions of the global shipbuilding industry are not advantageous to Polish yards. The price of ships is static at 1997 levels and, in addition, some European countries are to resume subsidizing domestic yards. The price of ships remains unchanged because the global production capacity of shipyards has for many years exceeded global demand for new ships and repair services. Even 2000 did not see an improvement in this respect. Also, the existing oversupply is further increased due to the fast development of the South Korean and Chinese shipyards, which started after the 1998–1999 Asian currency crisis.


Following a catastrophe involving an oil tanker off the coast of France, the International Maritime Organization (IMO) decided on the withdrawal of all single-hull tankers with effect from 2002. According to estimates from the European Shipbuilders’ Association (AWESA), close to 70 per cent of the global fleet of tankers exploited in 2000 were singlehull vessels. IMO’s decision contributed to a 15 per cent growth in orders placed with shipyards in 2000. In addition, South Korean shipyards apply dumping prices. Immediately after the devaluation of the Korean currency, the prices of typical vessels built in South Korea (eg tankers, container ships) fell by 12 per cent in 1999. This price level was maintained by the Korean shipyards in subsequent years also. Ten analyses carried out by the European Commission have indicated that the prices set in contracts concluded by Korean shipyards were far lower than the real costs of the ships’ construction. In 2000, the Korean government and the European Commission concluded an agreement on the non-subsidizing of shipyards. Since the Korean authorities did not allow experts to check whether the agreement’s decisions were respected, the Commission filed a complaint against South Korea with the World Trade Organization (WTO) in 2001. Simultaneously, in January 2002, the Commission temporarily restored the possibility of applying direct subsidies to the construction of new ships in the European Union, amounting to 14 per cent of their price (until 1998 subsidies amounting to 9 per cent of the contract price were allowed). The EU shipyards will most probably take advantage of this possibility, although the scale of subsidies will depend on the available budget resources of individual nations. Subsidies for EU shipyards will make it harder for the Polish shipbuilding industry to preserve its competitiveness. Thus, despite the general growth in the number of contracts for the construction of ships, the share of Polish yards in the total output of the global shipbuilding industry has been declining since 1999. Most orders are placed with Asian shipyards, which, in terms of tonnage of constructed vessels, control 80 per cent of the market, and EU shipyards, which specialize in the construction of technically complicated and expensive passenger ships. In 2000, the share of EU shipyards in the global production of ships reached 18 per cent in terms of CGT.

Internal economic factors The Polish shipbuilding industry is strongly affected by a fall in ship prices on international markets. This is reflected in a decline in the value of tonnage of sold ships that have been constructed under contracts concluded in recent years. Polish shipyards are trying to counteract the effects of the fall in prices by entering the market’s segments that are less affected by this


153

phenomenon. Even when they succeed in these efforts, the construction of new types of vessel usually proves more costly and longer than that of the earlier built ships. Hence, according to ZPFO, completion dates set in contracts are not always kept. The general situation is also difficult for repair yards. They are particularly threatened by a possible temporary slump on the market of repair services evoked by a lower rate of economic growth and, consequently, a decline in international trade and sea transport. One factor that aggravates the financial problems of the Polish shipyards, and other entities depending on exports, is the high rate of exchange of the Polish zloty to the US dollar, present since the end of 2000. ZPFO estimates that due to the higher PLN/US$ exchange rate (3.80) the revenues of Polish shipyards proved lower by PLN300 million in 2001 than envisaged in forecasts based on the PLN/US$ exchange rate adopted in the budget law (4.40). The stronger zloty was the main reason why many shipyards recorded a net loss in 2000, and the whole shipbuilding industry in 2001. ZPFO notes that shipyards are on the verge of losing their financial liquidity. These problems are further aggravated by three factors connected with the financing of their operation. First, credits continue to be expensive in relation to the level of inflation. Second, the financial sector reluctantly grants operating credits to shipyards, being discouraged, as ZPFO notes, by past experience and now having better opportunities for investing the amounts in question. Third, the shipyards cannot use sums paid in advance by clients for whom they are constructing ships because they serve as deposits on the basis of which banks grant operating credits. The latter problem could be solved if the banks were given state guarantees. However, this requires the introduction of amendments to the 1997 law on guarantees made by the State Treasury. Such a solution would be one of very few forms of the state assistance for the shipbuilding industry. Financial problems experienced by shipyards also negatively affect the cooperating domestic suppliers in accordance with the assumption that they have to bear the effects of the falling price of ships proportionally to their share in income from the sale of ships. The hardest hit are cooperating entities that specialize in the manufacture of products for the shipbuilding industry. However, many representatives of the shipbuilding industry are of the opinion that some of their suppliers react too slowly to growing competition. According to ZPFO, the level of domestic deliveries, in terms of the quality and price of products and services, determines the competitiveness and attractiveness of the shipyards’ products. Yet another problem is the cost of domestic products, which is sometimes higher than that of imported commodities—for example of ship steel.


Range of products and services Polish shipyards produce mainly sea-going merchant, fishing and passenger ships, auxiliary units, floating structures and lifeboats, as well as some battleships and auxiliary vessels. In the 1990s, the most important items in the Polish shipbuilding industry’s product range were ships transporting dry cargo—mainly container ships and bulk carriers, whose construction now guarantees medium earnings because of exceptionally strong competition. Simultaneously, the number of produced liquid cargo carriers also continued to grow. After 1990, Polish shipyards almost stopped building large ocean-going fishing vessels (over 100 DWT), which had been Poland’s speciality in the 1980s. In recent years, Polish shipyards have been expanding their production with technically complicated ships whose construction requires a highly qualified workforce and advanced technologies. Such a move is all the more justified as the construction of cheaper and less complicated units such as bulk carriers or tankers has become a Far Eastern speciality. The group of technically complicated vessels includes chemical cargo carriers, car carriers, oil and petrol carriers, and passenger-and-car ferries whose production is only a little less lucrative than that of passenger liners. After an interval of many years caused by the absence of orders, Polish shipyards are again building technical and special-task units (tugboats, push boats, dredgers, fire-fighting vessels, floating docks, etc). Polish shipyards have also entered new segments of production such as the construction of universal general cargo vessels which fulfil several functions (of a traditional general cargo carrier, a container ship, a bulk carrier and a ship carrying rolled paper) and are sometimes adjusted to both side and stern loading, as well as unequipped hulls. The shipbuilding sector also renders repair services. Previously, repair yards were characterized by a higher share of value added in the selling price of services and, usually, higher profitability than the yards building ships. However, growing competition in the form of services rendered by the repair yards of the Baltic States, Romania and Bulgaria has led to the elimination of differences in profitability and some Polish repair yards have begun to construct vessels and hulls.

Output and sales After steady growth continuing until 1998, the output of the Polish shipbuilding industry stabilized over the next few years, both in terms of the number of constructed vessels (about 34, each with capacity exceeding 100 DWT) and gross tonnage. These tendencies did not change in any essential way in 2001, which allowed Poland to preserve


155

its fifth position in the world and second in Europe in the production and repair of vessels. Besides ships larger than 100 DWT, the shipyards also build sea-going vessels of a smaller capacity. For example, in 2000 they sold seven fishing vessels (with total capacity of 132 DWT) and 1897 pleasure boats and speed boats. In terms of value, these small vessels and floating structures had a 4 per cent share in shipyard output in 2000. Unlike the yards that build ships, the repair yards maintain a stable growth in the volume and value of services rendered. High demand for the services of repair yards is attributable to the fact that the world’s fleet is old (the average age of ships in 2000 was 17.5 years) and requires repairs and modernization. At the same time, in repair services the cost of labour is two times higher than in the construction of new ships. Hence, the standard of work is very important. Services rendered by Polish repair yards are relatively inexpensive. Over 90 per cent of the value of the Polish shipbuilding industry’s output accounts for ships sold abroad. This ranks the industry among the leading export sectors. It should be noted that the Polish foreign trade in ships, boats and floating structures shows a substantial surplus. The commodity structure of exports is dominated by freighters and ferries. In 2000, their share reached 80.5 per cent. Technical and specialtask vessels and warships accounted for about 15.8 per cent of exports, while boats, yachts and similar accounted for 3.7 per cent. The main buyers of Polish vessels in 2000 were ship owners from EU countries (54 per cent), including Germany (more than 25 per cent of Polish overall export of vessels), Norway (13 per cent), and the Netherlands (9.3 per cent). Other major buyers were Singapore (12 per cent), Israel (about 10 per cent), and ship owners from several countries known for low freight rates.

Financial results Despite the stabilization in volume of production of Polish shipyards, the real value of their sales has fluctuated periodically since 1999, and, when expressed in US dollars, has showed a decline. Only the repair yards have recorded a steady growth in the value of services rendered. The described fall in the prices of ships on international markets, the decrease in the value of one tonne of a ship and, above all, the high value of the Polish zloty (PLN) have caused the Polish shipyards to record net losses since 2000, after two consecutive years of generating a profit. The shipbuilding industry’s situation deteriorated in 2001 when even the repair yards, which had a 5 per cent net profitability in 1998, encountered difficulties. According to the sector’s representatives, the Polish yards have already exhausted the simple reserves allowing them to curb costs


and develop as well as the reserves gained owing to investments financed from profit generated in 1997–1998. ZPFO claims, however, that despite significant changes and growth in labour productivity in shipyards, the combined labour productivity in the sector, expressed as the compensated gross tonnage (CGT) per one employed, is still unsatisfactory and far lower than the European average (about 40 per cent of the average for EU shipyards). It should also be noted that the largest shipyards are reducing employment because under the conditions of a fall in output so labour productivity has also diminished. The structure of the shipbuilding industry’s costs is dominated by materials and energy (close to 46 per cent in the first quarter of 2001) and external services (24.2 per cent). The share of labour in the sector’s costs is relatively low, reaching 19.7 per cent on average. In repair yards, the share of labour is twice as high as in the yards building ships. The present structure of costs seems to justify the shipyards’ opinion that the reduction of the cost of materials and external services lies also in the interest of domestic suppliers who account for two-thirds of the overall deliveries by entities cooperating with the Polish shipbuilding industry. It should also be noted that a deterioration in the financial results of some shipyards was mainly their own fault. This is especially true of the failure to keep to agreed delivery deadlines, which entails the payment of fines in accordance with the buyer’s wage rates. In the case of the Cenal shipyard, this was the main cause of a loss of financial stability and thus bankruptcy. Delays in delivery are due mainly to the poor organization of work, a decision to accept orders for the construction of ships that involves a completely new strategy and design or that are not typical for a given shipyard. Sometimes, delays also occur due to reasons for which the shipyard is not responsible. In 2001, this proved to be the experience of the Stocznia Szczecinska S.A. shipyard.

4.5

Electrical Engineering BOSS Economic Information Agency, Warsaw Sector characteristics The electrical engineering industry has been developing faster in recent years than many other branches of Polish industry. Its share in the sold production of the whole manufacturing sector has been growing steadily. In 1995, the industry had a 2.2 per cent share in the overall output of the sector, but in 2000 this share exceeded 3.8 per cent—still not impressive when compared with the twice-higher index characterizing the European Union. Thus, it can be expected that the significance of the electrical engineering industry will also be increasing in the Polish economy. It can be cautiously estimated that the value of the Polish market of electrical engineering products reached US$2.8 billion in 2000. The electrical engineering industry is not homogeneous. It consists of five principal segments covering the production of: • electric engines, generators and transformers; • electrical energy distributing and controlling devices; • insulated wires and cables; • batteries and galvanic cells; • lighting equipment and electric lamps. The electrical engineering industry also includes enterprises manufacturing the remaining electrical equipment such as radiators and fittings for engines and vehicles. According to the Central Statistical Office (CSO), there were 278 large electrical engineering enterprises (over 50 employees) in Poland in 2000. Most of them manufactured the remaining electrical equipment (77) and electrical energy distributing and controlling devices (75). A large number of enterprises manufactured electrical engines, generators and transformers (45), and lighting equipment and electric lamps (44). The group of enterprises specializing in the manufacture of insulated wires and cables was far smaller (25), whereas the number of companies manufacturing batteries and cells did not exceed 12.


Figure 4.5.1 Structure of electrical engineering industry


Output The electrical engineering industry is one of the fastest developing sectors of the Polish economy. In recent years, the value of the sector’s sold production calculated in fixed prices has been growing steadily at an average annual rate of 12.7 per cent, which is far higher than the average for the manufacturing sector as a whole (8 per cent). Although the high rate of growth was suddenly checked as a result of the Russian crisis of 1998, the electrical engineering industry continued to develop, making up for the temporary slowdown in consecutive years. As a result, the value of the industry’s sold production reached PLN10.6 billion in 1999 (an increase of 9.8 per cent) and increased by 11.6 per cent to PLN12.1 billion (US$2.8 billion) in 2000. In 1994–2000, the value of the electrical engineering industry’s sold production, calculated in current prices, jumped by 267 per cent. The industry’s fastest developing segments were those manufacturing remaining electrical equipment (growth of sold production increased by 411 per cent) and lighting equipment (361 per cent). Growth in sold production was slightly lower than average for the whole electrical engineering sector in the segment manufacturing cables (258 per cent), distributing and controlling devices (226 per cent) and batteries and cells (225 per cent). The lowest growth (127 per cent) characterized the sold production of electric engines, generators and transformers.

Electrical Engineering

159

Figure 4.5.2 Value of sold production


Despite the small number of enterprises (9 per cent of all enterprises in the electrical engineering industry), the segment of cables had the highest share (30 per cent) in sold production of the sector. Also high was the share of the segment manufacturing the remaining electric equipment (23 per cent). It should be noted, however, that the segment’s share was too low considering the fact that enterprises manufacturing the remaining electric equipment account for 28 per cent of all enterprises of the electrical engineering industry. On the other hand, the share of manufacturers of lighting equipment in the sector’s sold production was proportional to their number and reached 16 per cent. In relation to the number of enterprises manufacturing distributing and controlling devices, which accounted for 27 per cent of the electrical engineering industry’s manufacturers, their share in the sector’s sold production (put at 15 per cent) was extremely low. Also low was the share of enterprises manufacturing electric engines, generators and transformers. It did not exceed 10 per cent despite the fact that these enterprises accounted for more than 16 per cent of all manufacturers of the electrical engineering sector. At 6 per cent, the share of the manufacturers of batteries and cells was fairly high since they accounted for only 4 per cent of all producers operating in the sector.


Figure 4.5.3 Structure of sold production


Leading manufacturers The segment of production of wires and cables is dominated by Elektrim Kable (more than 50 per cent of domestic output), which groups three factories: Bydgoska Fabryka Kabli, Fabryka Kabli Zalom of Szczecin and Fabryka Kabli in Ozarów. Other large manufacturers of cables and wires are represented by the group formed by Tele-Fonika of Myslenice and its subsidiary Krakowska Fabryka Kabli and Slaska Fabryka Kabli, which is owned by the Danish NKT Cables concern. Another giant of the Polish electrical engineering industry is Philips Lighting Poland S.A. in Pila—the largest manufacturer of fluorescent lamps of the Philips enterprise, which supplies its products not only to the Polish market but also to the Western European market. Philips owns also Philips Lighting Bielsko, Polam Pabianice and Philips Lighting Farel of Kê trzyn (lamp holders). The lighting equipment segment’s other major producer is Wilkasy. Poland’s largest manufacturer of batteries and cells is Centra S.A. of Poznan´ (market share of over 50 per cent), which is owned by the US Exide Corporation. Another major manufacturer of batteries and cells is ZAP Piastów S.A. Poland also has two large factories which manufacture batteries: Philips Matsushita Battery Poland S.A. in Gniezno, which is a joint venture of Philips and Matsushita; and Rocket Poland S.A. in Starogard, which is owned by the Korean Rocket Electric Company. According to the latest reports, Philips has decided to sell its stake in the Gniezno factory to its Japanese partner.


161

Major manufacturers operating in the Polish electrical engineering sector also include companies specializing in products for the power industry: ABB Zamech Sp. z o.o., Alstom Power Generators Sp. z o.o., ABB Elta Sp. z o.o., SGL Carbon S.A., Adtranz Zwus Sp. z o.o., GE Power Controls Polska Sp. z o.o., Zak§ad Elektrod Wêglowych S.A. and Elda Szczecinek S.A. Well-known enterprises from the electrical engineering sector also include the largest Polish manufacturers of electric engines: Fabryka Maszyn Elektrycznych Celma S.A., Zak§ady Wytwórcze Maszyn Elektrycznych i Transformatorów Emit S.A., Fabryka Silników Elektrycznych Besel S.A. and Fabryka Maszyn Elektrycznych Indukta S.A. Table 4.5.1 Financial results of Poland’s largest electrical engineering companies, 2000 Revenue (PLN million)

Gross profit Employment (PLN million)

Elektrim Kable S.A.

1784.5

-25.9

3531

Philips Lighting Poland S.A.

1365.8

63.1

3892

Krakowska Fabryka Kabli S.A.

677.3

15.3

1098

ABB Zwar S.A.

319.9

-4.7

705

Philips Lighting Farel

273.9

13.2

800

ABB Elta Sp. z o.o.

271.9

20.5

695

Œ lá ska Fabryka Kabli S.A.

259.0

2.0

394

SGL Carbon S.A.

251.1

35.6

586

Philips Matsushita Battery Poland S.A.

238.4

16.8

875

Alstom Power Generators Sp. z o.o.

236.8

15.0

486

Zak§ad Elektrod Wê glowych S.A.

201.4

-26.6

950

Elda Szczecinek S.A. Adtranz Zwus Sp. z o.o.

128.4 112.6

24.3 8.7

778 535

Source: Gazeta Bankowa, ranking of top 500 Polish companies; Rzeczpospolita, ranking of top 500 Polish companies

Foreign investment The fast growth of the Polish electrical engineering industry’s output would not be possible without privatization combined with huge investment outlays. Enterprises put to privatization implemented restructuring programmes accompanied by investment in new technologies and machinery, which made it possible to increase the effectiveness of production and competitiveness on the increasingly demanding market.


According to data from the Central Statistical Office (CSO), investments in the Polish electrical engineering industry reached PLN4 billion in 1996–2000, of which about half was invested in the last two years. Most of the amounts involved accounted for investment by foreign companies attracted by the fast development of the Polish economy in the 1990s. Part of these investors took over the operating, whereas others decided to build their own factories in Poland. According to data from the Polish Agency for Foreign Investment (PAIZ), foreigners invested US$773 million in the Polish electrical engineering sector by the end of 2000. It should be noted, however, that foreign capital invested in the electrical engineering sector is, in fact, smaller because PAIZ data also covers investments by Philips and Siemens in the electronic and household appliances sector. The leading foreign investors in the Polish electrical engineering sector are ABB, Philips and Siemens. Other major investors include Legrand, Matsushita Co., Ahlstromforetagen Svenska AB, Exide Corporation, BTR European Holdings BV and United Technologies Automotive. Table 4.5.2 Major foreign investors in the electrical engineering sector, end 2000 Capital invested (US$ million)

Country of origin

Notes

Philips*

363.8

The Netherlands

Philips Lighting Poland (Pi§a), Philips-Matsushita Battery Poland S.A. (Gniezno), Philips Consumer Electronics Industries Poland (Kwidzyn), Philips Lighting Farel Mazury (Kêtrzyn), Philips Lighting Bielsko, Polam Pabianice, Philips Poland Warszawa

Siemens*

150.0

Germany

Siemens Fabryka Izolatorów (Jedlina), Osram Sp. z o. o., a 95% share in ZWUT S.A., a 50% share in BSH Sprzêt Gospodarstwa Domowego Sp. z o. o., a 50% share in VW Elektrosystemy Sp. z o. o. (Gorzów Wielkopolski), Siemens Building Technologies Sp.z o.o.

ABB Ltd

123.1

Sweden, Switzerland

Legrand

31. 5

France

ABB Automatyka (Warsaw)—automatic control systems and drives, a 94% share in ABB Elta (£ód´z) - transformers, ABB Instal (Wroc³aw)—MV and LV equipment, ABB Centrum (Wroc³aw)—controlling devices for power plants, ABB Industrial Components (Warsaw)—distribution of LV equipment, a 65% share in ABB Service (Legnica) Legrand SNC (Warsaw), a 75% share in FAEL-ELFA (Zá bkowice ´lá s skie)


163

Table 4.5.2 (cont’d) Capital Country of invested origin (US$ million)

Notes

Matsushita Co.

26.2

Japan

Ahlstromforetagen Svenska AB

16.2

Sweden

A 50% share in Philips-Matsushita Battery Poland (Gniezno)—galvanic batteries A stake in Polam Szczecinek S.A.

Exide Corporation

14.5

United States Centra S.A. (Poznan ´)—car batteries

BTR European Holdings BV

12.5

The Netherlands

United Technologies Automotive

10.0

United States UT Automotive Poland Sp. z o. o. (SSE Mielec)— cables and wires

Hawker Fabryka Akumulatorów S.A. (Bielsko-Bia³a)

NKT Cables AS

7.3

Denmark

´lá ska Fabryka Kabli S.A. (Czechowice-Dziedzice), S a 62% share in the Nowe Œl¹skie Kable company (Gliwice, Katowicka Special Economic Zone)— cables and wires

Lexel AS

5.0

International

Elda-Szczecinek Elektrotechnika S.A. (Szczecinek), Eltra S.A. (Bydgoszcz)

KloecknerMoeller GmbH

3.6

Germany

A share in Elektromonta¿-1 Katowice S.A.

Sylea Italia Srl

3.2

Italy

Cavis Poland (Czechowice-Dziedzice)—cables and wires

AEG Niederspannungstechnik GmbH Co. KG

3.2

Germany

Zak§ed Aparatury Elektrycznej Elester S.A. (£ód´z)

AEG AG

1.8

Germany

A stake in Miko§owska Fabryka Transformatorów Mefta S.A.

Rauschert

1.1

Germany

A 52% share in Rauschert-Elektrim-Mysa§kowice Sp. z o.o.

Total

773.0

* Total investments in the electrical engineering, electronic and household appliance sectors Source: Polish Agency for Foreign Investment (PAIZ)

Employment and wages Employment in the electrical engineering industry has been growing steadily in recent years, reaching its highest level of 82,700 workers in 1998.


However, a slowdown in development brought about by the financial crisis in the East forced the sector’s enterprises to cut the number of employed. As a result of efforts made to this end, employment in the electrical engineering industry was reduced in the course of two years by 3500 workers (or 8 per cent) to 76,100. The most serious reductions in employment were made in the segment manufacturing electric engines, generators and transformers (27 per cent) and in the segment manufacturing electrical energy distributing and controlling devices (about 18 per cent). In other segments of the electrical engineering sector employment was reduced by 3–5 per cent. The only exception was the segment manufacturing the remaining electric equipment where employment increased by more than 11 per cent between the end of 1998 and the first half of 2000. Currently, this segment employs 28 per cent of all electrical engineering industry workers. This is followed by the segment of electrical energy distributing and controlling devices (21 per cent), the lighting equipment segment (17 per cent), the segment manufacturing cables and wires (16 per cent) and the segment specializing in the production of electric engines, generators and transformers. The lowest level of employment characterizes the segment manufacturing batteries and cells.

Table 4.5.3 Average employment in the electrical engineering industry (’000 workers) 1998

1999

2000

Manufacture of electric engines, generators and transformers

14.7

12.7

10.7

Manufacture of electrical energy distributing and controlling devices

19.5

17.0

16.0

Manufacture of insulated wires and cables

12.6

11.9

12.0

2.8

2.7

2.7

Manufacture of lighting equipment and electric lamps

13.7

13.2

13.1

Manufacture of the remaining electric equipment

19.4

22.1

21.6

Total

82.7

79.6

76.1

Manufacture of batteries and cells


In terms of productivity, however, the sector’s leader is the segment manufacturing cables and wires, which has high revenues and relatively low employment. The segment’s income per one employed is PLN303,700. High productivity also characterizes the segment of batteries and cells (PLN251,400). Far lower productivity levels are recorded in the lighting equipment segment (PLN148,000) and in the segment manufacturing the remaining electric equipment (PLN127,500). The


165

lowest income per employee is recorded in the segment of electrical energy distributing and controlling devices (PLN116,300) and the segment of electric engines, generators and transformers (PLN114,500). According to CSO, average wages in the electrical engineering industry exceeded PLN2025 in 2000 (growth of 7.7 per cent). The highest wages (higher by over 19 per cent than the average for the sector) were earned by employees of enterprises manufacturing batteries and cells and those of the cables and wires segment (16 per cent). Higher than average wages were also earned by workers employed in the segment manufacturing electrical energy distributing and controlling devices (4.5 per cent) and the segment of electric engines, generators and transformers (3.6 per cent). The lowest wages in the electrical engineering sector were paid to workers employed in the enterprises manufacturing the remaining electric equipment, whose earnings were lower by 9 per cent than the average wage, and people employed in enterprises manufacturing lighting equipment (earnings lower by 13 per cent than the average wage). Figure 4.5.4 Productivity in the electrical engineering industry


Financial condition Until recently, the electrical engineering industry was one of the most profitable sectors of the Polish economy. The industry’s sales revenues have been growing at an average annual rate of about 13 per cent. However, growing costs have led to a gradual decline in the sector’s profitability. With the present cost index of 96.7 per cent, the net profitability of the electrical engineering industry has fallen to 2.1 per cent. In 2000, the highest net profitability characterized the segment manufacturing electrical energy distributing and controlling devices (4.1 per cent). This was followed by the lighting equipment segment (2.7 per


cent) and the segment of insulated wires and cables (2.5 per cent). A lower than average net profitability rate was recorded in the segments manufacturing the remaining electric equipment (1 per cent) and electric engines, generators and transformers (0.8 per cent), while the segment manufacturing batteries and cells showed a net loss (- 0.7 per cent). CSO data indicates that the cost structure of the electrical engineering sector is dominated by the consumption of energy and materials (58.7 per cent), wages and employee benefits (19.9 per cent) and external services (12.7 per cent). Depreciation (5 per cent), taxes and fees (1 per cent) and remaining expenditures constitute an insignificant part of overall costs. According to CSO, out of 278 enterprises of the electrical engineering sector 195 (70 per cent) were profitable, whereas 83 (30 per cent) recorded losses in 2000. The cost index in the profitable enterprises reached 93 per cent on average, while in the enterprises generating losses the cost index reached 105.4 per cent. Profitable enterprises recorded a combined gross profit of PLN480.2 million and a combined net profit of PLN305.9 million. Table 4.5.4 Basic financial indicators Cost index 1999

Cost of sales Gross profitability index rate

2000

1999

2000

1999

Net profitability rate

2000

1999

2000

Electric engines, 1 0 0 . 6 generators and transformers

98.0

98.4

97.6

-0.6

2.1

-2.5

0.8

Electrical energy distributing and controlling devices

97.2

94.2

97.9

93.6

2.8

5.9

0.9

4.1

Insulated wires and cables

94.3

97.1

92.8

95.5

5.7

2.9

4.0

2.5

Batteries and cells Lighting equipment

98.1

100.3

91.2

94.1

1.9

-0.3

1.7

-0.7

91.8

95.4

90.9

94.5

8.2

4.6

5.9

2.7

Remaining electric equipment

97.0

97.5

94.3

95.6

3.0

2.5

0.9

1.0

Electrical engineering industry overall

95.9

96.7

94.1

95.2

4.1

3.3

2.3

2.1


4.6

Cable Industry BOSS Economic Information Agency, Warsaw

Sector characteristics The manufacture of insulated wires and conductors is one segment of the electrical engineering industry. In 2000, there were 25 large enterprises (each employing over 50 workers) in Poland which manufactured cables, according to the Central Statistical Office (CSO). These enterprises accounted for 9 per cent of large firms in the electrical engineering sector. Despite the small number of enterprises, the cable manufacturing segment has the highest (30 per cent) share in the electrical engineering industry’s sold production. Results recorded by the cable industry are a good barometer of the prevailing business climate since its main clients are such strategic sectors of the economy as power engineering, telecommunications, IT, construction, the electronic industry and the automotive industry. The lower rate of economic growth recorded by Poland recently has led to a reduction in investments in these key sectors, impacting indirectly on the results and the strategy of the cable industry. Decline in domestic demand has spurred the Polish manufacturers of cables to energetic search for new outlets abroad which would allow them to increase exports. Although, according to experts, there is an overproduction of cables on the global market, Polish-made cables sell well on foreign markets owing to competitive prices and high quality. It is also important that all the leading domestic manufacturers of cables possess international quality certificates.


Figure 4.6.1 Division of the Polish cable market, 2000*

Source: Tele-Fonika

Sales of cables on the Polish market have been increasing at a high rate in recent years. The import and export of cables have also been on the increase. Taking into account the foreign trade balance, the total value of the Polish cables market in 2001 can be estimated at US$488 million. According to the Electronics Market Institute, the structure of domestic demand for cables has been dominated recently by power and subscriber cables. Their share in overall sales on the Polish market exceeds 50 per cent. In the opinion of IRE experts, this is attributable to the progressive modernization of existing power lines and the development of the road network. The sales of telecommunications cable and wires, both copper and optical, have also been increasing in recent years.

Production structure and output In the past decade, the production of cables in Poland grew by an average 9–10 per cent annually. According to Central Statistical Office (CSO) data, the output of insulated wires and conductors reached 292,700 tonnes in 2000 and was higher by almost 15 per cent than in 1999 (255,300 tonnes). However, in the first half of 2001, the rate of growth of production in the sector diminished. During this period, domestic manufacturers supplied 133,000 tonnes of insulated wires and conductors, or 99.3 per cent of the output recorded in the same period of 2000. The slump

Cable Industry 169

in the sector observed after the first six months of 2001 is the direct result of Poland’s weaker economic growth. In terms of the raw materials used, the structure of production is dominated by copper cables and conductors. Thus, the whole sector is relatively sensitive to changes in the prices of copper on world exchanges. The main supplier of copper to the Polish cable industry is KGHM S.A. The industry also manufactures aluminium cables and conductors needed by the power sector. Figure 4.6.2 Production of insulated wires and conductors’

* Data differs from that quoted earlier due to a change in CSO classification, from SWW to PKWiU. Source: Central Statistical Office (CSO), own calculations

A separate group of the industry’s products are optical cables. This is a relatively new medium whose significance is growing rapidly. An optical cable is constructed of thin optical fibres made of acrylate-coated quartz glass. The fibres account for 80 per cent of the cost of the optical cable’s manufacture. Due to the dynamic development of the Internet and the construction of optical access networks, there is a global shortage of optical fibres at present. The shortage is also attributable to a change in the technology of production of optical cables. Until recently, optical cables consisted of several dozen fibres—now they are often made of several hundred fibres, which consequently increases demand for this raw material. It is most likely that the Polish market’s demand for optical fibres will not be fully met during 2002. In 2000, Polish manufacturers of cables used 480,000 kilometres of optical fibre, but experts estimate that demand for this raw material in 2002 may grow to 1.4 million kilometres.


Poland currently has four major manufacturers of optical cables. The largest of them is Tele-Fonika, which accounts for about half the total domestic output of optical cables. Such cables are also manufactured by two plants owned by Elektrim Kable in Bydgoszcz and Ozarów, and by OTO Lublin. In terms of weight, optical cables have a small share (2 per cent) in the overall output of the cable industry, but their role is far greater than could be surmised from statistics. Power cables and conductors have a 60 per cent share, in terms of weight, in the structure of production of the Polish cable industry. Such cables are used in power engineering, industry and construction. The progressing expansion and modernization of fixed-line and mobile telephony has led to higher demand for electrical conductors used in telecommunications, which currently account for 15 per cent of the Polish cable industry’s output. The industry also supplies coil conductors, coaxial cables used in data transmission, signalling cables, and naval cables.

Leading manufacturers According to CSO data, 25 large enterprises, employing more than 50 workers, operated in the Polish cable industry in 2000. However, owing to the industry’s privatization and rapid consolidation in the late 1990s, it is now strongly concentrated. Two capital groups, Elektrim Kable (EK) and Tele-Fonika, together with Krakowska Fabryka Kabli (KFK), jointly supply more than 80 per cent of the domestic production of cables, and their share in the Polish market of cables is estimated at 63 per cent. Consolidation has not only strengthened the firms’ position on the internal market, but has also allowed them to expand dynamically on to foreign markets. The leading Polish manufacturer of insulated wires and conductors is Elektrim Kable (EK). The company was formed as the result of a merger between Bydgoska Fabryka Kabli, Fabryka Kabli Ozarów and Kable Zalom of Szczecin. The Elektrim Kable Holding company controls approximately 35 per cent of the domestic market of cables. The group’s factory in Bydgoszcz specializes in the manufacture of power cables. The factory in O¿arów supplies telecommunications cables, while Kable Zalom manufactures cables for the construction sector. Consolidation and restructuring have allowed the three enterprises to rationalize their operation by means of specialization of production, central logistics and sales management, reduction of employment and coordination of research and development work. As a result of the merger, Elektrim Kable has become one of the largest manufacturers of cables in Europe. The company is the only producer of high-tension cables (over 110 kV) in Poland and a major supplier of copper cables, optical cables (O¿arów

Cable Industry 171

and Bydgoszcz) and subscriber cables. The product range of Elektrim Kable covers power cables, telecommunications cables, optical cables, computer cables, as well as subscriber conductors, self-supporting, coil, steering, car, mining and naval conductors. The second-largest manufacturer of cables on the Polish market is the capital group composed of Tele-Fonika in Mys´lenice and Krakowska Fabryka Kabli (KFK). Tele-Fonika, established in 1992 by a group of private investors, is the most rapidly developing enterprise in the cable sector. Growth in its revenues proved so fast that the company became transformed from a civil code company into a joint-stock company in 2001 after its annual turnover had exceeded €400,000. Tele-Fonika specializes in the production of communications cables such as copper cables for telecommunications, IT cables and optical cables. Krakowska Fabryka Kabli (KFK), purchased by Tele-Fonika in December 1998, is one of Poland’s largest factories manufacturing cables and conductors. KFK supplies mainly power, signalling, naval and mining cables as well as overhead power cables, steering conductors and coil conductors. Its products supplement the assortment of cables offered by Tele-Fonika. The combined share of Tele-Fonika and KFK in the Polish cable market is 28 per cent. Another major manufacturer of cables is S´lá ska Fabryka Kabli (S´FK), which is the only domestic cable factory with a foreign investor from the sector—the Danish NKT Cables concern. S´ FK specializes in the production of small-diameter cables, including coil conductors, fixed power cables and insulated cables for portable receivers, low-tension cables (0.6–1 kV), telecommunications and IT cables. The share of S´FK in the domestic market of cables is put at 6 per cent.

Financial condition In recent years, demand for cables and conductors has been growing steadily, stimulating their production and sales. CSO data shows that the sales of cables and conductors manufactured by Polish enterprises exceeded PLN3.6 billion (US$838.5 million) in 2000. However, in 2002, the business climate in the cable sector can be expected to deteriorate as a result of a slowdown in Poland’s economic growth and overproduction in the global cable sector. The profitability of the cable sector has been declining steadily over the past few years. In 2000, the sector’s gross profitability rate fell to 2.9 per cent from 5.7 per cent, while its net profitability rate diminished to 2.5 per cent from 4 per cent. Growth in costs were the main reason for the fall in profitability. In 2001, the sector’s cost index grew to 97.1 per


cent from 94.3 per cent, while its cost of sales index grew to 95.5 per cent from 92.8 per cent. The most important item in the structure of costs of the Polish cable sector in 2000 was the consumption of electrical energy and raw materials (69.7 per cent). Other important items were wages and employee benefits (12.5 per cent), and external services (11.5 per cent). A tangible growth in the share of consumption of electrical energy and materials in the sector’s expenditures was attributable to significant rises in the prices of copper on world markets in 2000. The price of copper is of crucial importance to the cable sector since metals have the highest share (70– 80 per cent) in the cost of manufacture of traditional cables. A significant growth was recorded in the share of external services in the sector’s overall costs, but the share of wages and employee benefits diminished owing to a reduction in pay. Depreciation (4.9 per cent), taxes and fees (0.6 per cent) and other expenditures do not play an important role in the sector’s cost structure. The high exchange rate of the Polish z§oty (PLN) also impacts negatively on the profitability of the cable sector. Since, due to strong competition, Polish manufacturers cannot introduce significant price rises, they are compelled to reduce export margins to be able to stay on foreign markets. This impacts directly on the profitability of the whole cable sector.

Figure 4.6.3 Profitability of the cable industry


In 2000, employees in the cable sector constituted 15.8 per cent of the total number of employees in the electro-technical industry. From the

Cable Industry 173

previous year, the employment level changed slightly by 0.8 per cent— to about 12,000 people. Wages in the sector, which had been rising at a pace far higher than inflation, in 2000 decreased for the first time by 4.4 per cent (to PLN2355), and this was reflected in the structure of costs. Gross wages in the sector were over 16 per cent higher than the average in the electro-technical industry and nearly 22 per cent higher than in the processing industry. Efficiency in the cable sector is relatively high at nearly 191 per cent of the average efficiency of the processing industry. In 2000, an average employee in the sector generated income of approximately PLN303,700.

Table 4.6.1 Employment, wages and efficiency in the cable and conductor sector 1996

1997

1998

1999

2000

Average employment (‘000)

11.1

12.3

12.6

11.9

12.0

Employment growth (y/y=100)

114.0

111.0

101.7

94.8

100.8

Average gross monthly wage (PLN)

1131

1336

1594

2463

2355

Wage growth (y/y=100)

122.6

118.1

119.4

125.6

95.6

Work efficiency (PLN’000 per employee)

176.3

194.7

204.3

251.0

303.7

Work efficiency (average of the electro-technical industry=100%)

219.1

199.5

187.5

189.1

190.9

Work efficiency (average in the processing industry=100%)

200.1

177.3

164.1

175.5

171.4

Source: Central Statistical Office (CSO), own calculations

4.7

Automotive and Transport Equipment Sector Polish Agency for Foreign Investment (PAIZ)

Introduction A growing sector The transport equipment industry is one of the fastest growing industries in Poland. It has really taken off in the last five years, galvanized by the rapid growth of the Polish economy and a rise in individual disposable incomes. Some idea of the rate of growth can be gained from the fact that in 1999 the total value of the sector’s sales was US$9.4 billion, double that of 1994. In fact, the transport equipment industry’s output is growing much faster than industrial output as a whole. Figure 4.7.1 Growth rate of transport equipment industry sales versus total industry

Yearbook of Industrial Statistics 1997–2000, Central Statistical Office (CSO)

In 2000, a total of 6200 companies operated in this sector, employing a total of 175,000 workers. The decline in the number of people employed in the sector (see Table 4.7.1) is the result of restructuring in major

Automotive and Transport Equipment Sector

175

Polish companies, particularly in the shipbuilding and aircraft industries. Table 4.7.1 Employment in the transport equipment industry sector (’000) 1994

1995

1996

1997

1998

1999

2000 /I–VI/

222.2

215.1

214.1

210.6

190.0

183.3

173.4


Industry structure The sector covers a wide range of activities, catering for totally different markets, with varying economic indicators. Each of them is dealt with in turn in this chapter, but it is important to have an appreciation of the relative importance of each sub-sector to the industry as a whole. The transport equipment industry can broadly be defined as the manufacture of all types of motor vehicle (passenger cars, lorries, vans and buses), car parts and accessories, sea-going vessels, other types of boats, railway and tramway rolling stock (carriages and locomotives) and small planes and helicopters. The largest sub-sector is the manufacture of passenger cars, accounting for 62 per cent of all sales and 32 per cent of employment. However, production is highly concentrated, as can be seen by the fact that motor manufacture accounts for only 1.6 per cent of all enterprises in the sector as a whole. Figure 4.7.2 Branch structure of transport equipment industry

Source: Author’s own calculations based on Central Statistical Office (CSO)

The next largest branch is the manufacture of vessels and boats, which accounts for 18 per cent of sales revenues. In terms of number of firms, it accounts for 58 per cent of all companies in the sector. The transport equipment industry in Poland covers a range of enterprises from small firms employing up to 50 people to large conglomerates employing thousands. Enterprises with under 100


employees account for less than 29 per cent of firms operating in the branch, while 44 per cent of firms employ between 100 and 500 people, 13 per cent between 500 and 1000 and 14 per cent more than 1000. The small enterprises are generally suppliers of parts and accessories for vehicles manufactured by big plants. International trade International trade in this sector has changed considerably over the past five years, from being export led to import led. Since 1995, the last time that Poland showed a positive balance of trade in this sector, imports of transport equipment to Poland have been rising, albeit unevenly. They reached as high as 175 per cent in 1996 (compared to 1995). Exports decreased by 27 per cent in 1997, and a year later showed the sharpest increase (52 per cent) in five years. As can be seen from Table 4.7.2, between 1994 and 1999 the value of imports of transport equipment to Poland rose by almost 500 per cent, while exports increased by only 100 per cent. In 1999, the trade deficit closed at US$1.8 billion. Table 4.7.2 Value of imports and exports and balance of trade in transport equipment (US$ billion) Imports Exports Balance

1994

1995

1.1 1.7 0.6

1.6 2.3 0.7

1996 2.8 2.6 -0.2

1997 3.7 1.9 -1.8

1998 4.2 2.9 -1.3

1999

2000 (I–VI)

5.4 3.6 -1.8

2.9 1.8 -1.1


While this situation may not be healthy for Poland’s balance of payments, it is a strong indicator of the high level of demand on the Polish market. It can be assumed that domestic manufacturers will soon cater for at least part of the needs currently covered by foreign suppliers. Customs regulations Customs duties are applicable to imports of transport equipment into Poland. Their level, depending on the kind of imported goods and the country of origin, accounts for 35 per cent, 14 per cent, 10 per cent or 4 per cent. In addition, excises of 17.6 per cent or 6.4 per cent and VAT of 22 per cent are levied. Motor vehicle parts are exempt from customs duties. Specific levels of customs duty are given in the relevant sections, but in general it is important to note that there will be a progressive reduction in customs duties on transport equipment imported to Poland from EU countries. This will be in accordance with association agreements between Poland and the European Union.


177

Manufacture of motor vehicles Polish car market In a European context, the Polish car market stands out due to both its size and the rapidity of its development. In 1999, 638,000 new cars were sold in Poland. In terms of the number of cars sold, Poland ranks seventh in Europe, just behind powerful economies such as Germany, France and the United Kingdom. Companies with production plants in Poland, such as Fiat, record the highest level of car sales. They are developing their distribution networks in order to reach their customers and to provide them with speed and comfort of service. Over the last few years, Poles have bought increasing numbers of betterquality cars, and there are firm indications that this trend will continue. The Polish car market is expanding to such an extent that significant annual growth in car sales for at least the next decade is forecast. Figure 4.7.3 Manufacturers’ market shares, 1999

Source: Samar s.c.

There are almost nine million passenger cars registered in Poland, which is a low per capita ratio (0.229) when compared to Western Europe, where the figure is two or three times as high. However, this figure is expected to increase in Poland. Not only are there opportunities for manufacturers to expand due to pent-up consumer demand, but there is also a high need for replacements. It can also be expected that the increased wealth of the population will encourage people to upgrade their cars. A further important factor on the Polish market should also not be forgotten—ie the role of the car as a status symbol, not only in the function it performs in Western markets but also in terms of it being a luxury which is attainable. A flat or a house may be unattainable but a car is within reach for many Poles.


Increasingly, cars in Poland are purchased on credit. At present, some 60 per cent of cars are bought on this basis, and loans for car purchases account for over a quarter of all consumer credits. This is simply another example of the Polish consumer moving into line with Western Europe, where 9 out of 10 cars are sold on credit. In order to become independent from commercial banks, many automotive companies have embarked on their own banking activities. Such activities were pioneered by Ford, followed by Opel and Fiat, and more recently by Volkswagen. Other manufacturers operating in Poland are also interested in entering the field given the success of the early market entrants. In ‘car banks’ formalities are kept to a minimum, and interest rates on credits are often lower than in commercial banks. Their main advantage is that they can arrange for a ‘one-stop shop’. The customer only has to visit the dealer and buying the car on credit takes only an hour longer than buying it with cash. The activities of the ‘car banks’ are another useful marketing tool which is stimulating growth, and a measure of the competitive struggle on the markets. Structure of the sector The automotive sector is one of the fastest growing industries in Poland. One of the main reasons for the dynamic development of the automotive industry is of course the sharp increase in demand for passenger cars. This was one of the first industries to be privatized in the early 1990s, and out of a total of 102 enterprises only six are not privately owned. In 1999, the industry, covering the manufacture of motor vehicles including passenger cars, lorries and buses, provided jobs for 54,500 people, and an average monthly wage of US$415. Table 4.7.3 Largest manufacturers of motor vehicles and parts in Poland Location

Product

Autosan

Sanok

Buses

Fiat

Bielsko Bia³a

Passenger cars

Isuzu

Gliwice

Lorries, engines

Opel

Gliwice

Passenger cars

Star

Starachowice

Lorries

Daewoo

Lublin

Vans

Daewoo

Warsaw

Passenger cars

Scania

Supsk

Vans, tractors

Volkswagen

Poznan ´

Passenger cars


179

Looking specifically at the automobile manufacturing sector, sales of new passenger cars have increased steadily since 1992; most recent figures show annual sales of US$6.9 billion. As can be seen from Figure 4.7.4, production increased by 82 per cent from 1994 to 1999, with the largest increases being recorded in 1995 and 1997. Figure 4.7.4 Production of passenger cars (‘000)


Table 4.7.4 Sales of new passenger cars in Poland (’000) 1994

1995

1996

1997

1998

1999

250

265

374

477

515

638

Source: Samar s.c.

Foreign investment Major foreign investors had a decisive impact on the growth of the country’s automobile industry. Most Polish automotive industry firms attracted large foreign companies acting as strategic investors, which helped to get the industry back on its feet. Many of the world’s major players have now entered the Polish market. Figure 4.7.5 Major foreign investors in the automotive industry, June 2000 (US$ million)

*Toyota is currently building a gear-box factory costing US$90 million in Walbrzych Source: Polish Agency for Foreign Investment (PAIZ)


Investment commitments of firms already operating in Poland now exceed US$1 billion. Table 4.7.5 Investment plans, June 2000 (US$ million) Volkswagen

72.7

Volvo

50.0

DaimlerChrysler Toyota

7.2 90.0

Source: Polish Agency for Foreign Investment (PAIZ)

There are two different methods of production of motor vehicles in Poland. First, there is production from scratch, with some components being produced outside the main plant. In 1999, 438,000 cars were produced in this way. Second, there is industrial assembly, currently used by all Polish car manufacturers, and in 1999 some 239,000 vehicles were manufactured in this way.

Manufacture of motor vehicle parts Overview This is another sector that has enjoyed rapid growth over the last five years and has proved a sound investment for many foreign companies. The development of this branch is obviously related to the development of the automotive industry as a whole. Thus, manufacturers of parts and accessories have also enjoyed enormous opportunities for expansion. In Poland, there are 1835 companies manufacturing motor vehicle parts and accessories. Most of them are private firms at the so-called ‘grass-roots’ level of entrepreneur ship. Indeed, the establishment of small private firms from scratch has been quite significant in the development of this branch. In 1999, plants producing motor vehicle parts and accessories had 34,000 employees and the average monthly wage offered was US$405. Virtually all motor vehicle parts and accessories are manufactured in Poland, ie brakes, gear boxes, axles, wheels, shock absorbers, radiators, exhaust silencers, exhaust pipes, clutches, steering wheels and interior car equipment. There has also been a very dynamic increase in the manufacture of tyres and tubes. The performance of this branch has actually improved year on year, as even a few years ago foreign automotive companies operating in Poland would import parts and accessories from their own countries. Now, these foreign companies increasingly have contracts with Polish producers and thus the branch is growing in significance within the sector. It offers domestic firms


181

considerable sales growth opportunities, in addition to attractive returns for investors. Figure 4.7.6 Major foreign investors in the manufacture of vehicle parts and accessories, June 2000 (US$ million)


Foreign investment The production of motor vehicle parts and accessories is of increasing interest to foreign investors coming to Poland with the largest car manufacturers. Poland is attractive both because of the growing demand for new cars and due to its favourable location for export production. Poland’s low production costs compared to Western Europe are yet another motivator. Due to foreign investors bringing both capital and know-how, the automotive sector (both vehicles and parts) stands a good chance of growing faster than GDP over the next couple of years. It is widely regarded as one of the driving forces of the Polish economy.

Manufacture of aircraft Overview The Polish aircraft industry has strong traditions dating back to before World War II and has excellent prospects for development. Cooperation with the largest aircraft manufacturers in the world has brought


enormous opportunities for rapid growth. Under these increasingly popular joint venture schemes, Polish plants produce aircraft parts and accessories for foreign firms. These firms are interested in using the potential of Polish aircraft industry plants, and their highly skilled, costeffective labour force makes them particularly attractive. Aircraft industry enterprises in Poland manufacture small sports and passenger planes, helicopters, gliders, and aircraft parts and accessories. At present, 55 firms employing 16,000 people operate in this branch. Polish aircraft industry enterprises have been restructured. Most of them have now cut over-employment, allowing them to boost productivity levels and reduce production costs. They are also diversifying their production profile from purely military to include military and civilian planes. It is this growing share of civilian production which has opened up new prospects for development in the aircraft industry.

Map 4.7.1 Location of major aircraft manufacturers

Location

Product

WSK PZL Mielec

Mielec

Passenger-transport planes, agricultural and fire planes, sports planes

WSK PZL Rzeszów ´widnik WSK PZL S

Rzeszów

Engines

Swidnik

Gliders, helicopters

WSK PZL Kalisz

Kalisz

Engines, passenger planes, agricultural, fire planes, tractors, assembly

WSK PZL Warszawa, Warszawa PZL Wola Radwar S.A.

Engines, transport planes

PZHL Hydral

Engines, transport planes

Wroclaw


183

Manufacture of railway and tramway rolling stock Overview The manufacture of railway rolling stock is regarded as a priority due to the strategic importance of railway transport for the economy. In Poland, in accordance with European trends, this form of transport is expected to increase in importance, which is another reason why sales are expected to increase in the sector as a whole. The sector is well established in Poland and covers the full spectrum of equipment: goods wagons, passenger coaches and locomotives, not to mention tramcars and parts, are all manufactured here. Automatic control equipment for railway and tramway traffic is also produced in Poland. There are 142 manufacturers of railway equipment registered in Poland, including nine railway rolling stock repair works (ZNTK). In most parts of this branch, small components are produced: screws, electronic components, railway rolling stock accessories. Employment in this branch stands at 21,600, and the average monthly wage is US$345. Figure 4.7.7 Production of goods wagons (units)

Source: Central Statistical Office (CSO) Goods wagons are manufactured in Poland on a mass scale (1719 in 1999). Over the last two years, output of these wagons has almost doubled. Compared to the number of railway cars produced in Poland, production of rolling stock is insignificant. Demand for trams is likely to increase since in all Polish cities public transport currently uses obsolete stock which urgently needs replacement. Demand for railway cars and locomotives is mostly created by Polish State Railways (PKP). Orders from this company are expected to


increase on completion of its restructuring and privatization programme. The rise in orders for railway equipment will be prompted by the need for its replacement by PKP. Figure 4.7.8 Production of railway coaches, locomotives and trams (units)

Source: Central Statistical Office (CSO) In Poland, there are more than 32,000 kilometres of railway track, most of which are in the following regions: Wielkopolskie (3820), Dolnóslaskie (3270), S´lá skie (3090) and Mazowieckie (2780). In 1999, Polish State Railways transported over 417 million passengers and nearly 230 million tonnes of freight. The leading manufacturers of railway rolling stock in Poland include H. Cegielski (Poznan), ZNTK (Warsaw, Ostrów Wlkp., Wroclaw, Kraków, Nowy Sá cz), Zastal (Zielona Góra) and Alstom (Chorzów).

4.8

Chemicals Polish Agency for Foreign Investment (PAIZ)

The chemical industry represents a major sector of the Polish national economy, comprising approximately 16,200 chemical enterprises. Almost 22 per cent of them employ more than five people, while 371 plants employ more than 100 people. The share of the chemical industry in Poland’s GDP is high, totalling approximately 8 per cent. The Polish chemical industry provides many diversified products for both industry and agriculture, as well as for consumers. Central planners established the largest enterprises in the chemical industry as branches contributing to the industrialization of Poland. Development of Poland’s chemical industry was possible due to significant deposits of raw materials including sulphur, rock salt, coal and lime, as well as easy access to petroleum and natural gas imported from CIS countries. The main branches of the Polish chemical sector are: • dyes, pigments, paints and varnishes; • Pharmaceuticals; • artificial fertilizers, nitrogen compounds, pesticides and other agrochemicals; • plastics; • cosmetics and household cleaning products.

Market environment Number of enterprises At the end of July 2000, the chemical industry was comprised of 16,190 enterprises, of which 12,950 were engaged in the manufacture of rubber and plastic products, while the remaining entities were engaged in the manufacture of chemicals, chemical products and artificial fibres. Ninetyone chemical sector enterprises are state owned, while the remaining enterprises are privately owned, of which 647 are foreign owned.


Size of enterprises In 1999, chemical industry enterprises of more than 50 employees provided employment for 226,000 people—14,000 more than in 1994. This growth in employment is associated with the development of enterprises manufacturing rubber and plastic products, while manufacturers of chemicals and chemical products reported efficiency-related cuts in employment levels. This trend is the result of implementing more efficient technologies and state-of-the-art organizational schemes. In 1996–2000, employment in the manufacture of chemicals and chemical products declined by 22,000. Job losses affected blue-collar workers. Between 1995 and 1997, the number of blue-collar positions declined by 2.600, while 7200 new white-collar positions were created. Figure 4.8.1 Structure of chemical sector enterprises by number of employees, 2000

Source: REGON

Figure 4.8.2 Chemical industry enterprises by ownership type, 2000 a) rubber and plastic products b) chemicals and chemical products

Source REGON

Chemicals

187

Figure 4.8.3 Sold production in the chemical sector, 1994–2000 (US$ million)

Source: Yearbook of Poland 1995–2000, Bulletin of Industry 2000, 2001, Central Statistical Office (CSO)

Value of sales Poland’s chemical sector accounts for some 9 per cent of manufacturing sales by value, which is rather low compared to the EU average of 14–18 per cent. However, it has significant potential to modernize and develop. Between 1994 and 2000, the value of sales in the chemical sector rose by US$3 billion (41 per cent). Manufacturers of chemicals and chemical products and manufacturers of rubber and plastic products increased sales by US$1.4 billion and US$1.6 billion, respectively. The growth in sales by manufacturers of rubber and plastic products was particularly rapid (averaging an annual increase of over 11.4 per cent between 1994 and 2000). The Polish chemical industry is currently in the process of restructuring. Average employment in the 47 largest chemical industry enterprises surveyed by the Polish Chamber of Chemicals declined by 13 per cent between 1998 and 2000. During the same period, the average value of sales per employee increased from US$65,500 to over US$68,000. Plastic products account for the largest share in sector sales—almost 22 per cent at the end of 1998. Figure 4.8.4 Structure of sales in the Polish chemical industry, end 2000



Exports and imports The value of exports grew by US$700 million (47 per cent) between 1994 and 2000. During the same period, the value of imports almost doubled. Thus, exports increased at an annual rate of 8 per cent and imports at a rate of 12 per cent. In 2000, the value of chemical products imported to Poland totalled US$6.9 billion, while exports totalled US$2.2 billion. Figure 4.8.5 Chemical sector exports and imports, 1994–2000 (US$ billion)

Foreign Trade 1995–2001, Central Statistical Office (CSO)

Exports Exports of chemical industry products are highly diversified. Six major chemical products account for almost 61 per cent of the total value of exports. The majority of these are processed goods. Between 1995 and 1999, the most rapid growth was achieved in exports of cosmetics (from US$75 million in 1995 to US$187 million in 1999), exports of soap and detergents (US$80 million and US$125 million, respectively) and exports of plastic products (US$300 million and US$555 million, respectively). The share of plastic products in the chemical sector’s total exports has been growing every year, clearly outpacing other groups of chemical products in terms of value of exports. Figure 4.8.6 Structure of exports in the chemical sector, 2000, by product group (%)

Foreign Trade 2001 (January–December 2000), Central Statistical Office (CSO)

Chemicals

189

Imports The total value of imports in the chemical industry reached US$6.7 billion in 2000. The share of low-processed goods in the value of imports declined. Final products (ie plastic products and Pharmaceuticals) dominate chemical imports to Poland. Between 1995 and 1999, rapid growth was noted in imports of cosmetics (from US$152 million in 1995 to US$277 million in 2000) as well as pharmaceutical products, rubber products, mixtures of odoriferous substances, lubricating preparations, photographic and cinematographic goods, dyes and pigments, as well as paints and varnishes. Figure 4.8.7 Structure of chemical sector’s imports, 2000, by product group (%)

Foreign Trade 2001 (January–December 2000), Central Statistical Office (CSO)

Economic conditions Poland has signed an agreement to abolish duties and quota restrictions with most of its major trading partners from the European Union, CEFTA (Central European Free Trade Association) countries and EFTA (European Free Trade Association) countries. Tariff quotas are applicable only on some items imported for the pharmaceuticals industry (Dz. U., 8 April 1999, item 272).

Investments in the chemical sector Rate and size of investments Investments in the chemical sector grew steadily in the second half of the 1990s. In 2000, investment outlays of enterprises in the chemical sector totalled US$1.4 billion. Investment outlays in 2000 for the manufacture of chemicals and chemical products were twice as high as in 1995 and tripled in the manufacture of rubber and plastic products. These investments mostly involved modernizing the existing technological processes and equipment, particularly with regard to reducing the


consumptive nature of energy and materials during production, improving product quality and reducing environmental hazards.

Figure 4.8.8 Investment outlays in the chemical sector, 1995–2000 (US$ million)

Bulletin of Industry 1996–2001, Statistical Bulletin, Central Statistical Office (CSO)

Structure of foreign investments As at 1 January 2001, foreign firms had invested just over US$2 billion in the Polish chemical sector. Their investment plans are estimated at some US$400 million. The majority of those outlays were directed to the branches making ready-made goods such as cosmetics, household chemicals, paints, varnishes, pharmaceuticals, industrial gases and plastics, rather than basic chemicals. Figure 4.8.9 Largest foreign investors in the chemical industry in Poland (US$ million), end 2000

Source: Foreign Investment, IKiCHZ Warsaw, Polish Agency for Foreign Investment (PAIZ), 2001

Chemicals

191

Investment conditions The financial status of the chemical industry is far stronger than that of manufacturing as a whole. Potential investors are attracted to the sector due to the lower share of costs in activity (ie higher profitability). Companies engaged in the manufacture of rubber and plastic products note particularly good results. With regard to costs, the consumption of materials and energy is the major concern (54 per cent of costs in the manufacture of chemicals and chemical products and 59 per cent in the manufacture of rubber and plastic products), outside services (16 per cent and 11 per cent, respectively) and wages (12 per cent and 14 per cent, respectively).

Flexible and adaptable labour force In Poland, access is assured to a highly qualified labour force, which guarantees a strong resource for the future development of potential investors’ businesses. Figure 4.8.10 Graduates of engineering and natural sciences, 1997–1999

Source: Concise Statistical Yearbook of Poland 2000, Central Statistical Office (CSO)

Institutional environment of the sector State activity State activity plays an important role in stimulating the sector’s development. By providing mechanisms that support the activities of enterprises in the chemical industry (privatization, consolidation), the State assists in increasing the production of the chemical industry in Poland. Efforts to privatize the chemical industry in Poland are under way and the government hopes to complete the entire process during 2002. The State also provides incentives to reduce the adverse external effects of the sector’s activities. A system of monitoring chemical production in


accordance with EU standards is in effect in Poland. A sector-wide programme, referred to as Big Chemical Synthesis, was instituted in the mid-1990s to restructure and develop the chemical sector. The programme also promotes sector consolidation in order to achieve the effect of synergy in relation to chemical companies. Restrictions Major administrative restrictions applicable to the chemical sector include limits on water intake and requirements concerning consent for discharging sewage effluents and air pollutants. The Provincial Office makes decisions on these issues. Should limits be exceeded, the enterprise must pay the appropriate fees. Certification Manufacturers of chemical products are obliged to obtain certificates testifying that products meet all necessary norms. The Polish Centre for Testing and Certification establishes these norms. The manufacture and import of asbestos are prohibited in Poland (Dz. U. No. 101, 18 August 1997, item 628).

Summary Firms are investing in the Polish chemical sector due to: • • • • • •

very good access to a highly qualified labour force; continued growth in labour productivity; high profitability; successful sector restructuring; the rich raw materials base; its long-established tradition in and knowledge of the industry.

4.9

Polish Pharmaceutical Sector Aneta Witczak, Jacek Fraczyk, Euromoney Polska SA/Internet Securities Poland is the largest pharmaceutical market in the Central-East European region, and will retain the leading position up to 2004, claim specialists from IMS Health, a research company that monitors the sector. In three years, Poland will reach a market size of more than US$4.5 billion. Thus, its share, as compared with Bulgaria, the Czech Republic, Hungary, Slovakia and Slovenia, will go up from 50 to 53 per cent. According to the World Bank analysts, the total market is forecast to grow at a compound annual rate of 15.7 per cent between 2000 and 2004. Controlling healthcare expenditures will remain a high priority for the healthcare payers across the CEE. ‘The budget for pharmaceutical products will remain a high-profile target for cost containment measures. These measures include the use of generic products, changes to the reimbursement lists, limiting budgets by hospitals,’ stressed the recent IMS Health report. In general, the Polish pharmaceutical industry is not characterized by strong seasonal fluctuations in sales, but demand for drugs usually increases in the autumn-winter season and declines in July and August. The most recent official data from the Central Statistical Office (GUS), available only on an annual basis, show that in 2000, PLN10.5 billion (US$2.7 billion) worth of medicines were sold, PLN1 billion more than a year earlier. The average cost of drugs for a Polish household was just over PLN240 monthly (PLN199 on average for farmers, PLN271 and PLN275 for those on disability benefit and pensions respectively). The average amount patients had to pay from their own pocket reached 60–70 per cent (just 46 per cent in 1993), which, according to the World Health Organization (WHO), is a dangerous level for the health of population. In the first eight months of 2001, Poles bought medications worth US$2.79 billion, ie 9.4 per cent up in money terms, though 3 per cent down in volume terms, against the corresponding period of 2000. According to IMS Health, which publishes the pharmaceutical sector


data on a quarterly basis, prescription drugs still amount to 65 per cent of total sales, non-prescription medications equal to 23 per cent only, and the remaining 12 per cent was purchased by hospitals. IMS Health claims that still the majority of drugs are distributed through pharmacies, which concluded US$1.82 billion worth of transactions, while hospitals bought medication worth US$253 million. During the eight-month period, 68 per cent of pharmaceuticals sold were of Polish origin, whereas their money value was equal to 33 per cent of the total. The discrepancy was a result of the much higher costs for imported pharmaceuticals. Over 90 per cent of the medications produced domestically are inexpensive generic drugs (the average price of a pack of medicine does not exceed US$1.5, whereas in the EU countries it is US$9). Figure 4.9.2 Market-share of the drugs sector in I–VIII 2001

Source: IMS Health

Figure 4.9.3 Polish pharmaceuticals market (US$ million)

Source: IMS Health

According to another research company Azyx, in the period between January and September, Poles spent PLN7.2 billion (US$1.8 billion) on drugs, ie 17 per cent more than in the same period of 2000 (it is also almost US$1 billion less than the eight-month data published by IMS Health). Pharmacies sold PLN6.5 billion (or US$200 million less than reported by IMS) worth of medications, posting an increase of 17 per cent. The Azyx report said that that increase was a result of three factors:

Polish Pharmaceutical Sector 195

• medicines used in treatment tended to be more expensive; • the official prices of pharmaceuticals were increased in January; • Poles were more prone to using medicines available on prescription which are more expensive. In the first six months of 2001, the import and export of pharmaceuticals increased by 16.6 per cent and 21.7 per cent respectively (US$872.5 million and US$71.4 million), against the corresponding period of 2000. Still, the value of import transactions was about 12.2 times higher than exports. Polish drugs have not been admitted for sales on the EU markets, as a vast majority of them are generic products. As a result, export sales are directed to the markets of the post-Soviet and CEFTA countries. However, international pharmaceutical giants have already entered those markets making the situation even more difficult for Polish companies. Poland’s imports of pharmaceuticals come mainly from France, Germany and Switzerland. Figure 4.9.4 Import of pharmaceuticals (US$ million)

Source: GUS

Manufacturing Pharmaceuticals Poland applied to the European Commission for an eight-year transition period for drug registration. Without a transition period, none of the Polish-made drugs would remain on the domestic market or be introduced to it without proper registration in compliance with EU standards. Consequently, some 7000 products would have to be withdrawn from trading in pharmacies at the moment of Poland’s accession to the EU. The EU has already granted similar transition periods to other aspiring countries. Poland’s demand would require re-opening of the free flow of goods chapter, but according to Jan Kulakowski, Poland’s former chief negotiator, this would be a purely formal matter. As far as negotiations with the EU are concerned, Brussels insists that Poland should apply the extended drug patent protection retrograde, on foreign drugs that were imported in 2000. At this moment in negotiations, Poland has already agreed to apply Special Protection Certificates


(SPC) according to the European regulations beginning on 1 January 2002, but it is possible that it will yield to the EU and apply the extensive protection rule also to drugs imported in 2001. Polish drug producers fear that the new regulations might result in their bankruptcy, because approximately two-thirds of pharmaceuticals sold in Poland now are generic drugs—cheaper versions of foreign medicines, whose formulas were copied. Legally, those drugs will have no right to be sold. The most negatively affected will be producers of pharmaceuticals patented before 1993, protected by patents for 15 years. Since obtaining marketing approval procedures for these drugs may have taken the full length of the patent protection period, pharmaceuticals that receive approval next year might be produced by generic manufacturers shortly after their originators. Negotiators claim, though, that a decade will pass before the new foreign medicines are patented and launched on the domestic market, and by that time, most of, if not all, Polish drug companies will have been sold to international pharmaceutical corporations. The domestic pharmaceuticals market will face further changes as another two state-owned companies, Polfa Lublin and Polfa Grodzisk, are to be privatized this year. If the Treasury Ministry succeeds in selling both Polfas, there will be only three Polfa companies left for the future government to sell: Polfa Warszawa, Polfa Tarchomin, and Polfa Pabianice. So far, of nine Polfas that have been privatized, only two were floated, with the rest being sold directly to investors by the Treasury. Altogether, there are 80 drug manufacturers in Poland, a majority of which are privately owned, that supply almost 75 per cent of all drugs consumed. Fifteen companies of the former Polfa pharmaceutical chain are producing 70 per cent of the supply on the Polish market. The leading position among Poland’s manufacturers of pharmaceuticals belongs to Polpharma Starogard, GlaxoWellcome (formerly Polfa Poznan), Pliva Krakow, Polfa Kutno, and Polfa Warszawa.

Figure 4.9.5 Leaders in production of pharmaceuticals in Poland

Source: own calculations

Polish Pharmaceutical Sector 197

Figure 4.9.6 Pharmaceuticals distributors market share

Source: DM B2WBK

Figure 4.9.7 Population per pharmacy

Source: Polityka 2001.06.09

4.10

Clothing BOSS Economic Information Agency, Warsaw

Introduction The Polish clothing industry owes its existence mainly to inward processing and this is the reason for its current weak position. On the other hand, inward processing allows the industry to utilize its excessively high production capacity. However, the era of sewing facilities is ending and the Polish clothing sector is facing further restructuring, a drastic reduction in costs and the concentration of efforts in trade and marketing.

Industry characteristics The clothing industry in Poland is 98 per cent privatized. However, it is strongly fragmented, with 44,000 manufacturers, the majority of whom employ several or a dozen workers at most. There are only some 1000 enterprises which employ more than 50 workers. The latter group comprises companies that were major suppliers of clothing to the domestic market in the past and once employed several thousand workers. They have since reduced employment to several hundred workers. This group comprises the largest clothing companies, which are also listed on the Warsaw Stock Exchange: Bytom, Próchnik, Vistula, Wólczanka, Delia, Masters and LPP S.A. of Gdansk. In contrast to other leading clothing manufacturers, LPP applies outward processing. The shares of the largest manufacturers of the domestic clothing market do not exceed several per cent. In recent years, thousands of small firms have gone under. Simultaneously, new firms established by both young designers (Joanna Klimas, Hexeline, Odziezowe Pole) and well-known creators of fashion (Dom Mody Antkowiaka) have appeared on the market. New family businesses (Wrona, Sunset Suits, Rotter, Fine Fashion) established in the last decade are also doing well. They successfully exploit market niches, supply clothing in short series as well as tailor-made garments. They open shops in Poland’s Eastern neighbours or supply their clothes to boutiques in Moscow, Berlin and Scandinavian cities.

Clothing

199

Foreign investors have not shown any great interest in the Polish clothing industry to date. The only exceptions are Pierre Cardin, for whom the German Ahlers company is manufacturing garments in its own Polish facilities in Zbá szyn´, Bielsko-Biala and Opole, or Levi Strauss, which has a production facility in Plock. The majority of Polish clothing enterprises depends on inward processing, manufacturing garments for foreign firms, which sell them under their own trademarks. It is estimated that 80 per cent of the clothing industry’s production capacity is used for this purpose. Not surprisingly, inward processing has a dominating position in the structure of sales of domestic clothing enterprises and this is the main factor determining the condition of the whole sector at present. Only 20–30 per cent of the clothing industry’s production potential is engaged in manufacturing for the home market. Inward processing accounts for almost 100 per cent of the Polish export of clothes. In 1999, the export of clothes made from woven fabrics exceeded US$1.6 billion and was six times higher than their import. Simultaneously, the value of exports was higher, according to statistics, than the value of the sold production of clothing enterprises (US$1.25 billion; PLN/US$ exchange rate of 3.96). This means that small firms, which are not covered by official statistics, play a considerable role both in exports and in the manufacture of clothes for the domestic market. This also means that the domestic market is very shallow at present. It must be noted that, due to the low exchange rate of the euro and the deutschmark, the export of clothes by Polish enterprises has long fallen below the level of profitability. In their plans for 2000, clothing companies optimistically assumed that the PLN/DEM exchange rate would be 2.15, but it proved to only be 2, which made their production unprofitable (the Polish clothing industry has partners mainly from the euro or deutschmark zone). The signed contracts did not allow the Polish firms to abandon inward processing despite the fact that such a form of production is currently half as profitable as the production of clothes under the manufacturer’s own trademark. Nonetheless, inward processing allows the utilization of the clothing industry’s production capacity, which exceeds by two or three times the existing domestic demand. If inward processing were to suddenly be abandoned, the results of the Polish clothing enterprises would seriously deteriorate. In many cases, this could lead to the liquidation of firms. However, in the period when the market is already saturated with Polish-made and imported products, enterprises have to make drastic decisions. For example, Bytom, Delia, Masters and Vistula are closing down unprofitable subsidiary companies, an action which is accompanied by mass redundancies (in 2000 close to 1600 workers lost their jobs). Unfortunately, not all the companies are able to guarantee the redundant workers any severance pay. Some clothing enterprises are withdrawing from the least profitable


contracts and are conducting negotiations with potential partners in the dollar zone. Others are beginning to export clothing under their own trademarks even though the development of such exports entails high costs (ie promotion). The import of clothes, both from Eastern and Western Europe, is also growing. Polish manufacturers have serious rivals in factories operating in Belarus or Romania where the cost of labour is far lower. Large Asian manufacturers in China and Korea, who specialize mainly in knitwear and sportswear, also pose a threat to the position of Polish enterprises. They do not, however, have experience in the manufacture of clothes from woven fabrics. Prices charged by Eastern European and Romanian firms sewing such clothes are low, but they often fail to meet quality standards. Hence, some EU suppliers of clothing are beginning to place their orders back with Polish tailoring firms.

Structure of foreign trade in clothes Woven clothing In 1999, the European Union accounted for approximately 95 per cent of the Polish export of woven clothing, with the main buyers being Germany, the Netherlands, Denmark, France and Belgium. Other industrialized countries (mainly the United States and Switzerland) accounted for 2.6 per cent of exports. In the first half of 2000, the geographical structure of exports remained similar and their value totalled US$714.7 million. In terms of product range, the export of clothes from woven fabrics was dominated in 1999 by women’s and girls’ suits, jackets, blazers, dresses and skirts (37 per cent). Other important items were men’s and boys’ suits, jackets, blazers and trousers (26 per cent), women’s blouses and shirts (13 per cent), and women’s and men’s overcoats (8 per cent). The geographical structure of the import of woven clothing and accessories was highly diversified in 1999. The largest suppliers were developing countries (36.5 per cent), mainly China, India, Turkey, Thailand and Indonesia. The European Union accounted for 32.5 per cent of the imports, with the largest suppliers being Germany, Italy and Denmark. Central and Eastern Europe accounted for 30 per cent of overall imports, with the main sellers being Romania and Lithuania. A similar geographical structure of imports also prevailed in the first half of 2000 when the value of imports totalled US$116.6 million. The largest import items in 1999 were men’s and boys’ suits, jackets and trousers (35 per cent). These were followed by women’s and girls’ suits, jackets and skirts (26 per cent), men’s overcoats (12 per cent), and women’s blouses and shirts (8 per cent). Other major import items were men’s and women’s underwear and women’s overcoats.

Clothing

201

Knitted clothes The sold production of knitted garments and accessories exceeded PLN642 million in 1999. This segment of the clothing industry comprises 78 enterprises which jointly employ 16,000 workers. Statistics only cover the production of firms employing more than 50 workers. However, many small firms are engaged in the manufacture of knitted products and thus the segment’s total output is in fact much higher. The export of knitwear reached US$400 million in 1999. Imports were lower by almost a half, at US$206 million. Thus, exports were over twice as high as the output of large firms. The European Union accounted for 86 per cent of exports, whereas Central and Eastern Europe accounted for 10 per cent. Similar figures were recorded in the first half of 2000. Table 4.10.1 Export of knitted clothes in H1 2000, by countries (US$ million) Total exports

187.7

Germany

53.8

Denmark

42.6

Holland

17.8

France

16.1

Italy

12.5

Source: GUS

The leading export items among knitted clothes were sweaters, turtlenecks and pullovers (25 per cent), women’s wear (16 per cent), under-shirts and tights (15 per cent), hosiery (7 per cent), women’s undergarments (5 per cent). In 1999 the European Union accounted for more than a half of the import of knitted clothing, whereas the developing countries accounted for 44 per cent of the imports. The largest supplier of knitwear was China. The situation did not change in the first half of 2000. Table 4.10.2 Import of knitted clothes in H1 2000, by country (US$ million) Total imports

119.4

China

29.8

Italy

21.7

Denmark

6.9

Turkey

6.5

Germany

5.5



The leading import items were vests and tights (23 per cent), sweatshirts, turtle-necks and pullovers (17 per cent) and hosiery (16 per cent).

Financial condition The dependence on inward processing, which is far less profitable than the manufacture of clothing under your own trademark, unfavourable differences in exchange rates and low domestic demand impact negatively on the financial results of large clothing enterprises. More than a half of enterprises generate losses. Few of them have profitability rates higher than 5 per cent. However, the profitability of clothing enterprises does not exceed 5 per cent even in countries where the condition of the clothing sector is very good.

Table 4.10.3 Comparison of firms recording profits and losses, 1H 2000 Total

Number of enterprises Sold production (PLN million)

642 2162.9

Enterprises incurring losses 341

Enterprises generating profits 301

709.9

1453.0

94

92.1

94.9

117.6

59.8

57.8

Share of sales revenues in the enterprises overall revenues (%) Employment (‘000) Cost index (%)

98.9

114.3

92

Gross financial result (PLN million)

28.7

-116.9

145.6

1.1

-14.3

8.1

Gross profitability rate (%) Source: Central Statistical Office (CSO)

After a short period of improvement, the profitability of Polish clothing enterprises has recently declined once again. However, the ongoing restructuring processes, an improvement in the organization of work and the technological advancement of clothing enterprises have led to an increase in labour productivity. Wages in the clothing sector continue to grow but at a far lower rate than in previous years. They account for 60 per cent of the average monthly wages in the manufacturing sector. Employment in the clothing industry is falling. While in 1995 the Polish clothing enterprises employed more than 155,000 workers, their number fell to 137,000 in 1999.

Clothing

203

Table 4.10.4 Clothing and accessories NACE 18.2

1995

1996

1997

1998

1999

Number of enterprises

684

709

721

718

677

Sales (PLN million) Overall costs (% of income)

3381.5 96.0

3976 90.4

4713 89.2

5452 88.9

5476 90.6

Gross profitability (%)

4.06

4.19

5.2

4.73

3.01

Net profitability (%)

2.02

2.19

2.76

2.65

1.11

Working assets (PLN million) of which (in %):

1057.5

1328

1618

1856

1963

stocks

39.5

42.4

41.5

42.2

41.2

receivables

43.6

42.3

42.4

44.3

45.8

monetary resources

13.4

12.7

13.3

11.8

11.6

Debts (PLN million) 882.3 Sources of financing (as % of working assets)

1028

1212

1404

1601

Credits and loans

14.6

13.6

12.9

16.3

19.1

Liabilities

54.9

44.4

40.8

37.8

38.9

Capital resources

30.5

41.9

46.3

45.9

42.0

Current liquidity indicators

1.44

1.5

1.62

1.62

1.49

Source: Foundation for Education and Banking Research (FEiBB)

Table 4.10.5 Knitwear NACE 17.7

1995

1996

1997

1998

1999

Number of enterprises Sales (PLN million) Overall costs (% of income) Gross profitability (%) Net profitability (%) Working assets (PLN million) of which (in %):

90 589.2 109.0 -4.34 -6.55 212.1

90 648.0 96.1 -0.9 -2.48 223.0

88 717.0 95.4 -2.31 -3.93 241.0

89 744.0 96.0 -1.21 -2.03 284.0

78 642.0 96.7 -4.02 -5.30 268.0

stocks receivables monetary resources Debts (PLN million) Sources of financing (as % of working

47.1 42.5 9.4 326.2 assets)

49 40.5 9.4 295.0

51.2 38.2 9.6 293.0

49.9 41.8 7.0 341.0

46.8 42.0 9.5 357.0

credits and loans liabilities capital resources Current liquidity indicators

17.9 105 -22.9 0.81

14.8 87 -1.8 0.92

47.1 75.1 7.7 1.00

22.1 80.6 -2.6 0.90

22.2 86.7 -8.9 0.83

Source: Foundation for Education and Banking Research (FEiBB)


During 1995–1998, the clothing industry’s sold production continued to grow, but in 1999 growth in the sold production of clothes from woven fabrics was minimal and a serious decline was recorded in the sold production of knitwear. Simultaneously, production costs remained static and indebtedness increased. Stocks diminished slightly and receivables continued to increase, which meant that buyers were delaying payments for the purchased clothes. However, clothing manufacturers also financed their production to a considerable extent from liabilities, delaying the payment of amounts owed to their suppliers. Nonetheless, credits and loans account for approximately one-fifth of the means of financing, which suggests that the banks count on the solvency of clothing firms. Unfortunately, investment outlays by the clothing industry are diminishing due to the shortage of capital resources and a negligible inflow of foreign capital. Table 4.10.6 Investment outlays by manufacturers of clothes and fur products, 1999 and H1 2000 (PLN million)

1999 H1 2000

Investment outlays

Growth rate Outlays on machinery (analogous previous and equipment period=100)

Investments launched

267.8

111.7

126.5

39.5

71.2

74.2

35.6

13.8


Domestic clothing market A large part of the clothes sold in Poland are inexpensive garments made of poor-quality materials, which are imported from Asia and offered in markets and discount shops. It is estimated that markets still account for 30 per cent of the overall sales of clothing. Following the conclusion of the agreement on Poland’s association with the European Union, and its accession to the World Trade Organization (WTO), foreign suppliers have obtained easy access to the Polish market. Further liberalization of the market can be expected with the accession of China to the WTO. Competition on the clothing market is already becoming fiercer. In August 2000, the clothing lobby managed, however, to impose the adoption of decisions restricting the import of, for example, second-hand clothes.

Clothing

205

Table 4.10.7 Import of second-hand clothes ’000 tonnes

US$ million

January–June 2000

35.0

13.8

1999

74.4

36.6


In addition to a permit being required to import such clothes, documents confirming the country of origin of imported clothes also have to be provided by the importer. Without such documentation, the customs duty on second-hand clothes increases from zero to 19.7 per cent. Recently, however, it has been the case that importers of second-hand clothes have had to pay a customs duty equal to 120 per cent of the value of goods since, in accordance with EU regulations, it is not possible to determine the country of origin in the case of second-hand clothes. Small importers of second-hand clothes are protesting against such solutions because they are threatened with bankruptcy. According to data from the Polish Chamber of Used Textile Materials (KIGTSW), second-hand clothes are imported by some 300 firms, and this segment of the clothing market provides employment to 60,000 people. According to the Pentor public opinion research institute, more than 25 per cent of Poles, mainly from small towns in north-eastern Poland, were clients of shops selling second-hand clothes in 1998. Polish manufacturers of high-quality garments are not afraid of competition from either cheap clothes imported from Asia or secondhand clothes. However, cheap imported clothes spoil the market for small domestic manufacturers who also have rivals in unregistered producers of clothing. The clothing sector’s grey zone is shrinking, however, in step with the ongoing structural changes. The segment of medium-standard clothes ought to satisfy the needs of the majority of working people, but such clothes prove to be far too expensive for the average-earning Pole. Due to high prices, the volume of the segment’s sales is so small that the clothing industry can hardly be expected to develop further. The segment of medium-standard clothes is the main area of operation of the largest Polish clothing enterprises, which ought to offer classical garments made of good fabrics at moderate prices. This is the reason why all domestic manufacturers should be aiming at a reduction in costs.


Table 4.10.8 Manufacture of clothes (first three quarters of 2000) January–September 2000, Growth rate (January– (’000 pieces) September 1999=100) Men’s and boys’ overcoats

2209

84.5

Suits

1654

104.0

Jackets and blazers

1889

65.3

Trousers and shorts

15,343

135.9

Women’s and girls’ overcoats

1939

81.6

Suits

1932

74.0

Jackets and blazers

3980

91.9

Dresses and skirts

8407

108.8

12,728

107.1

8949

90.1

12,370

100.7

Trousers Men’s and boys’ shirts Blouses


Meanwhile, a suit from a well-known Polish manufacturer costs PLN1400, which is close to the average monthly pay of a Polish male, while in comparison, a suit by Hugo Boss costs DEM700 in Cologne, where the average German earns DEM4000 per month. Thus, the price of a suit should not exceed PLN300 if Polish men are to be as well dressed as the Germans. Companies manufacturing expensive clothes for wealthy clients are well organized and have well-developed distribution networks and marketing methods. In step with an improvement in the material situation of Polish society, this segment, which is now estimated at several percent of the clothing market, ought to grow. Although it is dominated by garments bearing foreign trademarks, the leading Polish manufacturers are already supplying products of equally high quality fashioned in accordance with current trends, which are competitively priced.

Distribution There is demand among Poles for high-quality clothes as evidenced by the fact that foreign fashion designers are developing their distribution networks in Poland. A Givenchy shop, which opened in Warsaw recently, has regular clients who each month spend considerable amounts on its products. Other foreign firms, including Hugo Boss and Marks & Spencer, do not complain about the lack of clients either.

Clothing

207

Trade in garments has been on the rise for several years. Since 1998, about 30 new shopping centres have opened in Poland every year. They house boutiques such as Orsay, Zara, Kappahl, De Fursac, Deni Cler, Calvin Klein and Kenzo. It is estimated that some 60 Western manufactures of high-quality garments now have company outlets in Poland. Polish manufacturers have also begun to invest in the development of their sales network—something thay are compelled to do in the face of competition from foreign trademarks. Domestic manufacturers also form common distribution chains and common trademarks such as Lantier, which was introduced on to the market in 1998 by the manufacturer of men’s suits, Vistula. The company supplemented its collection of suits with shirts supplied by Wólczanka, knitted garments by Polo Kalisz, and overcoats by Warmia. Most domestic clothing enterprises also cooperate with wholesalers and supermarket chains. The latter are ensured the supply of attractively priced good-quality clothes that are sold under special trademarks. More expensive garments are sold under a different trademark through the manufacturers’ own distribution network. However, manufacturers pin their hopes mainly on large shopping centres because, owing to the wider range of clothes for children and teenagers on offer, these centres are becoming serious rivals to specialist shops and markets. According to the Home Market and Consumption Institute (RwiK), close to 30 per cent of young people from large cities frequently visit such shopping centres in search of the latest fashions. Boutiques opened in shopping centres such as Geant or Carrefour are popular among teenagers and buyers below 30. It is not surprising, therefore, that large distribution centres and manufacturers of clothes allocate millions of zlotys annually to analyses of tastes and fashion trends among young clothes buyers. It is certain that teenagers are becoming an important consumer group stimulating the development of the clothing market. According to Polish-American Company Assistance (CAL), which is monitoring the Polish clothing market, total sales in this market reached US$3.5–4 billion in 1999 and can be expected to grow to US$4.5–5 billion over the next five years. The share of specialist distribution networks in the sales of clothing, which is currently 30 per cent, is expected to grow during this time to 55 per cent. The number of independent shops and markets, whose share in the sales of clothing now reaches 60 per cent, will decrease.

Rational demand According to GfK Polonia, the proportion of Poles positively assessing their financial situation increased from 18 per cent in 1991 to 43 per cent in 1999. Thus, there are now more people in Poland who are willing


to buy clothes bearing well-known trademarks. They are treated as potential customers by the foreign fashion houses that open their shops in Poland. At present, such shops sell ready-to-wear (prêt-à-porter) classical clothes. The time to sell expensive exclusive designer clothing has not yet arrived. The purchasing power of Polish society is growing slowly and so are consumer expectations as to the quality of clothes. It seems, however, that the future belongs to the segment of products that offer satisfactory quality for a reasonable price. For the time being, however, Poles are reducing their spending on clothes because the majority of Polish households are pessimistic about their future financial situation. According to data from GfK Polonia, the average monthly spending on clothing by Polish families in March-May 2000 reached PLN48.60, which accounted for 5.5 per cent of their total expenditure. In the period under discussion, close to 70 per cent of households surveyed spent no money on clothing, 9 per cent spent less then PLN100, 15 per cent spent no more than PLN400, and only 3 per cent spent more than PLN400 on new clothes.

Future prospects The Polish clothing industry is currently in a difficult phase of reducing its production capacity. It follows the example of the European Union, which has reduced the production capacity of the clothing sector by some 50–80 per cent. The restructuring of the clothing industry is to be supported by the ‘Strategy for light industry in 2000–2005’, which was adopted by the government in October 2000. This document ensures, among other things, payment of severance pays to redundant workers. Reductions in employment are inevitable because the domestic clothing market is saturated with Polish-made and imported products. The clothing market in Poland, like in the rest of Europe, is shallow. In the last two or three years, demand for clothing has been falling due to changes occurring in the model of consumption and individual lifestyles. Both younger and older consumers aspire to modern, healthy and active lifestyles and thus they reduce their spending on clothing in order to be able to allocate more to recreation. Simultaneously, consumer preferences also change. More and more customers want to buy comfortable clothes made from light and soft fabrics that are easy to clean. They also want products whose price truly reflects their value and they tend to buy clothes with well-known trademarks, which are seen as a guarantee of good quality. According to the latest surveys, the wardrobe of a modern consumer contains 23 per cent of classical clothes, 70 per cent casual, and 7 per cent sports. This is a clear trend for clothing manufacturers to follow.

Clothing

209

The Polish clothing industry is evolving towards the Western model and those domestic enterprises that have already adopted the mechanisms of operation binding in the West are recording increasingly better results. These mechanisms boil down to the division of tasks: different entities design clothes, different entities manufacture them and different entities sell them. All Polish clothing manufacturers face further work on the reduction of costs, however, because with the present level of prices and low demand for clothes it is hard to sell them profitably. Competition on the clothing market is intensifying. In addition, domestic manufacturers are being threatened by imports from EU countries, which offer better products for the same price. Attention should be drawn to the fact that only 30 per cent of the clothing industry’s potential is being used to satisfy domestic demand, whereas 70 per cent of this potential is engaged in inward processing. Unfortunately, inward processing has already become unprofitable and a further appreciation of the Polish zloty may lead to the collapse of the clothing industry because it will not be able to ensure the utilization of idle production capacity. Due to the lower than expected rate of economic growth, demand for clothing will not be growing as fast as it was forecast in the first half of 2000. At present, the Polish clothing market is estimated at US$3.5–4 billion and it is expected to grow to US$4.5 billion by 2005 (ie only slightly). Greater changes will be taking place in the distribution of clothing. The role of supermarkets and hypermarkets in the sale of clothing will become consolidated, whereas the role of individual shops will diminish.

4.11

Food Industry Polish Agency for Foreign Investment (PAIZ)

Investor benefits The largest consumer market in Central Europe with 40 million potential consumers, increasing competitiveness limiting the potential of food monopolies, and the integration of companies into a market environment—these are just a few of the reasons why foreign companies have already invested more than US$43 billion (PAIZ figures) in the Polish economy. The food industry accounts for 21 per cent of Poland’s gross industrial product and the largest labour market, which exceeded 430,000 in 1999.

Figure 4.11.1 Employment in the food processing industry, 1995–2000

Source: Central Statistical Office (CSO), Statistical Bulletin 1996–2001

Food Industry

211

Figure 4.11.2 Foreign direct investment in Poland, by sector, December 2000 (% of all investments made in Polish industry)

Source: PAIZ Statistics 1999

The foreign-owned food companies (more than 498) have an important influence on the results achieved by the entire food industry. The production of food, beverages and tobacco was ranked second among the largest investment outlays in the manufacturing sector. The value of the investments, totalling US$4.9 billion as of December 2000, constitutes 10.8 per cent of all investments made in Polish industry. Constant expansion Production of processed food and beverages exceeded US$20 billion in 2000. The Polish food industry is one of the sectors with the smallest influence on the Polish negative foreign trade balance. Labour efficiency (gross added value per employee) in the production of foodstuffs increased by approximately 19 per cent in 1998, which is an indication of progress made in the branch’s restructuring and development activities. The well-educated Polish workforce has a reputation for being flexible and able to benefit from experience. Productivity and cost-effectiveness of the Polish employee are major factors in the employment strategies of companies. With a growing number of Agricultural Technical High School graduates (over 12,000 in 2000), the Polish food industry is prepared to meet the demands of the EU market and provide incentives to foreign investors in terms of investments at national and regional levels.


Table 4.11.1 Sales net profitability of food sector branches 1997

1999

2000*

Beverages

6.2

5.7

3.4

Sweets

2.8

(-)0.8

0.33

Meat

0.4

(-)1.2

(-)0.6

Dairy

0.9

0.3

1.3

Fish

1.2

(-)1.2

(-)0.2

Food branch total

1.5

(-)0.4

0.9

Source: PAIZ Statistics 1999 *Q1–3/2000 Przemysl spozywczy, 5/2001

Facing global challenges Poland’s prospective membership of the European Union has stimulated the process of adapting to the standards that the common market requires from its members. With financial support from funds such as the SAPARD (Support for Pre-accession Measures for Agriculture and Rural Development) programme, small companies acquire the means to implement business initiatives and make their products more competitive. The inevitable process of privatization is revitalizing the structure of the Polish food sector. The domination of private capital in most food production niches guarantees horizontal integration within management structures.

Foreign investors Having detected opportunities in the Polish food sector, more than 131 foreign-owned companies launched activity in that sector during 2001. According to PAIZ statistics, as of December 2000 they had invested almost US$4.96 billion in the food processing industry, which constituted 10 per cent of total investments. Moreover, those enterprises have declared an intention to invest a further US$0.75 billion. In the top 100 of the annual list of the largest foreign investors, published by PAIZ, there are 14 companies that are currently expanding their activities in the food sector. Having established 198 manufacturing plants, foreign enterprises are contributing to the stable growth of the branch as a whole. Companies with the largest share in investments are listed in Table 4.11.2.

Food Industry

213

Table 4.11.2 Foreign investors

Capital invested

Plans

Origin

Activity

1

Coca Cola

500.0

n/a

Greece

food processing

2 3 4

Reemtsma Philip Morris Nestlé S.A.

465.0 372.0 347.6

140.0 80.0 n/a

Germany United States Switzerland

tobacco processing tobacco processing food processing

5

Harbin BV

325.9

n/a

The Netherlands

food processing

6

Heineken

7

PepsiCo

220.8

n/a

The Netherlands

food processing

203.0

n/a

United States

food processing

8

Epstein

200.0

n/a

United States

construction, food processing

9

Mars Inc.

160.0

n/a

United States

food processing

1 0 Unilever NV

140.0

n/a

International

chemicals and chemical products, food processing

1 1 Cadbury Schweppes

126.5

n/a

Great Britain

food processing

1 2 Seita

120.0

n/a

France

tobacco processing

Source: PAIZ Statistics 1999

Production capabilities With a 24.7 per cent share of value added in the NACE ‘manufacturing’ section, the Polish food industry exceeds the results achieved by the EU food sector (15.8 per cent) as well as by any other Polish branch of industry. Between 1995 and 1999, the average growth rate of food production was 7.1 per cent, outpacing the growth in GDP. Poland is extremely interested in developing its corporate R&D capacity. According to the Central Statistical Office (CSO), the utilization of research apparatus in 1999 was estimated at 70.6 per cent of capacity (compared to 69.4 per cent in 1998), which indicates a sustained increase in this area. The food industry’s noticeable influence on the growth of overall value added of manufacturing illustrates the improved situation of this particular branch. The economic transformation that occurred in the early 1990s was the reason for the rapid growth in food processing. This was essential in order to meet the more diversified and increasing demands of consumers. Together with restructuring and privatization, this process significantly strengthened the structure of the Polish food sector.


Main trends in the Polish food sector Evolution of consumer preferences The constantly changing lifestyles observed in Polish society influence the purchasing decisions of potential consumers. Replacing animal fat with vegetable fat, increasing consumption of dairy products in the daily diet, as well as consuming more fruit and vegetable juices and beverages, are just three of the trends recorded by the Institute of Agricultural and Food Economics which indicate the process of a more ‘healthy approach’ towards daily consumption. Rising income levels in Polish households According to the Central Statistical Office (CSO), the gross average disposable income per household increased by 9.2 per cent relative to the 1999 base. However, this was accompanied by only a small increase in expenditure on food, amounting to approximately 0.1 per cent. Strengthening relations with foreign investors The increasing inflow of foreign capital assures both wider access to know-how and integration of the internal organization of companies. Foreign subsidiaries as well as joint ventures and mixed-capital companies are leaders in individual sections of the food industry, stimulating the process of restructuring and modernizing the branch. Entering the stock exchange The privatization of state-owned companies accelerated the process of issuing shares. This became an opportunity for 20 companies from the food sector to acquire the financial resources necessary to expand their internal and external ventures. The total turnover of joint-stock companies, which oscillated between 8 per cent and 8.6 per cent in the 1996–1998 period, confirms their stable position. Trade relations with Eastern Europe An increasing number of Polish companies originating from the food processing sector are entering the market of Eastern Europe. This strategy corresponds to the prospect of acceding to the European Union, which will lead to establishing new economic borders in this part of the continent. In 1999, exports of foodstuffs to countries of the former Soviet Union constituted 27.5 per cent of the total exports registered in this sector. Although the volume of Polish exports is unlikely to achieve the level recorded before the Russian crisis, several sectors, including chocolate confectionery, sugar confectionery, tea and coffee extracts

Food Industry

215

as well as sauce and seasoning production, recorded a significant growth in exports, primarily to the Russian and Ukrainian markets.

State support for the food industry: agricultural policy • The Agricultural Restructuring and Modernization Agency is engaged in securing financial support for farms and small firms operating on the food market. Its activities focus on developing the technical infrastructure and retraining farmers in order to expand agriculturebased services. The Agency launched a credit programme facilitating access to credit and, due to the choices available, making it easier to repay loans. • The Agricultural Market Agency implements the government’s agricultural interventionist policies mainly through purchasing and selling raw and processed agricultural commodities on national and international markets, as well as creating and managing inventories of agricultural goods, including processed and semi-processed foodstuffs. The Agency also analyses market conditions for agricultural commodities and food products. • The Agricultural Property Agency of the State Treasury is authorized by the State Treasury to exercise ownership rights in relation to state agricultural property. In addition, the Agency is obliged to manage the property of liquidated state-owned farms and other real estate owned by the State Treasury as well as the property of the National Land Fund, by developing restructuring and asset utilization programmes. • The Foundation for Agricultural Assistance Programmes is primarily engaged in improving conditions in the Polish agricultural sector. The Foundation also implements programmes whose goal it is to facilitate the process of structural integration of Polish agriculture and rural areas with EU requirements. In order to fulfil its mission, the Foundation is divided into six main sections, each operating in a particular field, ranging from Regional Projects to Economic Analysis of Agricultural Policy.

Summary: nine characteristics of the Polish food industry • the largest share (21 per cent) of Polish gross industrial production; • more than 12.2 per cent share in foreign direct investment; • more than 10 per cent average annual growth in food production;


• investments of US$11 billion in restructuring and development of the food processing industry since 1990; • no negative influence on the overall results of Polish foreign trade; • 31.5 per cent share of food, beverage and tobacco products in total household consumption in 1999, which accounted for more than 17.5 per cent of the total sold production of the industry in 1999; • the largest labour market for more than 480,000 potential employees; • ranks third in Europe with regard to agricultural land area (18.7 million hectares).

4.12

Brewing BOSS Economic Information Agency, Warsaw

Industry characteristics After nine years of ownership transformations, the Polish brewing industry is now almost fully privatized. State income from the industry’s privatization amounted to some PLN465.6 million, according to the Central Board of Supervision (NIK). Favourable development forecasts and the Polish market’s potential has attracted foreign investors and it is these investors that have dominated the brewing industry. Currently, they control more than 80 per cent of the domestic manufacture of beer. The takeover of the leading Polish breweries by foreign investors from the sector allowed the brewing industry to rapidly increase the level of its technological advancement. Support in the form of capital and technologies supplied by foreign concerns made it possible to rapidly modernize Polish breweries. As a result of the introduction of market rules into the brewing sector, the manufacture of beer in Poland in 1990–1999 grew almost seven times faster than the global production. Table 4.12.1 Global and domestic production of beer World (million hectolitres)

Poland (million hectolitres)

Poland’s share (%)

1990

1100.0

11.3

1.03

1995

1160.0

15.2

1.31

1996

1268.7

16.7

1.31

1997

1295.7

19.3

1.49

1998

1301.5

21.0

1.61

1999

1345.5

23.4

1.74

Source: Central Statistical Office (CSO), Joh. Earth & Sohn

Since the early 1990s, the consumption of beer in Poland has been growing tangibly. According to BOSS estimates, the average Pole drank


59 litres of beer in 1999, which means that the consumption of beer almost doubled during a decade. Growth in consumption is checked by the State’s fiscal policy, as a result of which an excise tax and a 22 per cent VAT is currently levied on beer. Taxes now account for more than two-thirds of the retail price of beer. It is estimated that between 65 and 70 per cent of adult Poles drink beer. It should be noted that the proportion of consumers of beer has been fairly stable in recent years, which means that the group of consumers drinking beer is not growing tangibly, but that the consumption of beer within this group is growing substantially. More than threequarters of consumers prefer domestically manufactured brands of beer.

Figure 4.12.1 Consumption of beer in Poland

Source: Central Statistical Office (CSO), own calculations

Output Demand for beer and other beverages is strongly correlated in Poland with climatic conditions. The majority of breweries do not use their full production capacity throughout the whole year. Full production capacity is needed mainly during summer months when demand for beer reaches its maximum level. Seasonal fluctuations in demand lead to serious seasonal fluctuations in the sales revenues of Polish breweries. In addition, breweries have to maintain considerable reserve production capacity, which is utilized only in the period of increased demand for beer lasting from the beginning of May until the end of August.

Brewing

219

Figure 4.12.2 Seasonal fluctuations in market deliveries of beer


The manufacture of beer in Poland in the 1990s reflected trends characterizing its consumption. In 1990–1999, the consumption of beer in Poland jumped by 101 per cent and its manufacture by 107 per cent. After minimal fluctuations recorded at the start of the 1990s, the manufacture of beer has been growing steadily since 1994 at an average annual rate of more than 10 per cent. In 1999, the Polish breweries manufactured 23.4 million hectolitres of beer and managed to sell over 97 per cent of their output. The value of the Polish market of beer in producer and importer prices reached approximately US$1.4 billion in 1999. A warm spring and intensified advertising campaigns in the media contributed to a dynamic growth in the sales of beer and, consequently, its production, in the first half of 2000. Despite an increase in excise tax and the breweries’ complaints about the cold summer, the manufacture of beer increased by 6.2 per cent after the first three quarters of 2000 and exceeded 19 million hectolitres. There is every indication that 2000 was a year of record-high production of beer. If no disaster occurs in the last quarter of the year, the output of Polish breweries can be expected to total 25 million hectolitres in 2000. Figure 4.12.3 Production of beer in Poland

Source: Central Statistical Office (CSO); P: BOSS forecasts


Major producers Beer is manufactured in Poland by some 80 breweries whose production capacity is estimated, depending on the source of information, at 28–30 million hectolitres. Most of these breweries are small facilities supplying beer to local markets. According to the Centre for Social and Economic Analyses (CASE), more than two-thirds of domestic breweries are now in the hands of foreign investors. In 1998, there were five large independent producers on the Polish . beer market—Elbrewery, Z ywiec, Browary Tyskie, Lech BW and Okocim—whose joint market share (together with subsidiary companies) was close to 67 per cent. However, recent years have witnessed significant changes on the Polish beer market caused mainly by consolidation processes in the beer industry. The first development to signal the . approach of change was the takeover of the breweries in Lezajsk and Warka by Elbrewery in 1998. . At the end of 1998 and the start of 1999, the merger of Zywiec and Brewpole (the owner of Elbrewery) took place. As a result of this merger, Poland’s largest brewing group has emerged under the control. of the Dutch Heineken concern. The group covers the breweries in Zywiec, . Cieszyn, Elblag, Braniewo, Lezajsk, Warka, £anćut and Gdan´sk. . The inclusion of Elbrewery in the Zywiec group completely changed the set-up of the leading group of breweries and . accelerated further transformations. As a reaction to the merger of Zywiec and Brewpole, a consortium formed by South African Breweries and Euro Agro Centrum (SAB-EAC) decided to consolidate its Lech BW and Tychy breweries within the established Kompania Piwowarska, which immediately became the second-largest player on the Polish beer market. Following these spectacular consolidation efforts, the situation in the brewing sector began to clarify. Currently the Polish beer market is dominated by two manufacturers whose position seems to be firm— . Grupa Zywiec and Kompania Piwowarska—and whose joint share in the sale of beer in Poland exceeds 59 per cent. . After the inclusion of Elbrewery in the Zywiec group in 1999, the group began to control approximately 37 per cent of the market. However, . together with Elbrewery, Zywiec took over not only its market share but also its huge debts put by analysts at . PLN177 million and the problem of the shrinking sales of EB beer. The Zywiec group’s share in the Polish market of beer diminished as result to 31.3 per cent in the first half of 2000. The consolidation and reorganization of the company, as well as an advertising campaign launched to increase the sales of the EB beer, . have produced the expected results and Zywiec is gradually regaining its former position. However, the consolidation of Browary Tyskie and Lech Broway Wielkopolski within the Kompania Piwowarska company has produced excellent results. In 1998, the combined share of these two breweries of

Brewing

221

the Polish beer market reached 20 per cent. As a result of restructuring, the newly formed company has achieved impressive results, assuming control of over 28 per cent of the Polish beer market. A very interesting situation has emerged in the group of mediumsized breweries. Until recently, third position on the Polish market was held by Okocim, a brewery controlled by Danish Carlsberg. However, due to the lack of a clear strategy, Okocim’s position began to deteriorate. Throughout 1999, not a single strategic decision was taken relating to the construction of new or the expansion of existing production facilities. Neither was a decision taken to acquire one of the medium-sized breweries in order to strengthen the company’s position. Okocim’s share of the Polish beer market diminished as a result to 6.1 per cent in the first half of 2000. Belated changes in the composition of the company’s management board introduced to halt the decline in sales failed to prevent the predicted loss (BOSS Gospodarka No. 308/ 1999) of its market position. Figure 4.12.4 Market share of leading breweries, H1 2000

Source: BOSS data and estimates

Until recently, it seemed that any significant changes on the beer market could involve only the group of leading manufacturers. However, the aggressive entry of the Austrian BBAG brewing group on to the Polish market altered this situation. BBAG assumed control of Van Pur of Rzeszów, Browary Bydgoskie, Kujawiak and Browary Warszawskie. As a result of these acquisitions, the BBAG group won 7.3 per cent of the Polish beer market, leaving behind the weakening Okocim. Germany’s Bitburger Brauerei—owner of Bosman Browar Szczecin— also gambled on external expansion and, by acquiring Zak§ady Piwowarskie Kasztelan in Sierpc, increased its share of the Polish beer market to 6.4 per cent.


Other German investors are also present on the Polish beer market, with investments in breweries selling their products on local markets. Holsten is the majority shareholder of the Brok brewery in Koszalin, while Binding Brauerei has a stake in the Dojlidy brewery of Bia§ystok. Also present on the Polish market is Belgium’s third-largest brewery, Palm, which is the owner of Browar Belgia in Kielce and a newly built brewery in Dyminy. The Belgian breweries mainly fill market niches by offering beer obtained via the process of surface fermentation, which was not manufactured in Poland previously.

Financial condition The fast-developing brewing industry has one of the highest profitability rates in the whole of the Polish food processing sector. However, there are significant differences in the profitability of individual breweries. The financial condition of the largest domestic manufacturers of beer is generally good. The largest manufacturers also record the highest profitability rates. The profitability rate of Kompania Piwowarska .is 28.5 per cent gross and 18.6 per cent net, while the profitability rate of Zywiec is 18.9 per cent and 13.5 per cent, respectively. . The combined revenues of the leading brewing groups (Zywiec, Kompania Piwowarska, BBAG, Bitburger and Holsten) reached PLN3.5 billion in 1999 and accounted for more than 60 per cent of the value of the brewing industry’s sold production. Table 4.12.2 Basic financial indicators of leading breweries, 1999 Revenue Gross profit Net profit Gross Net profitability (PLN million) (PLN million) (PLN million) profitability (%) (%) Kompania 1 2 9 4 . 1 Piwowarska

261.5

170.7

28.5

18.6

Kywiec 916.4 Okocim 356.0 Bosman 167.1 Kasztelan 1 6 5 . 0 Sierpc Browary 159.6 Warszawskie Brok 143.2 Van Pur 135.8 Kujawiak 131.3

173.7 35.2 n/a n/a

124.0 21.8 n/a 19.0

18.9 3.8 n/a n/a

13.5 2.4 n/a 2.1

17.9

12.1

1.9

1.3

0.9 15.5 5.2

0.4 9.9 3.1

0.1 1.7 0.6

0.1 1.1 0.3

Source: Financial reports of companies, Monitor B, BOSS estimates

It should be stressed, however, that analysts are not particularly satisfied with financial results recorded by the brewing industry in

Brewing

223

. 2000. After the first 10 months of the year, the profits of Zywiec, Okocim and Strzelec diminished tangibly in comparison with the same period of 1999. Brok even showed a loss. Data relating to the results of non-listed breweries is not available, but it can be expected that at least part of them recorded a fall in profits. An increase of 4 per cent in the rate of excise tax on beer (to PLN72 per hectolitre) introduced in June 2000 was undoubtedly one of the factors contributing to the fall in the brewing industry’s profits. In addition, beer is subject to a 22 per cent VAT. The rates of tax applied in Poland are much higher than those levied on beer in other European countries (eg in the Czech Republic, excise tax on beer is half as much and VAT is 19 per cent). According to CASE-Doradcy consultants, the brewing industry’s fiscal burdens totalled PLN3.4 billion, which accounted for more than 59 per cent of the sector’s revenues. It should be noted that the increase in excise tax was felt particularly strongly by Polish breweries because it represents close to 44 per cent of the value of all taxes paid by them (VAT =49 per cent). Figure 4.12.5 Sales revenues of the largest brewing groups

Source: Companies’ financial reports, Monitor B, BOSS data

The situation of small local breweries is particularly difficult because they neither have access to cheap sources of financing nor the support of strong investors from the sector. In addition, the Finance Ministry decided to cancel as from January 2000 the excise tax relief for small breweries manufacturing less than 200,000 hectolitres of beer annually. In previous years, breweries manufacturing less than 20,000 hectolitres of beer annually paid excise tax lower by PLN11 per hectolitre, whereas those manufacturing 20,000–200,000 hectolitres paid excise tax lower by PLN6 per hectolitre. According to representatives of small breweries, the introduction of a uniform excise tax rate for large and small breweries is incompatible with the tax rules binding in the European Union.


Since the existence of small breweries depends largely on the quality of supplied beer and loyalty of local consumers, which usually is inversely proportional to the price of this beverage, the elimination of excise tax reliefs may prove fatal to small producers. Due to the elimination of the excise tax relief, small breweries were compelled to significantly raise their prices, which immediately resulted in the loss of competitiveness vis-à-vis the sector’s giants and problems with sales. In the longer run, such a situation may lead to the bankruptcy of some small breweries.

Foreign trade The import of beer has been growing gradually since 1995. Since, however, the volume of imports is still low, their influence on the condition of the Polish brewing industry is minimal. In 1999, the import of beer reached a value of US$17.6 million, which accounted for 1.2 per cent of the value of the Polish beer market. Imported beer merely supplements the range of products offered by domestic breweries and does not pose a threat to their market position. It should be added that domestic breweries supply not only their own brands of beer but also produce beer under licence to well-known foreign brewers. Recent years have seen a change in the geographical structure of beer imports. In 1998, the Netherlands was the largest supplier of beer to the Polish market. It was followed by the Czech Republic, Germany and Denmark. In 1999, however, Denmark found itself to be the leading supplier (19.7 per cent), ahead of Germany (19.6 per cent), the Netherlands (17.3 per cent) and the Czech Republic (11.9 per cent). The geographical structure of imports reflects to a large degree the structure of foreign investment in the Polish brewing industry. The Dutch, German and Danish companies which have invested considerable amounts in Polish breweries are now using them also as distribution channels for their own products. Figure 4.12.6 Foreign trade in beer


Brewing

225

The role of beer exports, which have been showing a clear downward trend since 1997, is also minimal. In 1999, Polish breweries exported US$6.5 million of beer, which accounted for not more than 0.5 per cent of the value of their sold production. Polish beer is exported mainly to the United States (45.5 per cent of overall exports) and Canada (19.3 per cent)—in other words, to countries with large Polish communities. The third-largest export outlet for Polish beer is Russia (13.3 per cent), which in 1997 accounted for 60 per cent of Polish beer exports. Since 1997, Poland has had a deficit in the foreign trade in beer. In 1999, the deficit reached US$1.1 million.

4.13

Packaging Industry BOSS Economic Information Agency, Warsaw

Introduction The introduction of market economy rules has caused a revolution in the Polish packaging industry, whose products, apart from fulfilling their natural protective function, have regained their aesthetic and advertising value. Investments in the Polish packaging industry were launched on a scale concordant with the needs of the fast-developing economy. However, a decline in the rate of economic growth recorded at the end of the last decade impacted negatively on demand for packaging, which consequently fell below supply.

Market characteristics Since during the long years of socialism demand for all consumer goods in Poland far exceeded their supply, packaging manufacturers did not bother to show any care for the aesthetic, information or marketing value of their products. In fact, goods were often sold in ‘substitute packaging’. The situation changed with the introduction of market economy rules. The abundance of goods on the market compelled manufacturers to use attractive packaging to encourage potential clients to buy their products. Thus, packaging, fulfilling mainly its natural protective function, has regained its aesthetic and marketing-advertising functions. These revolutionary changes led to a boom in the Polish packaging industry in the early 1990s. The industry’s dynamic development was possible due to foreign investment and the inauguration of the production of new types of packaging—ie aluminium cans and plastic (PET) bottles.

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227

Figure 4.13.1 Overall value of domestic sold production of packaging


Experts estimate that growth in GDP of one percentage point leads to a two-fold growth in demand for packaging. However, despite rapid growth in the manufacture of packaging, Poles still use half as much packaging (70–75 kilograms per capita annually) than their EU counterparts (160– 170 kilograms). The slowdown in the pace of economic growth recorded in Poland in the late 1990s resulted in the worsening of the business climate in the packaging sector. Although the value of the packaging industry’s sold production continued to grow, the rate of that growth was declining steadily. In 1999, the value of the Polish packaging market exceeded PLN5.7 billion. Approximately two-thirds of the market’s value accounted for packaging manufactured in Poland.

Product range Packaging can be classified in several ways, but the most popular method of classification is both according to purpose and according to material used in manufacture. With respect to purpose, transport and consumer packaging can be distinguished. Production packaging is used in the storage and transport of raw materials, semi-finished products, ready-made products and waste products within one enterprise or between enterprises. Transport packaging is used in the transport and storage of commodities, whereas consumer packaging is used to protect goods sold directly to retail clients.


With respect to material used in manufacture, packaging can be divided into paper, cardboard, glass, metal, plastic, wooden and textile. Domestic manufacturers supply most of the basic types of packaging. Due to the higher cost of manufacture, the structure of the sold production of packaging is dominated in terms of value by metal containers and other types of metal packaging, at 28 per cent. Paper and cardboard packaging has a 26 per cent share in the structure of sold production. The share of plastic packaging is 23 per cent and glass packaging 18 per cent. The share of wooden and textile packaging is minimal, at 4 per cent and 1 per cent, respectively. In terms of volume, however, paper and cardboard packaging has the highest market share, at 50 per cent. The share of plastic packaging is estimated at 20 per cent, and metal and glass packaging at 12 per cent and 10 per cent, respectively. Figure 4.13.2 Structure of sold production (in terms of value)


Manufacturers Packaging is manufactured in Poland by some 7400 economic entities. Most of them are small firms which supply their products to local enterprises. Approximately 43 per cent of all entities manufacture wooden packaging because the technology is simple and universally available and the cost of investment is low. Since, however, the share of wooden products in the market of packaging is low, it can be concluded that they are manufactured mostly by small entities. About a third of enterprises from the sector manufacture plastic packaging. The technology is not complicated and production requires a relatively low investment outlay, particularly in the case of simple types of plastic packaging. Since plastic packaging is very popular,

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229

small suppliers encounter strong competition from the packaging market’s giants who often have the support of foreign capital and technology. Paper and cardboard packaging is manufactured by about 16 per cent of enterprises from the packaging sector. Due to the high cost of investment and technological barriers, only a small number of Polish firms manufacture glass packaging (7 per cent) and metal packaging (1 per cent). These are mainly large firms with sufficient resources to buy advanced technologies and machines. Currently, some 150 large packaging enterprises have a strong position on the Polish market. Although they account for a mere 2 per cent of all packaging manufacturers, their share of the market, in terms of value, exceeds 60 per cent. Large domestic companies, which possess the required quality certificates, are in a better situation than small enterprises because they usually supply their products to the largest buyers of packaging under long-term contracts. In addition, such large firms using advanced technologies and high-capacity machines are also able to offer top-quality packaging at low prices to small buyers and thus gradually eliminate weaker rivals from the market.

Paper and cardboard packaging Increased demand for packaging has led to increased production of various types of cardboard. In 1999, domestic manufacturers produced more than 205,000 tonnes of ordinary cardboard (7 per cent more than in 1998) and 436,000 tonnes of corrugated cardboard (10 per cent more than in 1998). Growth (of 9 per cent) was also recorded in the production of boxboard, plain and printed, which exceeded 471,000 tonnes. The data suggests that in this segment of production boxboard accounted for 43 per cent of total output, while corrugated cardboard and ordinary cardboard accounted for 39 per cent and 18 per cent of total output, respectively. Poland’s largest manufacturers of paper and cardboard packaging are Big Carton in Kliniska, Bystrzyckie Zak§ady Wyrobów Papierowych S.A., David S. Smith Packaging S.A. in Kielce, Intercell S.A. (factories in Ostroleka, £ódz´ and Tychy), Kappa Expac (factories in Pruszcz Gdan´ski and Drezdenko), and Frantschach S´wiecie S.A. (S´wiecie Box, S´wiecie Sacks).

Glass packaging Packaging accounts for approximately 60 per cent of total output of the Polish glass-making industry. This segment of the packaging market is recovering gradually after a crisis that hit in the early 1990s due to strong competition from other types of packaging. The inauguration of


production of thin-walled bottles and jars, of similar resistance but lighter than more traditional products, significantly increased the competitiveness of glass packaging. Thus, after a period in which cardboard boxes, aluminium cans and plastic containers were fashionable, glass packaging, particularly for food articles, is once again becoming popular. The largest buyers of glass packaging are the brewing, distilling, fruit and vegetable processing industries, and the pharmaceutical and cosmetics industries. More than 60 per cent of glass packaging manufactured in Poland is accounted for by bottles, while 35 per cent is accounted for by other types of glass containers (eg jars). Glass packaging is manufactured by many Polish glassworks. However, only a small number of them occupy a strong position on the market. The unquestionable leader is the Huta Szk§a Jaros§aw S.A. glassworks owned by the US Owens-Illinois concern. Other major suppliers of glass packaging are Huta Szk§a Ujsćie S.A., PLM Wielkopolska Huta Szk§a S.A. in Gostyn´ (owned by the PLM Glass Division concern), Huta Szk§a Warta S.A. in Sieraków, Huta Szk§a Antoninek S.A. in Poznan´, Huta Szk§a Dzia§dowo Sp. z o.o. and Huta Szk§a Orzesze.

Plastic packaging Bottles, boxes, chests, different types of foil and foil bags dominate in the production of Poland’s plastic packaging manufacturers. A separate group of plastic packaging consists of laminated products, ie materials consisting of layers of plastic, cardboard and aluminium foil, which are used mainly in the production of drinks containers. The largest manufacturers of plastic packaging are Akerlund & Rausing S.A. in Bialystok, Alpla-Opakowania z Tworzyw Sztucznych Sp. z o.o. in . Zywiec, Carnaud Metalbox Tworzywa Sztuczne Sp. z o.o. in Garwolin, Cofinec Polska in Góra Kalwaria, Fabryka Opakowan´ Kosmetycznych Pollena S.A. in £askarzew, GTX Hanex Plastic Sp. z o.o. in Poznan´, Inline Poland Sp. z o.o. in Poznan´, Polarcup Poland Ltd. in Siemianowice S´lá skie, Masko-Graham Sp. z o.o. in Sulejówek, MPS International Ltd. Sp. z o.o. in Koszalin, Schmalbach-Lubeca PET Containers Polska Sp. z o.o. in Radomsko (owned by Continental Can Europe), Unibax Sp. z o.o. in Torun´, Zak§ady Chemiczne Organika-Azot S.A. in Jaworzno, Zak§ady Tworzyw i Farb Zloty Stok and Zak§ady Tworzyw Sztucznych ERG S.A. in Bierun and Pustkowo.

Metal packaging Metal packaging is used mainly to store food articles (eg canned fish and canned drinks) and chemical products (eg paints and glues). In 1999,

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domestic factories manufactured close to 92,000 tonnes of tinplate packaging and almost 2000 tonnes of packaging from thin steel sheet. Among the leading manufacturers of metal packaging is the CanPack S.A. group, which comprises Antigraph S.A. in Kraków, Can Pack Fabryka Puszek Napojowych in Brzesko S.A., Can Pack Fabryka Opakowan´ Blaszanych Sp. z o.o. in Bydgoszcz and Pol-Am-Pack S.A. in Brzesko. Other major suppliers of metal packaging are Asko-Vogel & Noot Sp. z o.o. in Wiechlice, Carnaud Metalbox Polska Sp. z o.o. in Goleniów (owned by the Crown Cork & Seal Company group), Continental Can Polska in Radomsko (owned by Continental Can Europe), Fabryka Opakowan´ Blaszanych Sp. z o.o. in Gdan´sk, Fabryka Opakowan Blaszanych in Zawiercie and Polmetal Fabryka Wyrobów Blaszanych S.A. in Malomice.

Foreign investment In the early 1990s, Poland’s fast-developing economy and its promising, large and weakly penetrated market attracted many foreign companies willing to invest in the packaging sector. It was the perfect time to invest since domestic manufacturers did not have the right technology to produce such advanced types of packaging as cans, laminated boxes, plastic (PET) bottles or thin-walled glass bottles, and the production capacity of Polish factories was too low to meet the increasing demand for packaging. In addition, obsolescent technologies and designs applied by domestic enterprises could not meet the growing requirements of the market. Some foreign investors simply took over existing Polish enterprises, while others decided to build new factories manufacturing packaging. By the end of 2000, foreign investment in the packaging sector reached US$546 million (International Paper Kwidzyn and Frantschach Swiecie not included), according to data from the Polish Agency for Foreign Investment (PAIZ). The largest investments in the Polish packaging industry were made by Swedish companies (Intercellulosa AB, Assi Domaan AB, Munksjo AB) and amounted to US$147 million. German companies (Continental Can Europe, Kurt H. Schumacher, Heinrich Winkelmann and KWW Joachim Baumann KG) were second with investments of US$102 million. Other major investors were US companies (F & P Holding Company, Owens-Illinois Inc. Graham Packaging, Inline Plastics Corporation), which allocated US$98 million to the production of packaging in Poland, Dutch companies (Kappa Packaging), Finnish companies (Huhtamaki Van Leer, Akerlund-Rausing, NEFCO) and the United Kingdom’s David S. Smith Packaging.


Table 4.13.1 Largest foreign investors in the Polish packaging sector, end 2000 Investor

Capital invested (US$ million)

Capital from

Notes

Intercellulosa AB

108.0

Sweden

Intercell S.A., shares in Ostro§eckie Zak§ady w), Nordic Celulozowo-Papiernicze, Scanbox (£ódz Box (Tychy), Intercell Trading Sp. z o. o. (Warsaw)

Continental Can Europe GmbH

69. 7

Germa

Continental Can Polska Sp. z o. o., factories manufacturing cans in Radomsko, Krakow and Niepo³omice

F & P Holding Company Inc.

66. 8

United States

53 per cent stake in Can-Pack S.A. (Krakow), manufacture of metal packaging

Kappa Packaging

45. 0

The Netherlands

´ Sp. z o.o. Kappa Expac Fabryka Tektury i Opakowan (Pruszcz Gdański), Kappa Expac Fabryka Wyrobów Papierowych Sp. z o. o. (Drezdenko)

David S. Smith Packaging

31. 2

United Kingdom

David S. Smith Packaging Poland S.A. (Kielce), David S. Smith Packaging International Sp. z o. o. (Warsaw), manufacture of paper packaging

AssiDomaan AB

25. 5

Sweden

Assi Domaan Packaging Polska Sp. z o.o. (Warsaw), manufacture of paper packaging

Huhtamaki Van Leer

25. 0

Finland

Polarcup Poland Ltd. (Siemianowice Œl¹skie), manufacture of plastic packaging

Inter Paper Holding AG

24. 0

Liechtenstein

Intercell S.A. (Ostro§êka), manufacture of paper packaging

Owens-Illinois Inc.

17.2

United States

Stake in Huta Szk§a Jaros§aw, Huta Szk§a Antoninek (Poznań), glass packaging

Kurt H. Schumacher

15. 0

Germany

A stake in Tektura Wroc§aw (Krêpice), paper packaging

Heinrich Winkelmann 15.0 GmbH Co

Germany

Reflex Polska Sp. z o. o. (Wá brezńo), manufacture of metal packaging

Alpla

14. 0

Austria

Alpla Sp. z o. o., factory manufacturing bottles (Kywiec)

Munksjo AB

13. 5

Sweden

Munksjo Packaging Sp. z o. o., packaging factory in Pruszków

Overseas Enterprises Company Ltd.

11.5

Switzerland

57.6 per cent stake in Big Carton Sp. z o. o. (Kliniska), manufacture of paper packaging

Akerlund-Rausing

11.4

Finland

Akerlund & Rausing d. Pakpol S.A. in Bia§ ystok, paper and plastic packaging

Premium Packaging GmbH

10.0

Austria

Wall MM Gravure Krakow Sp. z o. o. (Stanis§ awice), manufacture of paper packaging

Graham Packaging

10.0

United States

Masko-Graham Sp. z o. o. (Sulejówek), factory manufacturing plastic packaging

Packaging Industry

233

Table 4.13.1 (cont’d Investor

Capital invested (US$ million)

Capital from

Notes

Model Holding AG

7.5

Switzerland

Model Opakowania Sp. z o.o. (Bi§g joraj), manufacture of paper packaging

Nordic Environment Finance Corporation (NEFCO)

4.5

Finland

Intercell S.A. (Ostro§êka), Partek Paroc Polska Sp. z o. o. (Trzemeszno), manufacture of paper packaging

Inline Plastics Corporation

4.0

United States

Inline Poland Sp. z o. o. (Poznan ´), manufacture of plastic packaging

OTOR

3.5

France

85 per cent stake in Otor Silesia S.A. (Tychy), ´lá skie Zak§edy Papiernicze SILESIANPAP, formerly S manufacture of paper packaging

Schouw Packing A/S

3.4

Denmark

Elopak Sp. z o. o. (Czosnów), packaging for dairy products

Neupack GmbH

3.0

Austria

Neupack Polska Sp. z o. o. (Bydgoszcz), manufacture of paper packaging

Kosme

2.0

Austria

Kosme Polska Sp. z o. o. (Krakow), manufacture of bottles

Purity Packaging

2.0

Canada

A dairy in £om¿a, other dairies, packing equipment

KWW Joachim Baumann KG

2.0

Germany

Tektura Wroc§ aw Sp. z o.o. (Krêpice), manufacture of paper packaging

Cebal Tuba Investment (PAIZ) Total

1.3

France

w), Source: Polish Agency for Foreign Cebal Tuba (£ódz

546.0


Foreign trade Approximately one-third of the sold production of packaging is accounted for by exports, which have been growing slowly in recent years. According to the Central Statistical Office (CSO), Polish enterprises exported packaging worth more than US$465 million in 1999 (a growth of 5.1 per cent). Poland exports mainly wooden packaging (pallets), whose share in the overall export of packaging is 29 per cent. The share of plastic packaging is estimated at 26 per cent and that of metal packaging (barrels, drums, cans, cisterns) is put at 17 per cent. Cardboard and paper packaging account for 13 per cent of overall exports and glass packaging for 10 per cent. The main buyers of Polish packaging are Germany (39 per cent of Polish exports), Russia (7.5 per cent) and Ukraine (4 per cent).


According to CSO data, Poland imported packaging worth more than US$611 million in 1999 (a decline of 5.2 per cent). The structure of imports is dominated by plastic packaging (45 per cent) and cardboard and paper packaging (35 per cent). Poland also imports quantities of metal packaging (10 per cent) and glass packaging (6 per cent). Packaging is imported chiefly from Germany (34 per cent of overall imports), the Czech Republic (11 per cent) and Austria (8 per cent). In recent years, Poland has had a deficit in the foreign trade in packaging. This deficit was fairly stable at US$90 million-US$96 million. In 1999, the deficit diminished to US$45.8 million as the result of a fall in the import of packaging brought about by a slowdown in the pace of economic growth and an increase in exports.

Figure 4.13.3 Foreign trade in packaging


4.14

Printing Industry BOSS Economic Information Agency, Warsaw Introduction The situation of the Polish printing industry cannot be easily defined due to its strong fragmentation both in terms of the number of enterprises and the activities they engage in. Stagnation on the market and the bankruptcy of many small and medium-sized firms are accompanied by the dynamic development of several leading printing houses. Investments made by the latter place Poland among the world’s leaders in the printing business and the pace of introduction of the latest digital technologies is more rapid than in the best European printing houses.

Sector characteristics The Polish printing sector is highly fragmented. It comprises some 16,400 printing companies, 95 per cent of which are small firms each employing fewer than five people. The number of firms that employ over 20 people is less than 330. All in all, the printing sector employs 70,000, of whom a third work for companies that employ more than 50 workers. Private enterprises dominate, while the public sector is represented by 45 printing facilities, including 16 treasury-owned companies. The printing industry is not only fragmented, but also strongly diversified in terms of the level of technological advancement of its individual entities. This view of the sector is not uniform since, besides printing enterprises, it also comprises publishing houses, DTP studios, imagesetting and bookbinding facilities, advertising agencies and numerous companies engaging in related activities, whose technological and production specialization is not clearly defined. The number of printing houses is close to a thousand. More than 60 per cent of them are small establishments that do not have a legal status and engage in niche activities supplying fancy goods, job-work and simple advertising materials printed in small quantities. Large specialized printing houses, whose number is put at about 150, account for several per cent of the market. More than 120 of these printing houses are owned by foreign investors, while another 10 have


foreign investors as shareholders. According to the criterion of the applied technology, which, in turn, depends on the purpose of the product, printing houses can be divided into three groups: • sheet-fed offset used in the printing of small forms in small print runs; • web-fed offset used in the printing of periodicals in large print runs; • aniline printing, ie the printing of packaging. The latter group, however, is included in the packaging sector. According to data from the Polish Printing Chamber (PID), in 2000 the value of the printing services’ sold production reached PLN5244 million in enterprises employing at least 10 people. Half of this value was accounted for by press publications. The Polish printing industry has allocated over US$1.2 billion to investments in recent years. The leading printing houses have the most advanced machinery and are introducing the latest digital technologies. Almost all the machines and equipment used in production are imported. Certain types of printing ink, paper for colour printing and many other materials are also imported.

Current situation In recent years, the printing industry has been grouped among the fastest developing sectors of the Polish economy. The industry’s leading enterprises, which represent the highest world standards, are rapidly increasing the export of printing services to the European Union, which is a way of compensating for the reduced demand for these services on the domestic market. The printing industry is also one of the sectors with a low or even decreasing investment risk. According to the Market Research Institute (IBnGR), the printing and publishing of newspapers ranked second and third among industrial branches with the lowest investment risk in the first half of 2001. This relates mainly to some 150 large printing houses, although there are examples of small book-printing firms that invest in new technologies in an effort to stay on the market. In general, however, the Polish printing industry currently has excessive production capacity because the country’s unfavourable economic situation and the diminishing purchasing power of the population have curbed demand for press publications, advertising materials and books. This has led to intensified competition between printing firms and, as a consequence, the price of printing services is increasing at a slower rate than inflation— in 2001, their rate of growth was lower than in 2000. This situation impacts particularly negatively on the condition of small, but also medium-sized, DTP, photo-setting and printing firms.

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237

Many of them are on the verge of bankruptcy or have already fallen mainly as the result of delays in payment for services rendered. In 2001, the competitiveness of Polish printing houses vis-à-vis foreign enterprises diminished significantly due to the imposition of 22 per cent VAT on printing services. The move particularly affected the least profitable small and medium-sized establishments printing books, which always suffered from a shortage of working assets. The fall in domestic demand and extremely strong pressure to lower margins are felt even by the larger establishments which produce colour printed matter in large print runs. Still in 2000, such firms fully utilized their production capacity and could choose among numerous orders. The negative phenomena intensified in the second half of 2001, forcing printing houses to seek ways to urgently cut costs, particularly as they had to repay credit loans drawn to finance their investment projects. Also difficult are decisions concerning reductions in employment as the Polish printing industry suffers from a shortage of qualified workers. A specific feature of the Polish printing market concerns the extremely high requirements of the clients who place orders with printing enterprises. In fact, these requirements are higher than in the West. Domestic clients expect to receive a top-quality product for a minimal price, which has its source in the general shortage of money and the still low level of development of the market on which there is practically no gradation of quality relative to the product’s price. A slight stagnation observable on the web-fed offset market (the printing of newspapers) a year and a half ago has deepened further, as evidenced by the lower consumption of newsprint in 2001 compared to 2000 and a growing number of bankruptcies. According to data from the Press Research Centre (OBP) of Jagiellonski University, in 2001 the number of bankruptcies on the press market (181) for the first time exceeded the number of new titles (169). This can be largely attributed to a recession in the advertising market. Although a year earlier there were more bankruptcies (289), the number of titles that appeared on the market was far greater (435).

Legal and tax aspects January 2001 witnessed serious upheaval in the printing sector, caused by the introduction of 22 per cent VAT on printing services, although the regulation in question was later recognized as a legislative error. Zerorate VAT was finally restored on the printing of newspapers and books (in August and October 2001, respectively) yet the price of these products grew significantly. In comparison with 2000, the price of newspapers and other periodicals jumped by 17.6 per cent in 2001. Nothing currently seems to indicate that their cost can be expected to diminish.


Originally, the zero-rate VAT on newspapers and books was to be preserved until the end of 2003. However, during pre-accession negotiations with the European Union, Poland managed to obtain EU consent to maintain the zero rate for books and specialist periodicals during the four-year transition period, which means that the present rates will be preserved until the end of 2007. It should also be noted that a certain inequality has emerged on the Polish printing services market due to the operation of special economic zones in different parts of Poland. One of the country’s largest printing houses is R.R.Donnelley Europe Sp. z o.o. (a branch of the American R.R. Donnelley & Sons Co.), which by investing in the Krakowska Special Economic Zone has obtained an exemption from the income tax for a period of 10 years. This gives the company a serious edge over rival printing houses. Tax reliefs can also be expected on Poligrafia S.A. of Kielce, which has opened a new printing facility in the Special Economic Zone in Starachowice. These unequal conditions of competition created by the existence of Special Economic Zones in Poland have not escaped the attention of the European Union. Hence, Poland’s negotiations with the European Union also cover the removal of Special Economic Zones or the limitation of tax reliefs offered to investors in these zones.

Financial condition Almost 70 per cent of printing firms participating in a survey devoted to The printing market in Poland at the start of the 21st century’ declared that the business climate in the sector deteriorated in 2000. The survey ordered by Agfa was conducted in March–June 2001 and covered 750 firms from central Poland, including 503 printing houses. Almost half of them feared a further deterioration in the business climate. Their opinions and pessimistic predictions find confirmation in Central Statistical Office (CSO) data relating to the rate of growth of the sector’s revenues. A significant decline in the rate of growth of revenues, particularly in the second half of 2001, was accompanied by a tangible growth in the number of firms recording losses. The sector’s profitability fell to its lowest level in four years, yet remains positive owing mainly to the results recorded by large printing houses. Nearly 80 per cent of printing firms complained about an insufficient number of orders as compared with their potential. This was the main reason why 72 per cent of the firms made no investments in 2000. More than 60 per cent of all firms did not plan any investments for 2001 either. In the group of large printing houses, only half planned any investment outlays in 2001. Simultaneously, the import of machinery and equipment for the printing industry was higher in 2000 than a year earlier. A decline

Printing Industry

239

was recorded in the first three quarters of 2001, particularly in the import of printing machines. The results of the aforementioned Agfa survey also show that 41 per cent of Polish printing firms finance their investment projects from their own resources, 46 per cent through leasing, and 28 per cent through credits and bank loans. Particularly troublesome for the whole sector, small and large printing enterprises alike, are the frequent delays in payment for services rendered, continuous prolongation of settlement periods and difficulty in collecting payments in full. Thus, printing enterprises are often compelled to provide credit terms to their clients. This situation is becoming increasingly difficult as evidenced by the short-term obligations/ receivables ratio. While large enterprises cope with this problem more or less successfully, it is the proverbial nail in the coffin for smaller printing establishments. Many signs indicate that 2001 will witness a fall in the number of enterprises in the printing sector.

Export and import The rate of growth of the export of the printing industry’s products has been higher for a few years than that of their import. This can be attributed, among other things, to the fact that Polish printing enterprises offer services of the highest quality according to world standards, and receive more and more orders from major Western publishers. It seems, however, that in the last two years the rate of growth of exports has declined slightly. On the other hand, a minimal increase was observed in imports in the first three quarters of 2001. It is probable that the latter was brought about by the imposition of the 22 per cent VAT rate on printing services, which diminished the price attractiveness of the domestic market throughout the year. The leading import items are books, booklets, leaflets and similar printed materials. The volume of their import has been declining by several per cent annually, whereas the value has hovered around US$100 million. Other important import items include advertisements and trade catalogues. The import of these two groups of products has begun to decline following a two-fold growth in 1995–1999, from US$30.5 million to US$65 million. Poland has reduced the import of newspapers, dailies and periodicals, and tangibly increased their export. In 2000, the value of the export of these products exceeded for the first time the value of their import, whereas in the first three quarters of 2001, the value of exports (US$29.1 million) was almost twice as high as that of imports (US$16.7 million). In total, in less than six years Poland has essentially increased the export of these articles, with the sales of books, booklets, advertisements


and catalogues increasing more than two-fold and the sales of periodicals jumping more than six-fold. Since 1998, Poland has also been exporting maps, atlases and topographic plans. Domestic production of these items also meets to an ever-larger extent internal demand since their import has diminished more than two-fold. Poland’s largest suppliers and buyers of books, periodicals and other printing industry products are EU countries, which account for 75 per cent of Polish imports and 55 per cent of Polish exports.

Sector leaders Sheet-fed offset The most successful among Poland’s 1000 printing establishments in the sheet-fed offset segment are large entities that have secured themselves permanent orders and have loyal customers. The greatest advantages of the sheet-fed offset are its universality and flexibility, which make it possible to react promptly to changes in demand. Sheet-fed offset is also the segment that has managed to withstand to the greatest extent the invasion of foreign capital. It comprises a fairly large number of strong Polish firms which operate successfully and have loyal clients—for example, Angraf in Pila, which makes book covers for the large Winkowski printing enterprises, Perfekt in Warsaw, Unigraf and Poligram in Józefów. In 1999, Colonel, a family business operating in Krakow for 10 years, also joined the leading bookprinting establishments. Thanks to the high quality of its products, the company competes successfully with the largest printing enterprises in the region: Drukarnia Wydawnicza and Drukarnia Narodowa. It continues to invest in new machinery and is planning to build a new production facility in two or three years. Drukarnia Skarbowa in Warsaw, established more than 40 years ago, has changed from a small facility printing simple forms for the Finance Ministry into a modern job printing enterprise. It has two facilities, one of which specializes in the production of valuable papers protected with numerous safeguards, and, most recently, high-class plastic identity cards. Web-set offset Web-set offset, the printing of mass circulation periodicals, can be divided into two sub-segments: enterprises printing daily newspapers and enterprises printing magazines. The daily newspaper-printing segment can be divided into three main players: Agora, Orkla and the Passauer group.

Printing Industry

241

The listed Agora S.A. company, publisher of Gazeta Wyborczal, has built three new printing facilities since 1998: in Tychy, Bia§o§ êka and Pila. It employs more than 850 workers and prints all copies of the daily, with the exception of its colour magazines, which are printed by Winkowski. Another giant in this segment of the printing market is PolskaPresse, a Polish branch of the German Passauer Neue Presse company, which owns more than two-thirds of local press titles. The company has been operating in Poland for 10 years and has six facilities printing newspapers. The Norwegian Orkla Media company, which controls Rzeczpospolita (two Presspublika printing facilities in Warsaw and Poznan´) also has five facilities which print local newspapers. Poland’s second largest national newspaper, Super Express, is printed in the facility owned by Media Express. Heat-set segment While in the production of daily newspapers the largest publishers have their own printing houses (which is why it is so difficult to separate the publishing business from printing activities), the printing of glossy magazines (heat-set) is, as a rule, entrusted by publishers to independent printing enterprises. The leading enterprises in the heat-set segment are Winkowski, Donnelley, Poligrafia S.A. and several other smaller firms. The first two companies represent more than half of the sector’s production capacity, but Poligrafia of Kielce is also rapidly increasing its potential. Winkowski Sp. z o.o. in Pila was established in 1998 by Prószyn´ski i Ska and Quad Graphics, the largest US private printing company whose annual turnover is US$2 billion. Winkowski has one of the largest commercial printing complexes in Poland, comprising facilities in Pila and Radzymin. It prints more than 100 colour periodicals and glossy magazines. In 1999, the company invested US$30 million in the acquisition of the latest technologies and increased three-fold the production capacity of its printing facilities. The company continues to expand. By the end of 2001, it had invested US$120 million in machinery and technology and is planning to invest similar amounts in development by the end of 2005. In 1999, Winkowski introduced in its facility in Radzymin Poland’s first computer-to-plate (CtP) system. At present, 97 per cent of work in the company’s two printing facilities is done in digital form. Every year, the company increases its output by about 30 per cent, owing, among other things, to the development of exports whose share in overall sales reaches 20 per cent.


Another large printing enterprises is R.R.Donnelley Europe Sp. z o.o. (name changed from Donnelley Polish American Printing Company), a branch of the American R.R.Donnelley & Sons Co., which has invested in the Krakowska Special Economic Zone and is thus enjoying a 10-year exemption from income tax. The company’s first printing facility was opened in 1994 and the second, worth US$60 million, was built in 2001. The new facility has four Sunday 2000 heat-set machines and uses CtP technology. This technology is also applied in the company’s other printing facility. The company has also recently opened a graphic studio in Warsaw. In addition to mass circulation colour periodicals, the company prints low-circulation colour magazines and catalogues of different sizes. The only printing company that is listed on the Warsaw Stock Exchange is Poligrafia S.A. of Kielce, which has Baring Central European Fund LP as its main shareholder (75 per cent). This is a financial investor which has announced its plans to sell the shares of Poligrafia in the next few years (probably in 2003). In the meantime, it is helping the company to complete its restructuring process. Poligrafia has invested considerable amounts in the purchase of new machinery. At the end of 2000, it bought M600 Al 24 and Speedmaster CD 102 machines, and Kolbus flexible and hard-cover binding lines. In 2001, Poligrafia took over the Marquard Press printing facility in Katowice and installed the Sunday 4000 rotary machine manufactured by Heidelberg and a CtP line. At the end of 2001, the company opened another printing facility, Poligrafia Bis, in the Special Economic Zone in Starachowice. In this way, it may obtain a 10-year exemption from income tax, provided that it invests at least €8.75 million in the zone by the end of 2002. Poligrafia S.A. expects to win about 10 per cent of the Polish printing market due to these investments. The company is raising capital needed for investments through, among other things, the sale of its shares. Drukarnia Prasowa S.A. in £ódz´ was established 55 years ago and became a joint-stock company in 1992. Prior to its privatization, the company had belonged to the former RSW concern. Drukarnia Prasowa S.A. is investing in the modernization of production. In 2001, it installed a CtP platesetter supplied by Lüscher, a five-colour web-fed rotary supplied by MAN Roland, and a successive system (collecting drum, cutting drum and casing-in drum) supplied by Ferag. The company also has three additional heat-set machines. It employs over 500 workers and prints several dozen different colour periodicals as well as advertising leaflets. It has twice won the ‘Fair Play’ title awarded to companies for solidity and honesty in conducting business affairs. Przedsiêbiorstwo Poligraficzno-Wydawnicze Uniprom S.A. has two printing facilities in Warsaw, which are equipped with Cerutti gravure rotaries as well as MAN Rotoman 40 and Harris M1000 B machines. Other important printing enterprises in the market of colour periodicals

Printing Industry

243

are Wojskowe Zak§ady Graficzne in Warsaw, Wroclawskie Zak§ady Graficzne S.A and Zak§ady Graficzne in Poznan´. In addition, the Bauer Verlag publishing company has its own facility printing colour periodicals. It was opened in Ciechanów in 1997 and is equipped with German-made gravure rotaries.

Development prospects The Polish printing market has good prospects for development because Poland still lags far behind EU countries both in terms of press readership and consumption of printed reclaimed paper. It is estimated that the average Pole produces 50 kilograms of waste paper annually, which is four times less than the average German. As far as readership is concerned, its level in Poland resembles that recorded in Austria, which is a far smaller country. Spain, which is of a similar size and population to Poland, can be regarded as a model example for the Polish printing market. The sales of colour magazines in Spain are three times higher than in Poland and it is estimated that the Polish printing sector will need 8–10 years to achieve such a level. Thus, the Polish printing market should grow three times during this period. There also exist niches on the Polish printing market which are being filled at a slower pace than is the case in Russia, for example. Few foreign titles are being printed under licence in Poland and this segment represents a considerable development potential, as evidenced by the market success of such magazines as National Geographic and Newsweek. For some time, however, the print-runs of newspapers and colour periodicals have been decreasing. Poles also buy fewer books than previously. The increased price of these products is no doubt responsible for this situation. Booksellers, in particular, try to burden the buyers with the greater part of their costs, which result from wrong decisions as to choice of titles and number of copies and, consequently, stocks of unsold publications. It is probable that the present economic stagnation, which is being felt acutely by the printing sector, will contribute to the rationalization of cost policy. It will also compel producers to accept the existence of far lower margins than those to which they have so far become accustomed. As in previous years, the dominating trend in the printing sector will be consistent modernization of production and introduction of advanced technologies which make it possible for printing concerns to compete successfully on the market. This process will result in the elimination of firms unable to invest in their own expansion. The Polish printing concerns will also be compelled to further widen their offering to include various additional services expected by clients (subscriptions, inserts, fluorescent and scented elements, gifts, etc). Future success in the


Polish printing industry is also related to the development of exports, particularly in light of the moderate investments in the printing sector that are being made in other European countries.

4.15

Telecommunications Polish Agency for Foreign Investment (PAIZ)

Telecommunications expansion Telecommunications networks have been expanding rapidly in Poland in recent years. Cellular telephony is the fastest growing segment of the telecommunications market. The number of subscribers is almost doubling every year: at the end of 2000, there were 6,747,800 subscribers, which is 70.6 per cent more than in 1999. It is estimated that at the end of 2005 there will be 15 million cell-phone users. Fixed-line telephony has also grown significantly over the last few years. At the end of 2000, the number of main wire telephone lines was 26.5 per 100 residents (compared to 24.7 in 1999,22 in 1998, 19.3 in 1997 and 16.9 in 1996). Nevertheless, the relatively low line saturation ratio (despite the more rapid growth in recent years) and the tremendous expansion of cellular telephones testify to the huge and largely untapped opportunities for the development of telecommunications services. The rapidly growing demand for modern telecommunications services in Poland provides an excellent opportunity for foreign investors. Figure 4.15.1 Increase in number of mobile and fixed-line telephony subscribers in Poland, 1994–2000



Legal framework As party to the WTO Agreement on generally accessible telecommunications services, Poland has had to adjust its regulatory framework for providers of telecommunications services. The market for local and inter-zone telecommunications became open to competition on 1 January 2002, and the market for international telecommunications services is to follow suit from 1 January 2003. These issues are regulated by the new Telecommunications Law of 12 May 2000, which became valid on 1 January 2001. The amendments streamline operator-licensing procedures and are consistent with EU laws.

Trade liberalization Following unification of the timetable for the liberalization of trade, under agreements with the European Union, European Free Trade Association (EFTA) and Central European Free Trade Association (CEFTA), all customs duties and other trade barriers in mutual commodity exchange are to be eliminated by 2002. This will mean better access to the Polish market and a relative improvement in the competitiveness of foreign manufacturers. In 1998, Poland signed the Information Technology Agreement (ITA) and, accordingly, had reduced customs duty rates on imported telecommunications and IT products (with some exceptions) by 1999. Products listed in the Agreement (including various telecommunications devices) have been exempt from tariff payments (zero-rated) as of 1 January 2000. Since the beginning of 2000, customs duties on telecommunications products have been zero rated in trade with EU, EFTA and CEFTA member countries.

Telecommunications hardware market in Poland Public exchanges There are three suppliers and three systems for the public telecommunications network in Poland: • Lucent Technologies (former AT&T): system 5ESS. • Alcatel: system 1000 S12. • Siemens: system EWSD. Private branch exchanges (PABX) The market for private branch exchanges (PABX) is entirely open to competition in Poland. Several dozen enterprises—both manufacturers and importers—operate in this sector. Rapidly growing sales parallel

Telecommunications

247

the ever-increasing demand for modern telecommunications and IT services provided through digital telecommunications networks. This trend has promoted rapid growth in the value of PABX sales. Panasonic Polska is the leading importer in Poland and has the largest market share. Leading domestic manufacturers include DGT Gdansk, Mikrotel Gdansk, Slican Bydgoszcz and Digitex Sopot. Telephone sets, fax machines and other telecommunications devices Both the volume of production and the growth rate of the telephone set market are directly related to the development of the telephone network. Over the past two years, annual sales have been in excess of 2.7 and 2.8 million units respectively, of which domestic manufacturers accounted for almost 50 per cent.

Figure 4.15.2 Structure of telephone sets market, 2000

Source: Institute of Electronic Market

Approximately 2 million new wire telephone lines were being commissioned in 2001. Total sales in the next year are estimated at approximately 2.8 million units annually. Due to the very rapid growth of cellular telephony, Poland is emerging as an important outlet market for cell-phone manufacturers. According to Electronic Market Institute surveys, 2.6 million cell-phones were sold in 1999 (compared to 1.9 million units in 1998), all of them imported. The best-selling brand names are Nokia, Motorola and Siemens. There are approximately 20 leading suppliers of fax machines, of which 50 per cent are offices of foreign companies’ representatives in Poland. There is only one domestic manufacturer of fax machines, the Veris company, which holds a market share of 1 per cent. All other machines are imported. In addition to telecommunications exchanges and end-of-line products (eg telephone sets and fax machines), Poland is


a relatively large outlet market for telecommunications and network fittings/supplies.

Rapidly developing services market Telekomunikacja Polska S.A.’s monopoly on domestic inter-city calls ended in 2000. The Polish telecommunications sector is to be fully liberalized by the end of 2002. This will promote a faster growth rate in telecommunications in Poland. As of June 2000, more than 550 licences had been granted for rendering telecommunications services (including local operators), of which 400 were data transmission and Internet access licences. The market of cellular telephony is fully liberalized with three operators—PTK Centertel, Polkomtel and Polska Telefonia Cyfrowa (PTC)—operating seven networks: NMT 450, 3×GSM 900, 3×GSM 1800. Poland’s telecommunications market has been one of the fastest growing in Europe in recent years. The number of telephone subscribers is a key indicator of telephone penetration. From 1999 to 2000, the number of subscribers increased by almost 3 million. In 2000, there were 17 million subscribers, of which 40 per cent were cell-phone users. In 1999, the number of subscribers was 14 million, of which 29 per cent were cell-phone users. Table 4.15.1 Revenues from telecommunications services (US$’000) Revenue from telecommunications 1999

2000

Employment

2000/1999 (%) 1999

2000

Telekomunikacja Polska S.A. 3,121,382

3,378,870

8.2

71,500

68,500

Polska Telefonia Cyfrowa

653,308

835,174

27.8

1600

3100

Polkomtel

687,493

809,405

17.7

1868

2300

PTK Centertel

266,162

356,616

34.0

1300

1743

ZWUT a Siemens Company

204,440

292,886

43.3

586

796

Nokia Poland

226,843

276,090

21.7

249

320

Lucent Technologies

255,287

200,375

-21.5

1310

n/a

Alcatel Polska

233,900

195,564

-16.4

980

1000

Source: Computerworld IT and Telecommunications top 200, 2000

Internet and e-commerce: prospects for the future In Poland, as in other countries, the Internet is becoming increasingly popular as a communication medium and source of information. According to estimates, the Internet service provider (ISP) market was valued

Telecommunications

249

at approximately US$60 million in 1999, which included only ‘direct’ services (ie hosting and access, account, Internet page and domain maintenance fees). With design services, link leasing, the creation of virtual shops, pages, virtual networks, etc, the market was valued at approximately US$115 million. Figure 4.15.3 Incomes (from the Internet) of major ISPs, 2000 (US$ million)

Source: Computerworld IT and Telecommunications top 200, 2000

The development of e-commerce is closely connected with the Internet and will benefit from its proliferation. As happened in other countries, Poland expects a huge growth in e-commerce. Woods & Company estimates the size of the Polish e-commerce market at US$45 million in 2000 and about US$700 million in 2003. Business-to-business (B2B) electronic transactions are far more common in Poland than business-to-consumer (B2C) transactions, and are estimated to account for at least 80 per cent of all transactions. Telekomunikacja Polska S.A., Optimus and Prokom are considered the largest players in Poland’s new economy. The latter two companies operate the most popular Internet portals in Poland: Onet.pl and Wirtualna Polska (WP.pl).

Attraction for foreign investors Sector development forecast Fixed-line telephony The huge number of new lines and the expected improvement in the overall business climate will translate directly into a higher demand for telecommunications services and, consequently, increasing sales of


telecommunications equipment. The demand for modern telephone exchanges will be additionally strengthened by the need to replace obsolete analogue units with modern and more functional digital ISDN exchanges. Mobile telephony The rapid growth of mobile telephony is expected to continue in the future. In fact, forecasts for this segment of the Polish market are continually being adjusted upwards. Previous experience indicates that a cell-phone is often used in Poland as a substitute for a wire-based unit. The number of subscribers is expected to exceed 14 million by 2010 (according to moderate forecasts). This will represent a penetration ratio of roughly 35 cell-phone subscribers per 100 residents. In 2000, all Polish cellular system operators introduced Wireless Application Protocol (WAP), which enables cell-phone users to access Internet resources directly without computers. UMTS, the third generation of cellular telephony, is to be introduced by the end of 2003. Internet and data transmission The increasing role of portals and information management will be the main Internet development trend. In 2000, a number of the world’s key computer companies announced plans to invest in Poland in those areas. Voice over Internet Protocol (VoIP) services are already available in Poland and are expected to develop rapidly due to the much lower cost of such calls.

4.16

The Polish Retail Sector Euromoney Polska SA/Internet Securities Trade remains the second force, after industry, driving Poland’s GDP growth, and its weak results have a direct impact on the country’s economic growth rate. In 2000, the share of trade in GDP in constant prices reached 18.3 per cent, while in current prices 20.8 per cent. Weaker retail sales this year were also reflected in a slower GDP growth. In Q2/ 2001, Poland’s GDP increased 0.9 per cent only, whereas in the same period of 2000 it was 5 per cent. The volume of sold goods was estimated at PLN347 billion, with manufactured goods (PLN210 billion) and food products (PLN104 billion) topping the list. The average employment in the trade and repairs industry was 1.4mn in 2000, which means an increase by 6.2 per cent. Nearly 50,000 jobs were created in retail and repairs, 3000 less than the number of redundancies. In the previous year, the average gross salary in the sector amounted to PLN1681.90, below the national average of PLN1923.81 In the first seven months of 2001, retail sales were down 0.8 per cent, against the corresponding period of 2000. The negative trends in retail sales have been seen for over a year, with sales growth gradually weakening in 2000. In Q1/01, retail sales of consumer goods fell 3.1 per cent, while in the second 0.2 per cent. High unemployment, low wage increases and growing uncertainty about the future of Poland’s economy have led to reductions in household spendings. Retailers expect the domestic market to revitalize in the coming months, which would improve the financial condition of companies and allow them to make payments on time. The value of commodities acquired by foreigners in 2000 reached PLN10.2 billion (a 4.1 per cent drop against 1999). The main reasons for a drop are: • stricter regulations imposed in a line with the EU directives; • evening of the price levels; and • availability of cheap products in super- and hypermarkets. The importance of border trading is also weakening. Germans— Poland’s major partners in border trading—became less active in


2000, and spent only PLN4.9 billion. Foreigners arriving across the Western border purchased goods for PLN5.7 billion, which means a decrease by 7.3 per cent. However, an increase has been noted on the Eastern border. Belarussians spent PLN1.2 billion, Ukrainians—PLN0.9 billion, and Czechs—PLN759m. It is expected that in the coming years, the volume of goods purchased by foreigners will be going down. In 2000, the number of shops in Poland fell by 19,600 to 432,000 (excluding kiosks, stands and small outlets) when compared with 1999, according to the Central Statistical Office (GUS). At the same time, the number of stores with a floor area equal to or more than 400 square metres rose by 12 per cent, thus total retail space went up by almost 9 per cent. Between 1990 and 1998, the number of retail outlets more than doubled reaching almost 950,000. After 1998, it started to fall with the biggest decline in the number of kiosks, small outlets and foldable stalls. The Polish retail network is far from modern and its growing efficiency will result in more shops being closed down, which is viewed a natural tendency by specialists. Still Poland has one of the densest retail networks in Europe, ie there are almost twice as many shops in Poland as in Spain and six times more than in Great Britain. The Polish retail trade sector comprises a large number of small shops and a growing number of super- and hypermarkets established with the participation of foreign capital. In the next three years, they are expected to control as much as 40 per cent of the market. At present, 300 supermarkets and 80 hypermarkets operate in Poland, while by 2005– 2006 their number will reach 1160 and 1180 respectively. However, the Polish market is still far from being saturated with hyper- and supermarkets, with the exception of major cities such as Warsaw, Kraców, Poznan. According to analysts, in the past two years, hypermarket operators have become increasingly interested in the opportunities offered by supermarkets, since building a supermarket is not only cheaper, but also brings a faster return on the investment, as only 5000 nearby residents are enough to ensure the profitability of a supermarket in Poland, but 200,000 are required to support a hypermarket. In addition, the smaller retail space makes it possible to build supermarkets near city centres and in the middle of larger housing. Many analysts are anxious about the upcoming consolidation of Poland’s retail market, since currently almost all the largest European companies active in this field are present. Yet, for the time being every supermarket chain has ambitious development plans. Still there is enough space on the market not only for already existing but also newly built stores. Foreign retail chains invest also in smaller, discount types of retail chains situated near customers’ homes or work places. Jeronimo Martins bought the Polish retail network Biedronka and currently

The Polish Retail Sector

253

has more than 600 outlets. Casino Group has already set up a network of Leader Price shops, and plans to have 100 shops by the end of 2002 and, eventually, 200 in all. The major Western retail chains in Poland are: • super- and hypermarkets eg Casino, Auchan, Carrefour, Leclerc, HIT, Jeronimo Martins Holding, British Tesco; • do-it-yourself eg Castorama, Kingfisher, Praktiker, Obi; • home equipment eg Conforama, Ikea; and • attire eg Adler, Carly Gry, Cubus, Olsen, Ultimate Fashion (Esprit, River Island, Wallis, Celio), Young Fashion (Zara). Hyper- and supermarkets with a wide variety of commodities have found a permanent place in Polish life. According to Pentor, they have more supporters than antagonists, 39 per cent and 26 per cent respectively. The most popular chain of stores is Biedronka, voted for by over half; while Makro Cash & Carry was recognized by 30 per cent; Real—29 per cent; Hit—28 per cent; and Geant—29 per cent. Around 66 per cent of respondents had delayed recognition of the Spolem line of stores, while only 18 per cent knew the name right away, showing that while the Spolem network is commonly known, its stores hardly have the status of super-and hypermarkets. Efforts to integrate Polish retailers have led to the formation of the Union of Polish Retail Networks (UPSD). UPSD’s fourteen signatories include Sklepy Familijne, Lewiatan companies, Rabat Pomorze, Polska Siec Handlowa, to mention but a few. However, UPSD has not proved to be very successful since many of its members do not observe common rules relating to supply sources, the standard of services, and the system of sales. Integration efforts have also been launched by the Spolem cooperative retailers. The biggest national network of shops grouped under the Spolem National Union consists of 5200 shops, 380 wholesale centres and 600 food-processing enterprises. It also has the support of an independent cooperative bank. In April 2000, the government adopted a ‘Programme for the development of internal trade up to 2003’, which is to guarantee equal chances and rights to different entities operating on the market. The programme is not intended to avert the tendency towards the domination of super- and hypermarkets but to allow elimination of gaps in the existing regulations and improvement of economic relations in the sector. Since February, there has been a law vesting local councils with a power of issuing permission on construction of large shops (over 2000 square metres). Another law assumes that in cities with up to 20,000 inhabitants, the floor area of total retail outlets may not exceed 1000 square metres. In addition, super- and hypermarkets should be situated


in suburban areas. Another attempt was a law on shortening the periods of payment for goods delivered by suppliers to supermarkets. Poland still lags well behind the e-commerce business taking off in Western Europe and the United States. Polish e-shoppers may have spent up to US$45 million in 2001, estimates Internet research company International Data Corp. (IDC). The year before, they spent just US$9.5 million. In the business-to-business sector, sales revenue may go up 1.208 per cent to US$266 million in 2001. IDC estimates that e-commerce revenues in 2000 accounted for 0.02 per cent of Poland’s GDP, while in Portugal, they constituted 0.07 per cent of GDP, in Austria—0.25 per cent, and in Germany—0.25 per cent. I-Metria estimates that there are 800 Polish e-stores on the Internet, but a large number of them are ‘not functional’. They also tend to be small operators existing in a highly fragmented market. The majority of them use their own ‘internally developed e-commerce technologies’, and only 36 per cent of them are selling products online at prices lower than in retail outlets. In fact, 1.7 per cent of e-shops sell products online at prices that are higher than in shops. Books, CDs, software and computers are the most popular products purchased via the Internet. Table 4.16.1 Top investors in the retail trade sector INVESTOR

CAPITAL ORIGIN INVESTED (US$ million)

ACTIVITIES

COMMENTS

625.0

Germany

wholesale and retail trade

Makro Cash&Carry, Real, Praktiker, Media Markt, Metro Real Estate Management, Metro MGI, Metro Kooperacja Polska, MWG Metro Reklama, Metro MGL Logistyka

1

Metro AG

2

Shell Overseas 423.0 Holdings Ltd

Great Britain

retail trade, power, gas and water supply

Shell Produkty Polska sp. z o o. and Shell Marketing Polska sp. z o o.

3

BP International

390.5

Great Britain

retail trade

BP Poland Sp. z o. o. (Kraków)— network of gas stations, BP Gas Poland Sp. z o. o., BP Poland ćinawa, BP Poland Terminal S (Domaniew and Sá polno)— distribution of petroleum products

4

Jeronimo Martins Holding

250.0

Portugal


Jeronimo Martins Dystrybucja Sp. z o. o. (Poznan ´)—chain of wholesale and retail stores


Table 4.16.1 (cont’d) INVESTOR

CAPITAL INVESTED (US$ million)

ORIGIN

ACTIVITIES

5

Aral

250.0

Germany

distribution of petroleum products, retail trade

Aral Polska Sp. z o. o. in Poznan ´ —network of gas stations

6

Statoil

250.0

Norway

retail trade

Statoil Poland Sp. z o. o. (Warsaw)—gas station network, distribution of petroleum products

7

IKEA

150.0

Sweden

wood and wooden products, retail trade

IKEA International A/S, IKEA Polska S.A., IKEA Hanim Poland S.A., IKEA Retail Sp. z o. o.— supermarket chain, IKEA Trading & Design AG (Janki near Warsaw), 80% stake in Szczecin ´ski Przemys§ Drzewny S.A., Swedwood Polska Ltd., factory in Ch§astów (Lubuskie Voivodship)

8

Casino

140.0

France

retail trade

Geant Polska Sp. z o. o. (Warsaw)—supermarket chain, shopping centres (Warsaw, Kraków, Gdan ´sk and Bydgoszcz, £odz w)

9

Auchan

137.0

France

retail trade

Auchan Polska Sp. z o. o.— hypermarket chain

118.4

Great Britain

retail trade

Tesco Polska Sp. z o. o. (Bielsko-Bia§a, Warsaw, £ódz w, Tychy), Tesco-Savia S.A. (Bielsko-Bia³a)—supermarket chain

1 1 Carrefour

75. 0

France

retail trade

supermarkets in £ódz´ and Warsaw; newly opened shopping centre Krakowskie Centrum Handlowe Zakopianka near Kraków

1 2 OBI Heimwerkermarkt AG

67. 8

Germany

retail trade

OBI Centrala Systemowa Sp. z o. o. (Warsaw), Superhobby Market Budowlany Sp.zo.o., Superhobby Dom i Ogród Sp.zo.o.—hypermarket chain

1 3 HIT Handelsgruppe

67. 5

Germany

retail trade

HIT Centrala Us§ugowa Polska Sp. z o. o.—network of hypermarkets

10 Tesco Plc

COMMENTS

255




ACTIVITIES

COMMENTS

49.2

Netherlands

retail trade

EMPiK retail network, stake in Domy Towarowe Centrum S.A., Nature Gift Distribution Sp. z o. o. PKD Sp. z o. o., Optimum Distribution Sp. z o. o., Beauty Distribution Sp. z o. o., Teleshopping Polska Sp. z o. o.

1 5 Preem Petroleum AB

42.2

Sweden


Preem Polska Sp. zo o.

1 6 Castorama

40. 0

France

retail trade

Supermarkets chain in Poland

1 7 Interkontakt

35.0

Czech Republic


shares in Polski Handel Spo¿ywczy

1 4 EMPiK Centrum Investments S.A.

1 8 E. Leclerc

34.1

France

retail trade

supermarkets chain in Poland

1 9 Nijhof Wassink

30.0

Netherlands

transport, wholesale and retail trade

Nijhof—Wassink Sp. z o. o. (Kutno), Volvo Truck dealer (Nowa Wies´ Wielka)

2 0 Ahold

28.0

Netherlands

retail trade

Ahold Polska Sp. z o. o. (Krakow)—supermarket chain

2 1 Retail Investment Concepts, Inc.

24. 2

USA

retail trade

Office Depot Wszystko Dla Biura Potamkin International Polska Sp. z o. o. (Janki near Warsaw, Gdan ´sk and Krakow)—office equipment supermarkets

2 2 GIB

22. 0

Belgium

retail trade

Globi Ltd.—supermarket chain

2 3 Neste Oil

20. 0

Finland


Neste Oil Poland Ltd.—gas station network

2 4 Exxon Corporation

18.0

USA


Esso Polska Sp. z o. o. (Poznañ) —gas station network

2 5 Otto Versand GmbH & Co

17.5

Germany


50 per cent stake in Selgros Cash and Carry (Poznan ´ and Warsaw)—wholesale supermarkets, construction of a supermarket in D§ugo§êka near Wroc³aw




ACTIVITIES

COMMENTS

2 6 Rewe Zentral

17. 5

Germany


50% stake in Selgros Cash and Carry (Poznan ´ and Warsaw)— wholesale supermarkets, construction of a supermarket in D§ugo§êa near Wroc§aw

2 7 Edeka

17. 0

Germany

retail trade

Edeka Polska Sp. z o. o.—9 supermarkets, takeover of 15 stores from a Polish chain MDA

2 8 MAN Nutzfahrzeuge AG

16. 5

Germany


MAN Pojazdy U¿ytkowe Polska Sp. z o. o. (Sady near Poznañ)— distribution of vehicles

2 9 Buderus HT

11. 7

Germany


Buderus Technika Grzewcza Sp.z o.o. (Tarnowo Podgórne)

3 0 Conoco Central Europe Inc

10. 0

USA


Conoco Poland Sp.z o.o.-gas station network

3 1 Gruppo Nico

10. 0

Italy

retail trade

Nico Polska Sp. z o. o.—trade centres (Poznan ´ and Krakow)— trade in textiles and footwear

3 2 Billa

7.5

Austria

retail trade

Billa Poland Sp. z o. o.— supermarket chain

3 3 Miroglio Group

7.1

Italy

retail trade

49 per cent stake in Centrum Moda Sp. z o. o., construction of Centrum Mody in Nadarzyn near Warsaw

3 4 Julius Meinl International AG

6.5

Austria

retail trade

network of supermarkets (Kraków, Stalowa Wola, Zakopane, Tarnów, Sosnowiec, ´wiêtokrzyski) Ostrowiec S

3 5 AVON

6.0

USA


Avon Cosmetics Polska Sp. z o. o. (Warsaw)—direct sale network (6000 agents)

3 6 Ost Commerz Holding

6.0

Switzerland

food processing, retail trade

Pomorzanka Sp. z o. o. (S§upsk) —confectionery, majority stake in Spo§em Zatoka (Gdan ´sk), Spo§em S.A. (Gdynia)—retail trade

257




ACTIVITIES

COMMENTS

3 7 Firumu Holding Europe Central & East Aktiengesellschaft

5.8

Austria

retail trade, repairs

Fujifilm Polska Sp. z o. o. (Warsaw)—trade and service of photographic equipment

3 8 Toyota

5.0

Japan


50 per cent stake in Toyota Motor Poland Co. Ltd. (Warsaw)—car parts store

3 9 Kodak Ltd.

4.7

Great Britain

retail trade, repairs

Foto World Sp. z o. o. (Warsaw)

4 0 AGIP Petroli SpA

4.2

Italy


Agip Polska S.A. (Warsaw)—gas station network

4 1 Rema Polen Invest A/S

3.0

Norway

retail trade

Rema 1000 Poland Sp. z o. o. (Warsaw)—supermarket chain

4 2 Armstrong Enterprises Inc.

2.8

USA

retail trade

Novita-Market S.A. (Warsaw)— home furnishing retailer

4 3 Rossmann

2.8

Germany

retail trade

network of supermarkets selling cosmetics

4 4 Adidas AG

2.6

Germany


Adidas Poland Sp. z o. o.

4 5 DEA Mineraloel

2.5

Germany


DEA Mineraloel-Polska Sp. z o. o. (Poznañ)—gas station network

4 6 Docks de France

2.5

France

retail trade

PHU Robert Sp. z o. o. (Warsaw) —supermarket chain

4 7 Bata Shoes

2.0

Canada

retail trade

Bata Poland Ltd. (Warsaw)— network of shoe stores

4 8 Canampol

2.0

Canada

retail and wholesale trade

Canampol Trading Ltd (Warsaw) —retail and wholesale trade in building materials

4 9 Danish Fast Food

2.0

Denmark

food processing, retail trade

Dania Fast Food Sp. z o. o. (Warsaw)—bakery

5 0 Harris

1.0

Austria

retail trade

Domar S.A. (£ódzw)

Source: PAIZ


259

Table 4.16.2 Top 20 companies in the retail trade sector Sales (PLN million) Name

2000

Change/ 1999 (%)

H1 2001

Change/ H1 2000 (%)

1

REAL Sp. z o.o. Warszawa (cons.)

hypermarket chain

9439.7

461.3

n/a

n/a

2

RUCH S.A. Warszawa

kiosks

3761.7

-0.8

n/a

n/a

3

GÉANT POLSKA Sp. z o.o.

hypermarket chain

2463.3

59.9

n/a

n/a

4

STATOIL Polska Sp. z o.o.

gasoline stations

1458.9

34.3

n/a

n/a

5

TESCO POLSKA Sp. z o.o.

hypermarket chain

1285.2

239.9

n/a

n/a

6

E. Leclerc Sp. z o.o.

hypermarket chain

1230.0

225.3

n/a

n/a

7

SELGROS Sp. z o.o.

hypermarket chain

1151.8

48.6

n/a

n/a

8

PLUS DISCOUNT Sp. z o.o.

hypermarket chain

903.3

5.9

n/a

n/a

9

KOLPORTER S.A.

kiosks

631.7

14.9

n/a

n/a

1 0 KOMFORT S.A. (cons.)

home furnishing stores

493.6

-5.3

n/a

n/a

1 1 JTT Computer S.A.

computers stores

462.7

11.9

n/a

n/a

1 2 IKEA RETAIL Sp. z o.o.


445.4

19.0

n/a

n/a

1 3 ORLEN PETROPROFIT Sp. z o.o.

gasoline stations

435.2

24.5

161.9

n/a

1 4 BILLA-POLEN Sp. z o.o.

hypermarket chain

412.8

0.3

n/a

n/a

1 5 EMPiK Sp. z o.o.

press & books & multimedia stores

399.5

11.3

n/a

n/a

1 6 GASPOL S.A.

gas station network

30.5

n/a

n/a

1 7 DEA MINERALOEL POLSKA Sp. z o.o.

gasoline stations

376.0

79.4

n/a

n/a

1 8 NOMI S.A.

building materials & garden equipmet superpermarket chain

360.2

30.4

n/a

n/a

382.0


Table 4.16.2 (cont’d) Sales (PLN million) Name

2000

Change/ 1999 (%)

H1 2001

Change/ H1 2000 (%)

1 9 Potamkin International Polska Sp. z o.o. Office Depot

office equipment supermarkets

284.2

21.0

n/a

n/a

2 0 MISTER Sp. z o.o.

perfume & cosmetics stores

266.9

50.9

n/a

n/a

22.3

21903.2

Sector (medium and big companies)

42233

19725.4

Table 4.16.3 Net Profit (PLNmn) Name

2000

Change/ 1999 (PLNmn)

H1 2001

Change/H1 2000 (PLNmn)

1

RUCH S.A. Warszawa

kiosks

20.3

-4.3

n/a

n/a

2

PLUS DISCOUNT Sp. z o.o.

hypermarket chain

17. 4

3.0

n/a

n/a

3

KOMFORT S.A. (cons.)


16. 7

2.0

n/a

n/a

4

SELGROS Sp. z o.o.

hypermarket chain

5.5

5.8

n/a

n/a

5

KOLPORTER S.A.

kiosks

3.6

-1.7

n/a

n/a

6

MISTER Sp. z o.o.

perfume & cosmetics stores

3.4

-2.0

n/a

n/a

7

JTT Computer S.A.

computers stores

3.1

0.1

n/a

n/a

8

EMPiK Sp. z o.o.

press & books & multimedia stores

2.7

16.1

n/a

n/a

9

ORLEN PETROPROFIT Sp. z o.o.

gasoline stations

2.0

-3.2

1 0 BILLA-POLEN Sp. z o.o.

hypermarket chain

1.9

2.8

n/a

n/a

1 1 IKEA RETAIL Sp. z o.o.


-1.7

7.9

n/a

n/a

-0.4

n/a


261

Table 4.16.3 (cont’d) Net Profit (PLNmn) Name

1 2 DEA MINERALOEL POLSKA Sp. z o.o.

2000

gasoline stations

1 3 GASPOL S.A.

gas station network

1 4 NOMI S.A.

building materials & garden equipment superpermarket chain

1 5 GÉANT POLSKA Sp. z o.o.

-3.7

Change/ 1999 (PLNmn)

H1 2001

Change/H1 2000 (PLNmn)

-4.3

n/a

n/a

5.9

2.4

n/a

n/a

-11.8

24.5

n/a

n/a

hypermarket chain

-71 .5

-7.1

n/a

n/a

1 6 TESCO POLSKA Sp. z o.o.

hypermarket chain

–95.6

-9.9

n/a

n/a

1 7 STATOIL Polska Sp. z o.o.

gasoline stations

–107.7

-71.2

n/a

n/a

1 8 REAL Sp. z o.o. Warszawa (cons.)

hypermarket chain

n/a

n/a

n/a

n/a

1 9 E. Leclerc Sp. z o.o.

hypermarket chain

n/a

n/a

n/a

n/a

2 0 Potamkin International Polska Sp. z o.o. Office Depot

office equipment supermarkets

n/a

n/a

n/a

n/a

-362.6

-606.3

Sector (medium and big companies)

-901.5

Sources: GUS, companies, RzP/GB/H&M rankings, Monitor B

-443.00

4.17

Medical Services BOSS Economic Information Agency, Warsaw Introduction The reform of the health care system, although criticized for a number of reasons, has initiated the development of private medical services, which is certain to lead to a general improvement in the standard of medical care in Poland. Conditions have emerged for investing private capital into medical facilities. Already, private health care centres are winning against their public counterparts. Surveys conducted by the Health Ministry show that patients prefer to choose private medical services if available/affordable. Competition in the market will compel public medical facilities to curb their costs. As can already be seen in the large cities, there will also be rivalry between private health care centres themselves, which can only prove beneficial for consumers.

Financing health care Health care around the world is generally financed via four sources: • • • •

tax; compulsory insurance premiums; direct payments; voluntary medical insurance.

The latter source does not yet exist in Poland. Financing from the first two sources is based on the principle of social solidarity and should ensure universal access to a definitive set of health care services. In Poland, the constitutionally guaranteed ‘equal access to medical services financed from public resources’ is still understood as comprehensive free health care. Of course, such care is not possible since no country is able to shoulder the costs involved. Hence, it is necessary to define precisely the range and standard of medical services that are available free of charge. According to physician-managers, medical care for children and the elderly should be made as widely available as possible. At present the Polish economy is at this stage of development.

Medical Services

263

In OECD countries, the financing of medical services from taxes and compulsory insurance premiums does not exceed 70–80 per cent of overall outlays for health care. The remainder comes from direct payments (10–30 per cent) or private health insurance (1–17 per cent). The only exceptions are Switzerland and the United States, where the share of taxes and compulsory insurance premiums in the financing of medical care reaches 36 per cent and 49 per cent, respectively, and the remaining expenditure is financed from private insurance. In recent years, a steady upward trend in the share of private medical insurance has been evident in most OECD countries (with the exception of Spain, Holland and the United States). Simultaneously, the share of public resources in the financing of health care has been decreasing. Table 4.17.1 Structure of financing health care in some OECD countries Public resources Taxes

Social

Overall

insurance Denmark

1987

84.7

Finland

1990

75

France

1989

0

Spain

1990

56.3

Holland

1992

Ireland

0

Private resources Direct

Private

Overall

payments insurance 84.7

13.8

1.5

15.3

11

86

14

0

14

73.6

73.6

20.1

6.3

26.4

22

78.3

19.3

2.4

21.7

11.3

64.6

75.9

7.7

16.3

24

1987

67.8

7.3

75.1

14.9

10

24.9

Germany

1989

17.7

65

82.7

10.2

7.1

Portugal

1990

55.2

6

61.2

37.4

1.4

38.8

Switzerland

1992

28.7

6.9

35.6

23.9

40.5

64.4

Sweden

1990

71.9

17.8

89.7

10.3

0

10.3

United States

1987

22.1

28.2

9

7

16

1.8

22.6

35.5

13.3

48.7

United Kingdom 1 9 9 3

64

20

84

Italy

38.2

39.2

77.4

1991

20.9

17.3

51.3

Source: Teresa Lubin ´ska, Izabela Nawrolska, Szczecin University, data quoted by Magazyn Finansowy

As a result of the health care system reform introduced in Poland, financing from the state budget has been largely replaced by a proportional premium of 7.5 per cent of personal income (PIT), which is being contributed via the ZUS social insurance institution to health funds. At the beginning of 2001, this rate was increased to 7.75 per cent.


At present, money for health care services in Poland comes from five sources: • health funds; • state budget; • local government budget; • registered payments made by patients; • unregistered payments made by patients. It is hard to obtain full information on total amounts spent on medical services. Although data on the expenditure of entities managing health care facilities is available, data on the allocation of amounts from the state budget is incomplete. Outlays from the state budget consist of means granted to the Health Ministry, the Defence and Interior Ministries (which have their own hospitals and clinics), the Justice Ministry and the Transport Ministry (expenditure unknown). Data on local government expenditure—local governments own most hospitals and outpatient clinics—is not easily available. It should be noted that data relating to the three official sources of financing quoted by various publications differs, which can be attributed to the fact that the components taken into account during calculations are not identical. Sometimes it is impossible to separate planned expenditure from amounts actually spent. As far as patient expenditure is concerned, amounts paid for medicines are known. However, there is no complete data on the revenue of private medical facilities as few of them publish such information. Table 4.17.2 Private surgeries (’000) 1995

1998

1999

Physicians

22.3

40.9

44.3

Dentists

10.9

16.1

17.3


According to data from the Central Statistical Office (CSO), per capita spending on medical treatment in polyclinics and on household medicines reached PLN29 per month in the fourth quarter of 1999. This accounted for 5.1 per cent of per capita expenditure in Polish families. In retired households, spending on medical treatment was higher, reaching PLN53 per capita, 7.3 per cent of total monthly expenditure. Medicines had the highest share in the cost of treatment (PLN16; in the case of retired households PLN31). The share of dental surgery was also high (PLN5). Spending on dental surgery was 90 per cent accounted for by private establishments. Expenditures on consulting offered by

Medical Services

265

physicians exceeded PLN3 on average and were also 90 per cent accounted for by the private sector. According to analysts from the zdrowo.pl medical portal, estimates relating to expenditures of the average Pole on services rendered by private medical facilities are approximate. Many people cannot afford the cost of such services. It is estimated that people on low incomes spend about PLN1000 annually on private medical services, while the most affluent patients spend several thousand zlotys and more, often abroad. All in all, imprecise and fragmentary data makes it difficult to estimate the value of the Poles’ direct payments for medical treatment. The amount of unregistered payments made by patients both to doctors in public medical institutions and to private surgeries remains unknown. In order to be able to compare expenditures on health care in Poland and the OECD countries, expressed as a percentage of GDP, efforts were made to estimate the amounts coming from all sources. Table 4.17.3 Components of spending on health care in Poland and their share in GDP, 1999 Source

PLN billion

Amounts allocated by entities controlling public medical centres

21.3

3.5

4.3

0.7

7.5 33.1

1.2 5.4

Planned expenditures by the Health Ministry Patients’ payments for medicines Total

% GDP

Expenditures estimated on the basis of unofficial data Spending by the remaining ministries

–

0.1-0.2

Spending by local governments

–

0.1-0.2

Spending by patients*

–

1-1.7

Total share of outlays on health care in GDP

6.6-7.5

* These expenditures (excluding payments for medicines) are put at 25–40 per cent of the overall outlays by entities controlling public medical facilities and the Health Ministry Source: Zbigniew Kotula, ‘S§u¿ba Zdrowia’, August 2000

The level of health care spending in Poland, calculated as a percentage of GDP, does not differ greatly from indicators characterizing the highly industrialized OECD countries. The level of spending on health care in Poland estimated in this way makes it possible to calculate that the total value of the market for medical services reached between US$10 billion and US$11 billion in 1999 (with GDP amounting to US$155.2 billion). A similar value is


quoted by experts from Enterprise Investors (EI), who estimate that spending on medical services per capita in Poland reaches US$235 annually, of which 30 per cent is financed by patients themselves. Analysts expect the value of this market to grow to US$15 billion during the next five years, with the share of the private sector reaching 40–45 per cent. Theoretically, it can be expected that outlays on health care in Poland will grow in relation to GDP in a similar manner to most OECD countries. In 1960–1990, growth in GDP by 1 per cent led to an increase in outlays on health care by 1.7–2 per cent. However, it is expected that the pace of growth of spending on health care will be slower in Poland since the level of incomes of both Polish enterprises and households is lower than in the West. This pace may increase in step with the improving competitiveness of Polish firms (a reduction in their costs and an increase in their productivity and profitability). These forecasts seem to find confirmation in the diminishing share of public resources in health care spending in Poland, which is concordant with trends that were observed in OECD countries in the 1980s and grew stronger in the 1990s (this is attributable to fiscal barriers: the burden of excessively heavy taxation of both households and enterprises leads to a fall in budget revenues instead of an expected growth). The decline in public spending on health care in Poland will undoubtedly be accompanied by an increase in the share of private expenditure because the overall outlays on health care will increase in the same way as has been the case in industrialized countries for many years. This is connected to the increasing cost of medical treatment and the ageing of societies. At first, growth in private expenditure on health care in Poland will be financed directly by patients and, later, by private insurance. It is expected that the Polish medical services sector will be put into order of some kind in 2004–2005. This will be the time for the entry of large foreign medical insurance companies whose experience and know-how will create the right conditions for the true development of the medical services sector. At present, foreign companies remain reluctant to enter the Polish market, fearing the organizational mess and, probably even more so, the prevailing conviction among Poles that the State has a duty to provide free medical care.

Medical services The most frequently used form of medical service in Poland is a doctor’s consultation. In the fourth quarter of 1999, 48 per cent of Poles visited their GP (50 per cent in towns and 46 per cent in rural areas). In the period under discussion, 16 per cent of town residents consulted a doctor once, close to 13 per cent twice, and 20 per cent went three or more times.

Medical Services

267

Medical services rendered by private establishments were used by 32 per cent of Polish households, mostly those with higher incomes. Surveys conducted by CSO show that services rendered by private medical centres are sought because they employ better specialists (according to 60.1 per cent of respondents), because patients are accorded greater attention (22.9 per cent) and because access to the chosen specialist is easier (16.8 per cent). Table 4.11.4 Number of granted medical consultations (’000) 1995

1998

1999 Overall

Public

Non-public

Total

246.0

244.6

233.5

192.8

40.8

of which consultations by physicians

207.1

209.0

206.7

172.2

34.4

5.4

5.4

5.3

4.4

0.9

Doctor’s consultations per capita


In the fourth quarter of 1999, dental services were used by 18.4 per cent of Poles, of whom 8.6 per cent used services offered by public surgeries, 1.8 per cent used services offered by private surgeries within the state health insurance (PUZ), and 9.1 per cent used services offered by private surgeries that were not covered by PUZ (services covered by PUZ can be rendered by both public and private medical establishments). In 1999, approximately 7.6 per cent of Poles were hospitalized (8.2 per cent in towns and 7 per cent in rural areas) for an average period of 12 days. In 98 per cent of all cases of hospitalization, patients used public medical centres. In the fourth quarter of 1999, approximately 13.7 per cent of Poles used the services of laboratories conducting medical tests (15.5 per cent in towns and 10.7 per cent in rural areas). It is also estimated that 1.9 per cent of Poles underwent various forms of rehabilitation, and 1.1 per cent of Poles used the services of centres offering unconventional and alternative medical treatment.

Privatization of health care services The privatization of health care services has been delayed by at least 10 years in comparison with other sectors of the Polish economy. Although many private poly clinics have been formed following the inauguration of the health care service reform (within the so-called POZ basic medical care scheme) by means of the enfranchisement of the staff of stateowned medical facilities, such privatization has not entailed the introduction of know-how and improvements or the inflow of capital.


POZ units are private entities which render services that are fully or almost fully financed by health funds. Most laboratories have also joined POZ units. The financial situation of these medical facilities is not good. Almost all of them record losses. Cooperation with an efficient managing body could provide an opportunity for those POZ units that would be ready to observe the harsh rules of the market. Table 4.17.5 Number of health care facilities in Poland 1995

Overall Of which private polyclinics

1998

1999 Overall

Public

Non-public

9785

9030

8227

5979

2248

355

428

873

–

873


There is also another form of privatization: the transformation of former state-run medical facilities into private establishments. One such example is the Towarzystwo Opieki Medycznej S.A. clinic, created by the J & J Company on the site of the former government medical centre. Hospitals and clinics are not yet being privatized in Poland. For some time, large private medical units have been operating in Poland which call themselves ‘private clinics’ or ‘private hospitals’. However, the use of such terms has not yet been legally regulated. Table 4.17.6 Hospitalized patients (‘000) 1995

1998

1999

Overall

5143

5339

5685

In public hospitals

5137

5323

5663

6

16

22

In non-public hospitals


Investments The structure of private medical services is only just emerging in Poland. The process is hampered by the prevailing conviction that medical treatment is free, poor financing of medical care, high cost of investments and slow return on capital invested. The scale of necessary investments surpasses the ability of Polish investors, but foreign capital is already entering the sector. Owing to the activities of venture capital funds, the market has become animated in recent months.

Medical Services

269

The American Enterprise Investors (EI) fund is planning to invest US$50 million in medical services in the next four years. The fund’s first step has been the acquisition of a 90 per cent stake in Warsaw’s Medycyna Rodzinna in August 2000. The value of investment has reached US$10 million, which will be allocated to the establishment of a network of 30 polyclinics in the largest cities in Poland. Enterprise Investors has also invested US$1 million in the Instytut Badan i Informacji Szpitalnych research and information institute. This company, registered in December 2000, is to provide hospitals with materials and information conducive to their management. It is also planning to publish directories containing information on hospitals throughout Poland. In addition, the Swedish Oresa Ventures fund, the holder of a 95 per cent share in Medicover Holding, and present in Poland for six years, has intensified its activities on the private medical services market, thus predicting its dynamic development in Central and Eastern Europe. Following a decision on the merger with the holding and the establishment of a joint-stock company called Medicover, which is to be floated on the Stockholm Stock Exchange, the Oresa Ventures II fund has been set up to raise € 75 million for investment in medicine. Medicover has a network of private medical facilities in Poland, Romania, Estonia and Hungary. In 2000, the fund invested US$27 million in the development of the network. Investments in several selected segments of the medical services market in Poland are to be launched later in 2002. The American Advent International fund is also considering investments in the medical services sector. During 2002, the fund is to launch several investment projects, totalling US$40 million. The Sava Investments Group (SIG) of Warsaw is working on the formation of an international consortium that would invest US$0.5 billion in the construction of 15 private hospitals in Poland. The cost of opening one hospital is put at between US$25 million and US$30 million. The Group’s partners will be firms specializing in the construction and servicing of modern medical centres: Italian Tangram and Techint, and Polish Korvita and Lux Med. IT services will be provided by Polska Telefonia Cyfrowa Era GSM and Prokom, linked to Sava through one of the subsidiary companies. The financial servicing of the project will be organized by UniCredito Italiano. Sava Investments Group is planning to commence operations in the medical care sector by launching a network of tele-medical services in cooperation with the Italian Telemedicina Rizzoli company, which has been specializing in such services for a year. American Heart of Poland Sp. z o.o., the owner of the first non-public cardiology and angiography ward open at one of the clinics in Ustron, is planning to develop a network of five such centres during the next few


years, and flotation on the Warsaw Stock Exchange in 2004–2005. The company’s founding capital amounts to PLN360,000. Its shareholders comprise eight physicians (five Poles and three Americans). The ward specializes in ‘one-day surgery’, ie the treatment of diseases of the heart and blood vessels through the skin. The number of such surgeries accounts for 20–30 per cent of the actual needs in this respect. The company has signed a contract with the Health Ministry and Katowicka Kasa Chorych (Katowice Health Fund, the entity controlling medical centres in the region of Katowice). Table 4.17.7 Investment outlays on health care and social welfare (PLN million) 1995

1998

1999

Overall

1301.8

2824.9

2327.3

Public sector

1200.4

2549.2

2097.1

101.4

275.7

230.2

Private sector


Table 4.17.8 Outlays on fixed assets, 1999 (PLN million) Overall

2317.5

Buildings and structures

1254.6

Machines, equipment and instruments Means of transport

975.7 76.0


According to experts from the medical services sector, investments in its different segments are huge and comprise amounts allocated to additional services such as information (including Web portals). Several medical portals have been created recently, which are aimed at both professionals and patients. ComputerLand S.A. and Polska Grupa Farmaceutyczna have created the clinika.pl platform designed mainly as a tool for specialists. The zdrowo.pl portal created by the A&P company in Walbrzych, which contains data on medical institutions, has concentrated on prevention, creating a database with simple explanations of medical terms and articles of an educational nature. The portal is run by a team of doctors, IT experts and economists who first of all want to provide answers to practical questions. Investments in the broadly understood market of medical services are linked with the fact that access to medical care is difficult and strongly

Medical Services

271

bureaucratized. This prevents many patients from seeking assistance in the early stages of their illness. There is, however, a group of people who can afford to pay for medical services. Private medical services are undoubtedly a very profitable activity. Sums spent on medical treatment are enormous and many affluent people are prepared to pay large amounts for health care services.

4.18

Dynamic Mobile Phone Market BOSS Economic Information Agency, Warsaw

Introduction As early as 1999, fairly optimistic forecasts put the number of Polish GSM subscribers at 3.5 million in 2000. However, by March 2000, the number of GSM users exceeded 4.5 million. The projections of the Communications Ministry were at 6.8 million users in December 2000! Figure 4.18.1 Growth in the number of mobile telephone users in Poland (’000)

Source: Communications Ministry

Market characteristics The Polish market is a firm leader in the region and the eighth mobile telephone market in Europe in terms of the number of subscribers. The reduction in prices of mobile services in both nominal and real terms makes them increasingly accessible. Telecom expenditures account for some 10 per cent of household incomes, which makes it possible even for households with incomes below the national average to make use of mobile telephones. Continuous promotion campaigns and subsidized handset sales also add to the increase in mobile phone sales. Another specific feature of the Polish

Dynamic Mobile Phone Market

273

market, which also boosts the mobile boom, is Poland’s backwardness in terms of the number of fixed-line subscribers. The market penetration index for mobile telephones in Poland is 25 lines per 100 residents, whereas in Western Europe it is twice as high on average. Therefore, analysts assess as very good even few-year prospects for the development of mobile telephony in Poland. Market saturation with mobile telephones (number of handsets per 100 residents) remains low in Poland at some 12 per cent, whereas the average in the European Union exceeds 40 per cent, and in Scandinavian countries some 60–70 per cent. Even in Hungary, the market saturation is almost twice as high as in Poland. This means that in spite of the intensive expansion of Poland’s mobile telephone networks and a dynamic growth in the number of subscribers, it is very difficult today to specify when the Polish market will become saturated. If Poland were to reach the EU standards of market penetration in the mobile telephone business, some 16 million Poles would have mobile telephones, which shows that the current size of the market would have to be multiplied by four. Experts are certain that this will happen, but it is not so clear when. Experts from the Nomura investment bank, for example, believe that by 2004 the market saturation in Poland will reach 30 per cent, which means that some 11.5 million Poles will be on a mobile ‘leash’. Analysts from Deutsche Morgan Grenfell expect the mobile telephone market penetration index in Poland to be 11.2 per cent in 2000 and exceed 31.5 per cent in 2006. Experts from the Communications Ministry are the biggest optimists, however, as they believe that the 30 per cent market saturation with some 11 million mobile users will be reached in 2003. To reach that, mobile operators must reduce subscription fees and telephone charges to make them more accessible to the greater number of users. Table 4.18.1 Market penetration rate (number of mobile telephones per 100 residents, end 1999) Finland

66

Switzerland

43

Norway

64

United Kingdom

42 38

Sweden

59

Greece

Austria

54

Spain

38

Italy

53

France

35

Luxembourg

53

Belgium

32

Denmark

52

Germany

29

Portugal

48

Hungary

16

The Netherlands

43

Poland

10

Ireland

43

Source: France Telecom


Division of the mobile telephone market The Polish mobile telephone market has already been divided. Only the Universal Mobile Telecommunications System (UMTS) system licences remain to be distributed. The government’s tender for five thirdgeneration UMTS licences produced PLN7 billion in revenue in 2002, and will produce another PLN7 billion in 2003. However, the government would not have been able to sell the licences without the national telecommunications legislation that took effect from 1 January 2001. The short history of the Polish mobile market contains a few events of crucial significance. These include: • the first licence for the NMT 450i system of the analogue mobile services was granted to PTK Centertel in 1991; • the emergence of two new GSM 900 mobile operators, Era GSM and Plus GSM networks, in September-October 1996; • a licence for the DCS 1800 network (under the Idea trade name) granted to PTK Centertel in August 1997, which made Centertel the only DCS 1800 operator in Poland; • new frequencies in the 1800 MHz band (DCS 1800 system) were given to GSM operators (Era and Plus) in March 2000, while Idea Centertel began to compete with them in the 900 band, previously reserved for Era and Plus. The granting of five UMTS licences will be another breakthrough in the history of Polish mobile telephony. The Communications Ministry is expected to grant a licence to each of the three mobile operators active on the market and the final two licences to new market players. Analysts believe that a new player on the mobile market will be Netia Holdings S.A.— currently TP S.A.’s main rival in the fixed-line segment, which is strategically supported by the Swedish telecommunications giant Telia AB. Experts agree that the number of users is key to establishing the value of the mobile market (and operators). It should be remembered, however, that, at present, even the countries with a high market penetration note a high growth rate in the number of subscribers, which reaches several dozen per cent, and the final point of saturation can hardly be determined. Polish mobile operators note increases in the number of subscribers of several hundred per cent a year. For a long time, Polska Telefonia Cyfrowa (PTC) Sp. z o.o., which operates the Era GSM network, has been the leading mobile operator in Poland, with more than 2 million users at the end of the first quarter of 2000. Elektrim S.A. is PTC’s main shareholder (51 per cent). Polkomtel S.A., the operator of the competitive Plus GSM network which had 1.7 million subscribers at the end of March, is the second leading mobile operator in Poland.


275

Figure 4.18.2 Ownership structure of Polska Telefonia Cyfrowa (PTC)

Source: Polska Telefonia Cyfrowa (PTC)

Figure 4.18.3 Ownership structure of Polkomtel S.A.

Source: Polkomtel S.A.

Major Polkomtel shareholders include two foreign groups—Air TouchVodafone and TeleDenmark AS—with their major Polish partners being oil giant PKN Orlen S.A., KGHM S.A. copper conglomerate and the electricity supplier Polskie Sieci Energetyczne S.A. PTK-Centertel Sp. z o.o. is the third-largest mobile operator working on two networks: the old analogue NMT 450i (Centertel) and the digital network operated under the Idea trade name. The number of users of the former network has been falling steadily (some 170,000 at present) due to obsolete technical parameters. Centertel main shareholders are TP S.A. (66 per cent) and its strategic partner France Telekom (34 per cent). Figure 4.18.4 Market shares of individual operators as at 31 March 2000

Source: The press, operators


Range and network capacity The problem emerging at this stage is the efficiency of financing the further development of mobile networks as their growth becomes less and less efficient. This is so because only the least densely populated areas and, therefore, the least attractive for future operators, are not yet covered by mobile networks. Table 4.18.2 Ranges of mobile operators Operator

% of population % of the country’s area

Comments

Era GSM

97.5

88.5

7800 towns and localities

Plus GSM

96.0

93.0

Idea Centertel

87.0

n/a

93% by the end of 2000

NMT 450i

96.0

99.0

as at 30 June 1998

Source: operators, TP S.A.

Operators’ investment in their networks’ range also consists in increasing their capacity and throughput in urban areas with high traffic density where subscribers had to wait to join the network at peak hours. Analysts predict that each of the three mobile operators should reach more or less the same market share in Poland in two or three years (one-third).

Changes in the mobile user structure In Poland, the average revenue per user (ARPU) has been falling rapidly. This is mainly due to the fact that initially mobile phones were purchased chiefly by affluent people or by companies, whereas at present less affluent people are becoming mobile subscribers. Era’s monthly ARPU, for example (taking into account subscription fees and call charges), was PLN130 in the first quarter of 2000, which was PLN45 less than a year earlier. A similar situation was noted at Plus, whose ARPU was PLN151, whereas a year earlier it was PLN187 (Britain’s Strategy Analytics provides for the stabilization of ARPU in Europe at US$51 monthly in 2000–2001). This is why mobile operators and independent fixed-line operators fight so fiercely for the best corporate clients, offering them huge price reductions on purchases of large numbers of handsets, for it is obvious that a corporate client is less thrifty than an individual. Roaming is also of significance in the fight for corporate clients and thus operators are rushing to sign roaming agreements with mobile operators in other countries. Era GSM has already signed such


277

agreements with 155 operators in 78 countries, as have Plus GSM and Idea. The only exception is Centertel’s outgoing analogue NMT 450i network, whose roaming agreements cover only 11 countries that still use this mobile system (eg Scandinavia, the Baltic States and the Ukraine). The importance of corporate customers for mobile operators can be evidenced by the fact that Polkomtel (Plus GSM), even though ranked second in terms of number of subscribers, ranks first in terms of revenues because it has more corporate clients than other operators. Figure 4.18.4 Market shares of individual operators as at 31 March 2000 Operator

Number of countries Number of operators As at

Era GSM

78

155

2 July 2000

Plus GSM

85

166

28 June 2000

Idea Centertel

78

149

7 July 2000

NMT 450i

11

11

–

Source: operators

Simplus, Tak Tak and POP A milestone in the development of mobile phones both in Poland and worldwide was the introduction of pre-paid services that revitalized the already booming business. It is estimated that more than 60 per cent of new mobile subscribers in Poland have chosen pre-paid services. Within only two years from its introduction into the Polish market, the pre-paid service users account for about one-third of mobile subscribers in Poland. It is estimated that 1.5 million handsets have been sold in the pre-paid system in Poland. It seems that the spectacular career of the pre-paid system points to the potential direction of a further expansion on the Polish mobile market, with the Simplus (Plus), Tak-Tak (Era) and POP (Idea) pre-paid systems likely to dominate the Polish market. Access to the Internet offered to mobile users will be an additional impulse for the already very fast development of the pre-paid systems in Poland. Idea was the first operator to offer this type of service to its pre-paid customers. Table 4.18.4 Pre-paid system users in mobile networks Era GSM

21.4 per cent

Plus GSM

Above 25 per cent

Idea Centertel

35 per cent

NMT 450i

None

Source: operators


Rates, promotions and churn Attracting new mobile customers is becoming increasingly expensive, which is one of the effects of the aggressive competition between the three operators. According to Era GSM, the cost of attracting one new customer in 1999 increased to PLN681 from PLN550 in 1998 and PLN426 in 1997. Operators fight for customers by means of two methods: reduction of rates and introduction of new services. For the time being, however, rate reductions seldom mean simple reductions of call prices; more often they consist in creating new rates that combine the already existing ones. An additional hurdle is the differentiation of call charges depending on the time of the day: the highest charges at peak hours and the lowest at night time, but the peak hours are not identical for all operators. Those users who make calls would tend to choose a more expensive subscription fee with cheaper per minute charges. Era’s most popular rate is the ‘white’ rate, which has the lowest fee (in 1998 picked out by 74 per cent of customers compared with 67 per cent in 1997). The white rate is profitable for monthly call time under 80 minutes. The white rate users pay lower bills than average, which, combined with the rate’s great popularity, produced a decline in average ARPU. Analysts believe that Polish operators target users with a monthly call rate of below 90 minutes. Idea has chosen a slightly different marketing strategy. As of 1 March 2000, Idea has been offering identical rates for 24 hours, which makes this operator unbeatable in terms of prices at peak hours. An additional trump card offered by Idea is free call time, which, even though offered by all the other operators, is not lost when unused but is instead rolled over to the next month only in the Idea network. A rapid increase in the number of new customers noted by Idea in recent months proves that its price and marketing strategy is working. In spite of all these moves in rates, however, the prices of calls on the Polish networks are among the highest in Europe. Analysts from the mobile telephone market believe that significant cuts in rates can be expected when Idea has a range comparable to that of its rivals and mobile telephony in Poland encounters the first barrier of demand (according to current estimates, 20 per cent of Poles will have their own handsets). However, the principal method of winning new clients is the sale of inexpensive handsets (recently for not more than PLN1) during special promotional campaigns that practically never end. Thus, 90 per cent of mobile phones in Poland are bought within such promotion ventures, which means that all operators are subsidizing the sale of telephones, spending on average several hundred zlotys on one mobile sold, and making up for the expenses through subscription fees and charges for telephone connections paid by clients caught in their net. The lucky owner of a cheap handset is compelled, however, to accept additional


279

terms of agreement with a given operator. For example, he has no right to change operator nor to switch to a less expensive tariff from that originally accepted. In addition, phones sold during promotion campaigns are often equipped with sim locks, which prevent them from being used in networks operated by other companies for a defined period of time. The purchaser of such a cheap mobile is also required to pay the agreed subscription fee even if he loses the phone. Such tough terms generally cover a period of two years, which usually allows the operator to regain the amount spent to subsidize the sale of a cheap phone. Despite all these clauses, the migration of clients between mobile operators is fairly widespread. The churn rate, which indicates how many clients have changed operator, have been disconnected for not paying the bill or have decided to stop using a mobile, has proved to be exceptionally high recently for Era GSM. According to analysts, Era has a much higher churn rate than its competitors because its marketing policy is focused on individual clients, whereas, for example, Plus GSM concentrates on far more stable corporate clients. Recently, however, Era has managed to significantly reduce its churn rate, which can be attributed to the introduction of a special loyalty programme (Stokrotka), which awards bonuses to clients who are loyal to the network and who pay their bills on time. A similar programme was also launched by Idea (Profit). However, despite these programmes, every new promotional campaign—as operators themselves freely admit—encourages the migration of clients.

Investment outlays and financial condition of mobile telephone operators Investment outlays on the construction and continuous development of mobile telephone networks as well as their functioning in conditions of fierce competition are enormous, reaching billions of US dollars. For example, Polkomtel (Plus GSM) invested a further PLN900 million in the expansion of its network in 2000 (PLN920 million in 1999). Since its establishment in 1996, the company has allocated a total of PLN2.5 billion to investment. This amount grew to PLN3.4 billion in 2002. Polska Telefonia Cyfrowa (PTC), in turn, estimates that its investment outlays totalled PLN4.5 billion at the end of 2000, excluding amounts allocated to the construction of its own DCS1800 network covering the whole territory of Poland, which should take the company two or three years to achieve. PTK Centertel puts its total investment outlays on Idea and the construction of an integrated GSM/DCS network covering the whole territory of Poland at US$1 billion. Since operators have not been generating substantial profits thus far, investment projects have been financed largely through frequent increases in the capital of the companies in question, huge bank credits or the issue of debt papers on


international financial markets. It should be noted, however, that the latter two methods of financing investment projects seriously increase the indebtedness of mobile telephone operators. For example, PTC’s debts exceeded PLN5.1 billion at the end of March 2000. In addition, a considerable part of the credits drawn by operators is denominated in US dollars and German deutschmarks, which makes the operators’ financial situation extremely sensitive to any fluctuations on foreign exchange markets. Recently, however, mobile telephony operators have taken concrete measures to better protect themselves against violent changes in exchange rates. Polska Telefonia Cyfrowa owes PLN570 million to a consortium of banks. At the end of June 2000, this debt was consolidated into a new higher credit worth € 650 million (PLN2.6 billion). The company also issued bonds worth US$150 million. Polkomtel, in turn, which is the only operator that has the form of a joint-stock company, is considering a public issue of shares to take place shortly and ensure the company an additional source of financing for its huge investments (the development of the DCS1800 network). In addition, the company is implementing a programme covering the issue of commercial bills (under an agreement with banks) whose value may total PLN350 million. A slightly different method of financing investments has been chosen by PTK whose supervisory board opted in April 2000 for an increase in the company’s capital of almost PLN420 million to PLN1.2 billion. Table 4.18.5 Operators’ financial results Revenue (PLN million)

Polska Telefonia Cyfrowa Sp. z o.o.

1998

1999

1611.0

2647.4

Change (%) Net financial result (PLN million)

64.3

Number of Revenue per employees employee (PLN million)

1998

1999

1999

1999

26.4

(-142.0)

2606

1.02

Polkomtel S.A.

1643.3

2727.6

66.0

(-58.2)

129.7

1868

1.46

PTK Centertel Sp. z o.o.

955.8

1127.4

18.0

(-79.5)

(-330.8)

1400

0.81

Total

4210.1

6502.4

54.4

5874

1.11

Source: The top 500 companies list by Gazeta Bankowa, press, companies, own calculations

Despite the relatively short period of their operation, mobile telephone companies belong to the group of Poland’s leading enterprises in terms of revenue. The country’s three operators are included in the list of the top 100 Polish enterprises. Polkomtel is ranked higher than the other


281

two operators. It is placed 29th in the latest ranking published by Gazeta Bankowa. Recent years have been fairly successful for mobile telephone operators. The mobile telephone operators’ share of the telecommunications market is growing steadily and they are very effective as evidenced by the fact that the revenues per employee of mobile telephone operators are considerably higher than the revenues per employee by TP S.A. These revenues exceed PLN1 million in PTC and Polkomtel, and PLN800,000 in Centertel, compared with PLN184,000 generated per employee by the national telecommunications operator. It should be noted that the number of workers employed by the three mobile phone operators jointly accounts for 8.2 per cent of all persons employed by TP S.A. Even in comparison with the dynamically developing Netia (the main rival of TP S.A. in the fixed-line telephony market), the mobile telephony operators are far more effective. In 1999, Netia’s revenues per employee were close to PLN200,000.

4.19

Poland’s Internet Utilization Euromoney Polska SA/Internet Securities Although the number of Poles having access to the Internet has been rising, Poland still lags behind Western Europe as far as the penetration rate of the Internet is concerned. In August 2001, 20.5 per cent or about 8 million Poles declared having access to the global network, according to OBOP’s most recent poll. This means the number doubled from the previous year, when there were 4 million people declaring access to the Internet or 13.1 per cent of the total population of those aged 15 and above. It is worth noting that the pace of growth in the number of Poles that have access to the Internet fell in recent months. It now seems that, after years of revolutionary development, Poland will enter the path of evolutionary, stable growth. It might be worrying that the number of Internet users stayed the same in August 2001. According to OBOP, about 15 per cent of those who had access to the Internet were regular internet users. This means a fall in the number of users from 16.5 per cent recorded in July 2001, and an increase compared to 10.7 per cent recorded in August 2000. The number of regular users (those who use the internet at least once a month) fell from 15.5 per cent in July to 14 per cent in August 2001. These numbers place Poland far behind Western European countries where, on average, regular Internet users total 31.1 per cent of the population. According to the recent survey made by another polling institute Gfk, only 7 per cent of respondents enjoyed access to the Internet from their own homes. This is much less than Western Europe, not to mention the US, where about 50 per cent of households had access to the web. In September 2001, the Polish Government adopted a document called ‘ePolska’ (‘ePoland—Action Plan for Development of An Information Society in 2001–2006’). This provides plans for the development of new technologies and IT infrastructure, providing broader and cheaper access to the Internet, as well as adopting the existing legislation to fast technological progress, and assisting the Polish economy in its evolution into a ‘global electronic economy’. The document was inspired by the

Poland’s Internet Utilization

283

European initiative ‘eEurope 2002-An Information Society for All’ and also by ‘eEurope+’, another document that had been prepared by the candidate countries with assistance from the European Commission. The latter document mirrors the priorities and targets adopted by EU countries in ‘eEurope’, but provides for actions that address specific situations of the candidate countries. ‘eEurope+’ aims to accelerate reform and modernize economies as well as encourage institution building and improve overall capacity so that the candidate countries use the full potential offered by the information society and avoid a further divide with the EU countries. The assumptions made in ‘ePolska’ are the same as those adopted by the EU countries: • to prepare the society for the age of ‘digital civilization’; • to increase competitiveness of the European economies and make Europe ready for implementation and financing of new technological ideas; • to assure that the processes that are promoted take into account the specific social, economic and cultural characteristics of each country. To achieve these objectives, Poland should take on specific actions that would include, among others: • the liberalization of the telecommunication market in order to increase competition; • the adjustment of regulations to EU standards; • the development of telecommunication infrastructure in rural areas; • the building of networks for public administration offices; • the providing of computers and internet access to schools, and training teachers to use it; • the improvement of the quality of internet connections all over the country, and securing cheaper internet access; • the development of IT infrastructure for scientists and students; and • the raising of security on web applications by working out and adopting new regulations for fighting online crime, etc. The outgoing government admitted that to implement these ambitious goals, it would be necessary to concentrate on making changes in the legislation and coordination between different ranks of the public sector, as well as stimulating the activities of the private sector and non-government organizations. Implementation of the plan, however, would be a challenge for the next government. The political forces that


are to embark on this task have so far not presented any plans concerning the development of the information society, except for a couple of general remarks. Low numbers of Internet users observed in Poland in comparison to the Western European countries is due to the relatively high prices of Internet connections. For example, the price of 20-hour dial-up connection during peak hours (at PPP) is among the highest in OECD. It is around US$44 compared to US$21.4 in the US and US$34.1 in Germany. The most common connection is still the modem connection, which is the most expensive and the slowest one. Since Internet fever ended, difficult times arrived for the internet sector. E-Penbiz, an index of the business sentiment in the Internet sector, has been declining month by month since the beginning of the year. The most recent survey of e-Penbiz made by Pentor polling institute showed another drop in mid-2001. The index was at 14.7 points, or five points lower than in June. The sentiment among portals and Internet technology providers has worsened, although portal managers showed a little bit more optimism as far as the forecasts for the future is concerned. Sentiment among Internet shops has bottomed out after the series of declines and rose for the second consecutive month. The best sentiment was observed among web masters (48 per cent of those surveyed assessed their economic situation as good and none of them as negative). E-Penbiz is a synthetic index of business sentiment. It is calculated as the difference between a per cent of positive opinions and negative ones. As the financial situation of many Internet companies deteriorated, many of them decided to reduce employment or at least to refrain from increasing workforces. About three quarters of polled institutions did not plan to increase their workforce in the nearest future. The most stable situation was recorded in Internet technology providers as only two firms in this group have recently reduced their workforce. The most unstable situation from the point of view of the employee was recorded in online shops, out of which 16 per cent recently decided to reduce their workforce. The poll showed that the majority of portals planned to reduce employment as soon as possible. Although more and more companies invest in their own marketplaces on the Internet, the development of the B2B market in Poland is still in its initial stage. Value of the B2B market in Poland has been estimated at about US$300 million this year (by eMarketer). A low value of online transactions results mainly from lack of confidence in this kind of business. Although more and more domestic enterprises have access to the global network, according to the report of Arthur Andersen and IMetria over 88 per cent of all companies and almost all big companies employing at least 200 people have access to the internet. Only 43 per cent of firms use the Internet to buy products or services online and


285

34 per cent of them offer their products or services via the Internet). According to the report made by Polish Market Review and international agency for market researches MEMRB Custom Research Worldwide, the number of firms being involved in this kind of activity will explode in 2–3 years. The Internet is currently most commonly used to sell products or services in the IT and telecommunication companies. According to the report, companies in the construction sector are the most reluctant to use the Internet for B2B transactions. Companies including telecom operator TP SA, computer and internet company Optimus and Commerce One, Prokom, ComputerLand, PGF, Impexmetal, MCI, Migut Media, Getin and Microsoft have all invested millions of dollars to create their own e-marketplaces. Centrum Handlu Internetowego (a joint venture of Agora and ComputerLand) and portals Wirtualna Polska, Interia and Hoga also plan to offer services online. After exploding between 1996 and 2000, the number of online shops rose a little bit slower in 2001. According to I-Metria report, since the beginning of 2001, 150 shops online opened and 100 disappeared from the e-market (50 remained) compared to 270 new shops opened in 2000 and 326 opened in 1999. Books and publications make for almost onethird of all goods sold in online shops. Books are followed by software (16 per cent), hardware (12 per cent) and multimedia (12 per cent). Although e-commerce is more popular now than 2–3 years ago, there are still several barriers that this kind of activity is facing. First, access to the Internet is not widely available. Other obstacles include lack of confidence in quality of products sold online and reluctance in paying for them without seeing them first. Another barrier are the prices: only 36 per cent of stores offer lower prices than traditional shops, over 50 per cent offer the same prices. According to Global eMarketing’s report, the Polish e-market will be divided between hobbyists (those who maintain the online store just for hobby), who cannot count on sales growth or significant profits, and aggressive professionals, who will aim at speedy establishment of a leading position, large sales volume and profits. Analysts also say that the services online market will go well in the future. GeM experts expect that e-commerce will develop in the areas of travel and tourism as well as financial services. GeM also expects that in Poland serious efforts will be undertaken to develop the automotive and real estate marketplaces. In 2001 the Sejm accepted amendments to the Electronic Signature bill, finally establishing legal regulations for securing the identities of those who conduct electronic transactions. The amendments, which were proposed by the Senate, concerned increasing the security of data transmissions by people using e-signatures and allowed e-signatures to be recognized under the law. Analysts believe that introduction of the electronic signature law will increase the security of transactions made


via the Internet and enable faster development of emerging e-business in Poland. When the draft law comes in force, the digital signature, a sequence of encrypted digits, numbers and symbols, will be as valid as a signature on paper. E-signatures will be used to arrange official business, and carry out commercial transactions and banking operations. The new legal regulations will enable companies to exchange information safely and sign contracts via the Internet. So far, online transactions have been legally treated as a verbal agreement, which for most companies is an insufficient guarantee. Consequently, the electronic signature creates a chance for greater business activity on the Net. The Polish draft law is based on the EU’s e-signature legislation that was passed on 13 December, 1999. The act now awaits only the signature of the President and will come into effect nine months after that. After long lasting discussions, the Sejm finally adopted another important legislation that will influence development of the Internet services market— a preferential VAT rate for Internet access. The VAT rate for narrow- as well as broadband access to the Internet will be reduced from 22 per cent to 7 per cent. The law on VAT on ‘teleinformatic services’ was passed in July 2001, but deputies failed to define what these services were. Some of them proposed to lower VAT only on dial-up access, but others opposed the idea, because it would discriminate against faster and more advanced broadband access and favour the slower and more expensive narrowband access, which in Western European countries is becoming less common. It would also strengthen the position of TPSA, which already has a 90 per cent share in dial-up connections market. The new law should increase the competition among internet providers and increase the number of internet users, who will have to pay less for dial-up, fixed-line, and wireless access to the Internet, as well as for comparable services offered by cable television and mobile telephony operators. The financial services sector is an excellent example of how common access to the global network changes the traditional activities of banks and brokerages. E-banking in Poland is increasingly popular, but its development is limited by a relatively low penetration rate of the Internet. Since 1998, when the first Internet system in Poland was introduced in PBG Bank in Lodz, 13 banks have launched banking services via the Internet and another six banks will launch them in the near future. The analysis made by the Polish Bank Association (ZBP) showed that some 284,000 clients used the Internet to carry out banking transactions at the end of July 2001. ZBP estimates that the number of internet bank accounts might be about 30,000 higher than the number of people declaring transactions. The number of people using the Internet in bank transactions rose from 11,000 at the end of 1999 to 76,000 recorded at the end of 2000. High popularity of Internet banks results from much higher interest rates—even double those of the same


287

accounts in normal banks offered by e-banks. They can afford this because they save on costs. The value of Poland’s internet advertisement market, which is currently estimated at PLN30–50 million (US$7.1 million–11.9 million), is likely to grow to PLN1.6–2.2 billion (US$380 million–523 million) by 2010. According to analysts at Bank Handlowy, share of expenditures for Internet advertisements will rise from the current about 0.5 per cent to 10 per cent in 2010. However, in 2001 the internet advertisements market did not develop as fast as expected, since weakening trends reached the internet, just like the whole economy. Advertising budgets have been trimmed as the situation of many enterprises deteriorated. According to Interia.pl portal’s President Tomasz Jazdzynski, portals still attract around 60–70 per cent of all Polish Web ads, while about 300+ commercially viable vortals pick up the rest. As portals rely heavily on Internet advertisements (for example Interia relies on advertising for 95 per cent of its revenues), their condition is becoming increasingly worse. Arena.pl had to stop operations in August 2001. However, the company’s fate is not yet clear, as it is due to undergo reforms. Wirtualna Polska, another ‘general interest’ Internet portal, is reducing its staff and cutting salaries. Another two universal Internet portals faced bankruptcy. Experts say that there is room for between three and four large universal portals on the market. Any others that remain will disappear. Onet.pl, owned by Optimus and wp.pl, just bought by TPSA have the best chance of survival. In contrast to universal portals, thematic ones (vortals) have greater chances of survival, as their costs are much smaller. The most popular vortals include the financial Expander.pl, Bankier.pl, Money.pl or Elfin.pl., and others—wakacje.pl and Virtual Trip, which deal with the leisure sector, mojeauto.pl (automotive sector), Immobel.pl (real estate). Figure 4.19.1 Time spent on the Internet (minutes)

Source: I-Metria


Table 4.19.1 Public companies from the Internet sector quoted on the WSE YTD % (2001-09-19)

52-week change %

Free float (PLN mn)

Capitalisation (PLN mn)

PROKOM

-56.7

-64.4

389.8

955.8

COMPLAND

-39.6

-39.8

330.4

442.8

7BULLS

-30.0

134.4

347.2

SOFTBANK

-68.7

-73.6

152.0

318.2

COMARCH

-46.5

-53.3

105.1

236.4

APEXIM

-30.5

-27.1

22.8

59.2

MCI TALEX

– -54.9

INTERIA IGROUP

– -47.7

HOGA

–

–

–

11.6

40.4

–

8.4

34.5

–

7.0

22.7

10.4

16.6

-43.6

5.2

7.0

Sector

-49.0

-48.2

–

1,177.1

2,440.3

WIG

-33.8

-32.9

–

82,111.0

Source: Emitent, WSE

Table 4.19.2 Top 20 companies in the Internet sector Sales (PLNmn) Name

2000

Change/ 1999 (%)

H1 2001

Change/H1 2000 (%)

n/a

n/a

19.8

-21.4

1

Onet.pl S.A.

general Internet portal

57.1

1,145.7

2

MCI Management S.A. (cons.)

investments in the Internet sector

55.5

739.4

3

Internet Group S.A. (cons.)

Internet provider

12.8

40.9

7.9

22.7

4

INTERIA.PL S.A.


8.0

5,021.7

6.9

98.8

5

Wirtualna Polska S.A.


7.8

898.1

n/a

n/a

6

Bankowe Centrum Informatyki BCI Sp. z o.o.

Internet software production

5.4

n/a

n/a

n/a


289

Table 4.19.2 (cont’d) Sales (PLNmn) Name

7 8

9 10 11

12 13

14 15 11

12 13 14 15

The Polished Group Internet software S.A. production Polskie Sieci Internet software Teleinformatyczne S.A. production: WAN/ GSM Internetia Telekom Internet provider Sp. z o.o. Internet Idea Sp. z o.o. general Internet portal CT CREATIVE TEAM Internet software S.A. production: WAN/ GSM Poland.com S.A. general Internet portal TP Internet Sp. z o.o. investment in the (portal.pl) Internet sector, general Internet portal eMarket Sp. z o.o. e-commerce ARENA.PL S.A. general Internet (cons.) portal e.pl S.A. e-commerce (books, computers, radio & tv equipment) SZEPTEL INTERNET Internet provider, Sp. z o.o. e-commerce HOGA.PL S.A. general Internet portal Voyager.com e-commerce Sp. z o.o. (tourism) e-Katalyst S.A. Internet incubator

2000

Change/ 1999 (%)

H1 2001 Change/H1 2000 (%)

4.3

55.8

n/a

n/a

4.3

n/a

n/a

n/a

2.9

n/a

0.3

n/a

2.0

n/a

n/a

n/a

1.7

n/a

n/a

n/a

1.5

n/a

n/a

n/a

1.3

4 1 0 9 . 7 n/a

n/a

1.1 1.0

n/a n/a

n/a 0.6

n/a 472.6

1.0

n/a

n/a

n/a

0.7

n/a

n/a

n/a

0.5

n/a

0.7

0.5

n/a

n/a

n/a

0.5

n/a

n/a

n/a

12,200.0

4.20

Public Relations and Communications Practice in Poland MmD Public Relations Poland There is a saying in Poland which, roughly translated, goes something like this: ‘He who gets up first, then gets from God’. In Poland it was the advertising industry that got up first and, yes, they did ‘get’. In the early 1990s there was enormous growth in advertising expenditure in Poland. The increase in expenditure between 1992 and 1993 was a staggering 143 per cent and a further 69 per cent in 1994. This equates to a huge amount of money and it is calculated that in 1997, total advertising expenditure amounted to US$1.4 billion, with the food sector, cosmetics and chemical products dominating TV advertising. In fact, more than 70 per cent of advertising money went to food products (US$224 million), personal care products (US$193 million) and household chemicals. Advertising was the key communications tool for reaching the 40 million consumers of Poland. With the opening of the market in the early 1990s it was definitely the advertising industry that ‘got from God’. So where was the PR industry during this period of promoting brands and developing brand loyalty in the new emerging Poland? There is no doubt that the practice of public relations is emerging from the shadows of advertising. It was only in 1989 that Poland began developing its free media. Censorship was lifted, the Communist party’s newspaper chain was dissolved and a new press law was passed in Parliament. And in the past few years a new media system has been constructed and a younger generation of journalists have taken over the job market. In 1990, there were 11 PR agencies operating in Poland. Many of these PR agencies were in fact PR ‘departments’ of the large advertising agencies so that they could purport to offer full service capabilities. The reality was, however, that the PR activity was usually overshadowed by the advertising activities. The PR market did not really begin to mature and develop into anything comparable with Western Europe or North America until five or six years ago. Now the PR market in Poland boasts

Public Relations and Communications Practice in Poland

291

an estimated 124 agencies countrywide, but it should be noted that in some quarters it still lacks professionalism. The Polish PR market is, after all, only 12 years old. Therefore, it is justifiable to say that it is immature. Remember, there has been little time to educate professional personnel. However, responsible PR agencies and respected and mature PR professionals are definitely present on the Polish market and can be found. Like many other Eastern European countries, the industry has its roots in media relations activity. It is only now that the full spectrum of PR activities, for example, corporate social responsibility, internal communications, investor relations and crisis management are being admitted into, and practised in, the domain of PR. The market has plenty of PR agencies and their range in service offering and quality is certainly vast. However, with the commitment of a number of international and local agencies to introduce a code of conduct and practice, following the foundation in 2001 of the Union of Public Relations Firms (ZFPR), and with the continued development and adoption of higher and higher standards, it is inevitable that many of the agencies that are often referred to as ‘one man bands’ will cease to exist. There has been, and continues to be, endorsement at senior management level, of the importance of marketing communications in the Polish marketplace. This acknowledgement of the role that effective strategic communications can play in reaching commercial objectives is a major reason why PR is increasingly seen as an important business discipline. Key to this is the acknowledgement that PR is a discipline in its own right and not an appendix to other activities. There is a growing recognition that ‘one-stop’ marketing shops do not necessarily yield the best return on investment. Rather, PR, advertising, below-the-line and other communication disciplines should be recognised as separate fields, with experienced specialists from each discipline being engaged. The recognition by senior management of the need for PR activity and its contribution to a company’s performance has meant that PR practice in Poland, so long seemingly destined to remain a poor relation of advertising, is now maturing to equal partner status.

PR in Poland—a brief overview The Polish PR market developed five to six years ago and is unique for several reasons. First, most Polish companies are only now beginning to be sufficiently mature to grasp even the essentials of PR. Whilst more qualified PR personnel are employed in-house, it is still quite rare to find a communications director sitting at board level. Second, the Polish media market is unique and, whilst the national media is concentrated in Warsaw, the regional media is very influential (as are regional


politicians and opinion formers). Unlike other countries in the CEE region that tend to have a concentration in the capital, the regional influence in Poland should not be overlooked. Unfortunately, the practice of ‘bought’ editorial persists within the media across the country and there is also a growing tendency for journalists to be dictated to by their advertising departments, a practice that is particularly prevalent in the consumer arena. Third, most of the firms that call themselves PR agencies are in reality simply promotion and/or advertising firms. A trend that developed in Poland in the 1990s, is that network advertising firms began opening their own PR agencies. These firms, evolving out of advertising agencies, were a cause for concern. They spoilt the market because their experience was in pure advertising. In reality, PR budgets therefore became extensions of advertising budgets and any form of evaluation and analysis of PR activity, which often amounted to minimal media relations activity only, was not provided to the client. Today, it is estimated that 18 out of the 253 advertising agencies operating on the Polish market also offer an in-house PR service. In the current market, as more and more local companies, and indeed international organisations, are becoming much more appreciative of the benefits of using experienced professional and dedicated PR specialists, the ‘one shop buys all’ approach is being rejected. The structure of the market will be determined by a mix of full-service PR agencies and niche firms concentrating, for example, on public affairs and agencies specialised in serving companies in a given sector, for example, the financial sector. It is unlikely that Polish PR will evolve toward further specialisation in line with the trends in the West. In a 2002 report that surveyed some 57 PR agencies, less than half declared a specialization, and those that did predominantly stated media relations and crisis communications. The Polish market today is comprised of international, local and affiliate agencies. Of the 124 or so agencies on the market, 11 are international and 5 are affiliated. Unsurprisingly, all the international and affiliated agencies are located in the capital city of Warsaw. However, the growth of PR agencies is not confined to the capital, with Kraków, Wroclaw, and Katowice, all major Polish cities registering between 5–10 agencies each. The PR labour market PR as a career choice is becoming more and more popular in Poland. The market over the past 10 years has grown considerably and there is a need for educated young professionals to join the profession. There are 27 institutions in Poland that currently offer PR courses either as a main subject or as a specialty within a course. There are also three


293

post-graduate courses for PR. PR publications are now becoming part of mainstream academic literature with 37 Polish-language books concerning PR available. With the growth in courses available, and interest in joining the PR profession from hungry new graduates, it is no wonder that the top agencies in Poland receive approximately 10 letters and CVs per day enquiring about employment opportunities. It is rare to find a graduate applying for a PR role who has not had some relevant PR experience, through the growing number of internship schemes offered by the major agencies, such as Mmd. More than just media relations… Just as the acceptance of communications has grown across different industry sectors, so too has the working definition of communications or PR in the Polish marketplace. A common myth throughout the early and mid-nineties was that communications meant solely media relations, led predominantly by the FMCG sector and supported by high-budget advertising campaigns. Many also saw this as another phrase for simply ‘bribing’ journalists or paying for editorial and sowing the seeds of socalled ‘Black-PR’. Thus, early local PR agencies and the later-wave of international agencies, including Mmd, played a critical role not only in educating all interested parties into the value of proactive media relations programmes, but also in introducing and explaining other influential communications tactics—and of course, in abiding by a code of conduct and ethics as practiced by the profession in Western Europe. Media relations remains the leading PR discipline in Poland today and, as in many countries, is still seen as synonymous with public relations. However, today’s inward investors can benefit from a level of communications sophistication that, at its best, at least matches most of what is available in Western Europe. Public affairs, sponsorship programmes, corporate communications strategy-building, internal communications, corporate social responsibility programmes, merger and acquisition communications—all these and more are being practiced regularly to international standards by established agencies, such as Mmd, and by some in-house departments. The agency world The numbers tell the story with regards to agencies in Poland. From just 11 in 1990 to over 120 today, the PR agency industry is thriving. In 2001, the total revenue for the top 10 agencies in Poland amounted to 97.45 million PLN. Of the top three agencies in Poland for 2001, two were international agencies; the third agency listed is, in fact, an events and conference agency, rather than a PR agency. Since there is still a


blurring in the industry as a whole as to what PR is, this lack of clarity is only to be expected. While there are agencies that use the term PR freely and, of course, anyone can send out a press release, the real question is whether they can offer truly intelligent communications. In reality, there is a big difference in the quality of offerings from the top agencies compared to some of the agencies that have decided to jump on the bandwagon without experience, training or regard to ethical standards of practice. Moreover, in what is becoming a highly competitive environment, price is increasingly becoming the determining factor in an agency pitch situation. This often causes confusion, with proposals dissimilar in content and quality often being compared on budget alone, without consideration for experience and with some international businesses looking for Western PR standards from agencies, but wanting and expecting outdated Eastern European prices. EU comparisons The structure and offering of agencies currently operating in the Polish market differs from most EU nations. It is evident that there is a lack of specialist agencies operating in Poland, although specialization in the form of government relations, Pharmaceuticals and IT, for example, appear sporadically. In Poland, it is much more common to see agencies operating in all disciplines across most industry sectors, although only a handful would have experience across most of the key sectors. The top agencies, such as Mmd, devote specialist account teams to serve clients across different sectors such as FMCG, IT/telecoms, finance and corporate. Corporate PR in particular is growing quickly and, with the advent of the EU, is expected to accelerate further as IPO and M&A activity increases.

You get what you pay for… As previously stated, there are many agencies operating in Poland with great disparity in quality. At best, PR practice in Poland equals that of its Western neighbours; both international and local agencies, as well as in-house specialists, have taken the ‘best from the West’ and are applying the highest standards of PR practice. Such best practice extends beyond the simple execution and management of client accounts, through to the provision of strategic consultancy advice for short-, medium- and long-term communication programmes that will have a significant effect on the company’s bottom line. The pool of skilled, experienced communication professionals is growing and is being headhunted in relation to results. Experienced communication professionals who have acquired the skills and ethical


295

business practices that are so valued in Western companies can, and do, demand that their skills are paid for. Such is the case with the top agencies. To attract the best, wages must be comparable to the skills agencies are buying. And therefore agencies that may have higher fees are more than likely to be offering the best skill set and achieving the best results for their clients. The old adage of ‘if you pay peanuts you get monkeys’ is very apt in this respect. Good advice to anybody wanting to enter the Polish market and looking at agencies is not to go for price alone. As in any other country look at the skill set and experience. Look for results-oriented agencies and don’t be afraid to question and check their credentials. Many agencies purport to have a team of people who would work on an account but may in reality be a one man band—talk to existing clients and journalists and find out more about their team and what results they really attain. Question the agency team that attend the presentation and establish that they will be the actual team to work on your account. If reporting in English, as well as the local language, is a necessity, speak individually to all team members and ask to see written copies of their English work. Poland is a growing, expanding and increasingly sophisticated market. If you expect to have Western standards from an agency in Poland, ensure you have checked them out thoroughly and are willing to pay accordingly for the service you desire. Frequent changing of PR agencies not only costs time and money but does little to ensure consistent communications output and effective management of the company’s image. Taking care to find the appropriate PR agency for your needs will give you the best return on investment.

4.21

Tourism and Leisure Commercial Section of the British Embassy, Warsaw The tourism sector occupies a position of increasing importance in the national economy. Polish citizens spend around PLN20 billion each year on domestic tourist travel, an amount which is expected to grow to more than PLN25 billion by 2006. When in Poland, foreigners spend about PLN25 billion each year and this figure is also expected to grow to some PLN35 billion by 2006. These estimates mean that earnings from tourism account for some 8 per cent of GDP today. In 2000, Poles went on approximately 9.6 million holidays abroad. The most popular destinations were Germany (3.6 million), Italy (1 million), France (0.75 million), Slovak (0.65 million) and Czech Republic (0.6 million), Greece (0.5 million), Austria (0.45 million) and Spain (0.4 million). The average stay of a Polish tourist abroad was 11.5 days and his average spend was PLN838. The number of foreign visitors to Poland in 2000 was 17.4 million and they came from Germany (5.9 million), Ukraine (3 million), Belarus (2.3 million), Russia (1.1 million), Lithuania (0.85 million) and the Netherlands (0.4 million). The average spend was US$137 per tourist. It is expected that the tourist movement in Poland will experience some minor change to its structure. The number of arrivals from the east will probably slump after the introduction of visas for visitors from countries outside the European Union, while the number of arrivals from EU countries should increase after Poland accedes to the Union. The total number of foreign tourist arrivals is expected to hover around 18 million. The number of people travelling to Poland simply for short shopping trips should fall, while main tourist and official business arrivals are expected to rise. Overnight accommodation available in Poland includes in excess of 8000 collective establishments, around 8000 beds in agro-tourist facilities and an undefined number of private lodgings mainly in coastal resorts and mountainous regions. Recreation centres run by individual workplaces dominate in collective accommodation establishments, although their number has fallen in recent years in the wake of the privatization process, from 3500 to about 2500.

Tourism and Leisure

297

Hotels The business climate in the hotel industry is closely related to the development of tourism as well as to the general condition of the country’s economy. Until 1999, the tourist market in Poland had been developing very quickly, which also resulted in a growing number of accommodation facilities, including hotel facilities (hotels, motels and boarding houses). According to Central Statistical Office (CSO) data, there were 1449 hotel facilities operating in Poland in 2000 (offering beds for more than 120,000 guests), of which: • five-star hotels: 6 • four-star hotels: 40 • three-star hotels: 333 • two-star hotels: 285 • one-star hotels: 260. The above hotels account for about 14 per cent of all domestic facilities offering accommodation to tourists. Hotels are among the small group of different types of facilities whose number and role has been growing steadily. Regardless of various changes in classification, the number of hotels grew by 10 per cent in the period 1997–2000. Apart from hotel facilities, the accommodation segment of the tourist market consists of a large number of other establishments such as vacation centres, educational-recreation centres, holiday centres for school children, bungalows, sanatoriums, hostels, lodgings offered by farms, weekend recreation centres, camping sites and others. The distribution of hotel facilities in Poland is uneven, with the largest number of hotels situated in Mazowieckie region (14 per cent), Dolnoslaskie and Slaskie regions (12 per cent apiece) and Malopolskie region (10 per cent). This means that about 50 per cent of hotels are located in only four of the sixteen Polish regions. The main reason for this is that hotels are mainly located in large cities which fulfil an administrative, economic and tourist function, such as Warsaw, Wroclaw, Katowice and Kraków. Some 11 per cent of hotel beds in Poland are offered by hotels in Warsaw. The good state of the Polish economy and the increasing number of foreign tourists visiting Poland before 2000 resulted in ambitious plans for the construction of new hotels by both Polish and foreign hotel chains. A number of new four- and five-star hotels are planned for Warsaw and several other large Polish cities. There are also plans to build a large number of cheaper two- and three-star hotels throughout Poland. Since 2000, the Polish economy has suffered a decline and, in 2001, a further decrease in GDP was observed. This has also impacted on


prospects for the hotel industry. An oversupply of beds in luxury hotels has been observed in the last two years. If the economic situation does not improve in the near future, it will be a difficult time for luxury hotels as a number of new ones are currently nearing completion. There remains a need, however, for the more affordable two- and three-star hotels.

Tourist agencies The structure of the Polish market for tourist services is becoming increasingly similar to the European model, with several large tour operators and several dozen medium-sized companies offering their own holidays and numerous agents involved in selling the products and services of other companies. There is also a group of small companies involved in organizing specialist activities—for example, bird watching trips, trekking trips, survival camps, canoe, kayak and bicycle trips etc. According to the Central Statistical Office (CSO), about 4000 companies are involved in tourist activities in Poland. The leading tour operators on the Polish market are Orbis Travel, Scan Holiday, Ving, Neckerman, Till, Sigma Travel, Triada, Itaka and Gromada.

Recreation and leisure facilities In recent years, people have chosen more active leisure pursuits and holiday accommodation owners have taken note and started to invest in equipping their facilities with various types of recreation and sport equipment and facilities such as swimming pools, tennis courts, fitness centres, volleyball and basketball courts, mini golf, saunas, solariums, billiards, table tennis, bicycle and kayak renting, horse riding etc. The most popular forms of recreation offered are volleyball and basketball courts and table tennis (offered by more than 3500 accommodation owners). The second most popular group consists of kayak and bicycle renting and billiards, which are offered by about 1500 accommodation owners. The less popular are mini golf, indoor swimming pools and solariums, which are offered mainly by three- to five-star hotels. In the last two or three years, the most significant increase in interest has been observed in horse riding and bicycle riding. Apart from the rapid development of recreational facilities in accommodation establishments, there has also been huge investment made in the construction of ‘independent’ recreation centres such as aqua parks and large swimming pools (often combined with various amusement facilities), bowling alleys, fitness clubs and golf courses.

Part Five

Doing Business in the Polish Regions/Case Studies

5.1.1

Regional Administration Public administration reform (commencing 1 January 1999) has been carried out in Poland with the decentralization of power and responsibility as its main aim. The governing bodies in Poland are divided between central and regional administration. The central administration comprises the Chancellery of the Prime Minister, which itself comprises the Council of Ministers, cabinet ministries, central offices and state organizational units. The reform significantly reduced the central government’s administrative presence at a local level. It has also brought about a considerable decentralization of public authority and public finance, making the budget of all public administration entities more transparent and accountable to the electorate. The current regional administration system has three levels:

The main responsibilities of the 2489 gminas (districts or communities) focus on meeting the collective needs of communities for public services and include: • • • • • • • •

water and heating supply; waste disposal and water treatment; primary education, kindergartens; local transport; environmental protection; road maintenance; basic health care; housing management.


There are 308 poviats (counties) and 65 towns with county status. The main responsibilities of counties include: • • • • • • • • •

public security; emergency fire services; employment initiatives; construction and maintenance of roads at county level; issuing passports; secondary education; social welfare and hospital management; ecology, surveying, waste management; issuing building permits.

Most administrative decisions in Poland are made by the county and district authorities. There is no dependence between the county and the district and each of them carry out defined tasks and responsibilities independently. Poland has been divided into 16 voivodships (województwo; region). The voivodship is the largest territorial unit. The Marshal of the voivodship is the head of the Province Council (Sejmik), who makes policies and controls provincial bodies. It is the Marshal’s responsibility to organize the Council’s activities and preside over its sessions. Self-governing voivodships perform mainly developmental functions. They promote growth, playing an economic rather than an administrative role. They also draw and implement a regional development strategy, which includes international economic relations. The responsibilities of government at voivodship level include: • • • • • • •

economic development of the province; public services at provincial level; higher education establishments; specialist health care; cultural institutions; creating favourable conditions for foreign investment; special provisions for the EU accession process.

In the ensuing sections of this publication, a brief introduction to the demographic and economic particulars of each of Poland’s 16 voivodships will be made.

5.1.2

Dolnósláskie (Lower Silesia) Voivodship General description Name

Dolnóslaskie

Area (square kilometres)

19,948

Population—urban

2,971,100 (72 per cent)

Capital city

Wroclaw (636,500)

Main industries

Mining, textile, electrical, automobile, construction, chemical, IT

Large foreign investors (over US$1 million)

175

Special Economic Zones

3

Dolnóslá skie is Poland’s seventh-largest voivodship and the fifth most populous. Situated in the picturesque, mountainous south-western part of the country, it borders Germany and the Czech Republic. Its major assets include tourism and international economic potential. Three Euroregions are partly located in Dolnos´lá skie: Nysa (the area between Zgorzelec, Görlitz and Liberec); Glacensis (stretching from K§odzko in Poland to Hradec Králové in the Czech Republic); and Dobrava (the area around Wa§brzych in Poland and Mezimesti in the Czech Republic).


Wroclaw, the capital of the voivodship, is now one of the most dynamic cities in Poland. An established trade and financial centre, Wroclaw is the Polish candidate city for the World Exhibition 2010.

Economy Industry in Lower Silesia is concentrated in the following locations: Wroclaw, Legnica, S´widnica, Wa§brzych, Bielawa, Jelenia Góra, Bogatynia and Brzeg Dolny. A fundamental characteristic of Lower Silesian industry is its diversification, protecting it from the negative economic and social jolts that are possible during a sector-specific recession. Several industry sectors are well developed in the voivodship: mining of brown coal (Bogatynia), metal ores (Lubin-Glogów zinc basin), mineral and rock raw materials (Pogórze Sudeckie); production of fabrics (Bielawa), machinery and components (Wroclaw), computers (Wroclaw), electrical machinery (Wroclaw, S´ widnica), automobiles (Wroclaw, Jelcz); and energy (Bogatynia), construction (Wroc§aw, Lubin) and chemicals (Wroc§aw, Brzeg Dolny). The natural conditions of Lower Silesia are very conducive to farming: good soil, a mild climate and a favourable agrarian structure. The northern part of Dolnos´lá skie, with its attractive landscape and good climate, offers significant agro-tourism opportunities. With its excellent recreational assets, the region attracts many domestic and foreign tourists to, among others, the ski slopes and trekking routes in the Sudety mountains, the Sudety plateau, the Klodzko Valley spa resorts and Ksiá z Castle.

Human resources Working population (‘000)

1271

Unemployment rate (%)

19.7

Average salary (% of Poland)

PLN2197 (102.2)

Higher education institutions (incl. branches)

31

Main academic centres

Wroclaw, Legnica, Jelenia Góra


Dolnos´lá skie records one of the highest unemployment rates in the country (19.7 per cent)—mainly a legacy of the formerly well-developed heavy industry. The voivodship offers an excellent choice of state universities and private colleges. Wroclaw is one of Poland’s most renowned scientific and cultural centres. Almost 100,000 students attend 21 state universities and private colleges. Other academic centres include Wa§brzych,

Dolnóslaskie (Lower Silesia) Voivodship 305

Legnica and Jelenia Góra. There are numerous private colleges in other towns. The ratio of privately owned companies to the working population positions Lower Silesia among the three voivodships in which people show the strongest economic initiative (approximately 120 small and medium-sized companies per 1000 inhabitants).

Infrastructure Domestic airport

Wroclaw

Nearest international airports

Wroclaw, Warsaw (344 km), Prague (278 km), Berlin (353 km)

Road network density (km per 100 km2)

91.5

Railway network density (km per 100 km2)

10.2

Phone network subscribers (per 1000 population)

280.4


Wroclaw has both a domestic and an international airport. There are flights to Warsaw (six or seven each day) and directly to Copenhagen (six each week), Munich (six each week), Frankfurt (six each week) and Vienna (three each week). The airports in Prague, Berlin and Warsaw are within easy reach of the region. The city is located at the junction of four important international routes: E40 Calais-Brussels-Dresden-Kraków-Kiev-Rostov on Don; E36 to Berlin; E65 Malmo-Szczecin-Prague-Bratislava-Athens; and E67 Prague-Warsaw-Kaunas. According to the government’s motorway development programme, two motorways—the A3 and A4—will route close to the city. Wroclaw is also one of the main railway hubs in Poland for national and international routes. The latter include the E30 connecting Germany with Ukraine and the E59 connecting the Szczecin-S´winoujsćie port complex with southern Europe. The river transport system is also well developed. There are four ports which mostly handle the transportation of bulky materials such as coal, coal dust, etc.

Foreign investment Dolnos´lá skie is one of the locations most frequently chosen by foreign investors, and not only because of the three Special Economic Zones


situated in the region. There are over 4000 companies with foreign capital participation, out of which 175 have invested over US$1 million. Table 5.1.2.1 Top five foreign investors Allied Irish Bank Plc

Ireland

Banking

Volkswagen AG

Germany

Automotive

Coca Cola Beverages

United Kingdom

Food processing

Roeben Tonbaustoffe

Germany

Non-metal goods

McCain Foods

Canada

Food processing


Many foreign investments are located in Wroclaw and its suburban areas (mainly within the so-called ‘Bielany Junction’ near Kobierzyce, where there are two major green-field industrial developments (Cadbury’s chocolate factory and Cargill glucose syrup production plant), in addition to several retailers (IKEA, Makro Cash and Carry, Tesco, OBI). The largest investor in the city is Allied Irish Bank, which acquired Wroclawbased WBK Bank Zachodni S.A. for US$750 million. The German concern Roeben built a brick factory in S´roda S´lá ska for US$54 million and the British GKN invested US$31 million in its manufacturing plant in Twardogóra. The region has attracted many automobile ventures. Volkswagen manufactures engines and seats in Polkowice (Legnicka Special Economic Zone) and Toyota is currently building its second manufacturing plant in Walbrzych (Walbrzyska Special Economic Zone)—with investments worth over US$100 million and US$400 million, respectively. Beloit Corporation and Arlberger Bergbahnen AG have invested in Jelenia Góra, Gerresheimer in Boleslawiec, Quarzwerke GmbH in Osiecznica near Jelenia Góra, Greenbier Company S.A. in Swidnica, Italmach in Bystrzyca Klodzka, and Crystal Clear Industries in Szczytna Klodzka.

Links Investment sites Voivodship Office: www.umwd.pl (Polish) Marshall Office: www.uwoj .wroc.pl (Polish) Legnicka Special Economic Zone: www.cuprum.com.pl/strefa Kamiennogórska Special Economic Zone: www.ssenip.pl Walbrzyska Special Economic Zone: www.invest-park.com.pl

5.1.3

Kujawsko-Pomor skie Voivodship General description

Name

Kujawsko-Pomorskie


17,970

Population—urban

2,100,100 (62 percent)

Capital city

Bydgoszcz (386,300), Torun (206,100)

Main industries Large foreign investors (over US$1 million)

Chemical, agriculture, food processing 86


0

In terms of size, the Kujawsko-Pomorskie voivodship is the 10th in Poland. The Vistula river, a traditional trade route in medieval Poland, links the largest cities of the voivodship: Wloclawek, Torun´ (seat of the Voivodship Council), Bydgoszcz (seat of the Voivod’s Office) and Grudziá dz. Situated in north-central Poland, it comprises parts of two Lakelands (of Wielkopolska i Kujawy). Together with Bory Tucholskie National Park— one of the largest and most picturesque forested areas in the country— these areas make the region very attractive for tourists. They are also unpolluted, with the emissions of dust and gas pollutants being far lower than the national average. It is also of historical interest: the Old Town in Torun´ has been included on UNESCO’s world cultural heritage list and the pre-Slavic stronghold in Biskupin dates back over 2700 years.


Economy Kujawsko-Pomorskie has a mixed agricultural and industrial character. The average farm area is 10–13 hectares, almost twice the average Polish farm size. As compared with other regions, the local farming industry is well equipped with machinery. In terms of technical infrastructure, Kujawsko-Pomorskie is also above the national average. With rich soils and a good agrarian structure, the voivodship has a considerable surplus in agricultural production—its share in Poland’s food production is much larger than its share of agrarian lands. It produces 9 per cent of the national grain yield, 8.5 per cent of rye, and over 17 per cent of sugar beets output. The same is true of livestock production. The local slaughterhouses can handle supply, but other voivodships must handle the processing needs of this region. Kujawsko-Pomorskie has in the region of 15 dairies, 10 sugar mills, over 70 alcohol distilleries, two potato processing plants and three large confectionery plants. In general, the local food processing industry, being the dominant sector in the region, is well adapted to the large agricultural output. Above all, there are numerous plant fat processing factories; the one in Kruszwica is the largest Polish fat processing facility. Kujawsko-Pomorskie is one of the few voivodships that have a current trade surplus in agricultural consumer products with both Eastern and Western Europe. However, the three largest companies in the voivodship—Anwil S.A in Wloclawek, Frantschach Cellulose Works in S´wiecie and OrganikaZachem in Bydgoszcz—represent the chemical sector, which is the region’s second major industry. Its economy is represented by almost 133,000 mostly small and medium-sized companies, 97.3 per cent of which are in the private sector.


929.5


20.7


PLN1904 (88.6)


13


Torun, Bydgoszcz, Wloclawek

Kujawsko-Pomorskie is home to the largest university in northern Poland, and one with a very long tradition: the Nicholas Copernicus University in Torun´ (approximately 28,000 students). Torun´ is also home to one of the oldest military schools in Poland: the Józef Bem Military Academy. The most important university in Bydgoszcz is the

Kujawsko-Pomor skie Voivodship

309

Technical and Agricultural Academy, while in Wloclawek, the third-largest city in the voivodship, young people can study at the private School of Humanities and Economics.


Bydgoszcz

Nearest international airport

Warsaw (255 km)


75.3 2

Railway network density (km per 100 km )

7.9

Phone subscribers (per 1000 population)

264.7

Foreign investment Table 5.1.3.1 Top five foreign investors Daewoo

South Korea

Automotive

European Bank for Reconstruction International and Development (EBRD)

Capital investment in Cementownia Kujawy

Metro AG

Germany

Wholesale and retail trade

Coca Cola Beverages

United Kingdom Food processing

Casino

France

Links Investment sites Voivodship Office: www.uwoj.bydgoszcz.pl

Retail trade

5.1.4

Lubelskie Voivodship General information Name

Lubelskie


25,115

Population—urban

2,230,200 (46.9 per cent)

Capital city

Lublin (356,000)

Main industries

Agriculture, trade, electroengineering, chemical


59


0

Lubelskie is located in the eastern part of Poland between the Vistula and Bug rivers. To the west, Lubelskie borders Mazowieckie and S´wiêtokrzyskie, to the south Podkarpackie, and to the north Podlaskie. The eastern border constitutes Poland’s border with Belarus and Ukraine. Lubelskie is divided into 24 poviats (counties) and 213 gminas (districts/ communities). The network of towns in this region is the sparsest in Poland. As many as 17 of the region’s towns have a population of less than 10,000. The region’s capital, Lublin, is the administrative and cultural centre. With its population reaching 356,000 (about 34 per cent of the urban population), Lublin is five times bigger than Chelm, which is the second-largest city (population 70,700). Other major cities are Zamosć´ (68,000), Bia§a Podlaska (58,000) and Pu§awy.

Lubelskie Voivodship 311

Economy The voivodship generates 4 per cent of GDP (PLN24,861 million), which ranks it last in Poland. The average GDP per capita is PLN11,112 and represents 75 per cent of the national average. The poor performance of the region in terms of GDP and GDP per capita in comparison to other regions is occasioned by two factors: the structural differences between the national and regional economies and the lower productivity of all the sectors of the regional economy. The most important trade products in Lubelskie are: • Export articles: coal, machinery, agricultural machinery, fertilizers, fruit, furniture, food preservatives, alcohol. • Import articles: machinery and equipment, vehicles, electronics, organic products, synthetic substances, ceramics for the construction sector, stationery, clothes, Pharmaceuticals, food, tobacco products. Lubelskie is one of five voivodships recording a surplus in international trade (together with Lubuskie, Podkarpackie, Podlaskie and War-minskoMazur skie). In terms of geographical structure: European Union—export 45 per cent, import 55 per cent (leading markets: Germany, Italy, France); and former Soviet Union—export 35 per cent, import 30 per cent (leading markets: Ukraine, Russia). Lubelskie is also one of the regions with the lowest foreign trade volume per capita. One of the characteristic features of business trade in Lubelskie is the relatively large share of the SME sector in the total volume of exports. One may venture the opinion that these are SMEs that exert the biggest impact on the region’s performance in terms of export rather than being big companies. Business trade in the region is also characterized by a fairly low participation (one of the lowest in the whole of Poland) of companies with foreign capital in total export volume. Agriculture and non-tradable services have a relatively large share in gross added value generated in the region, whereas the contribution of industry and construction sectors is significantly smaller. The structure is unfavourable as the sectors characterized by the lowest effectiveness rate have a relatively large share in the generation of gross added value in the voivodship. The labour productivity index in the region set against the national average occurs lower. Total effectiveness is lower than the national average by 35 per cent. The effectiveness rates in all sectors of the regional economy turn out to be lower than in other parts of Poland. The difference is particularly noticeable in industry and agriculture where the effectiveness rates correspond to 18 per cent and 28 per cent of the national average, respectively.


It is clear that a shift of some part of the workforce from the agricultural sector to more effective sectors will be a basic problem while also improving the effectiveness of the whole regional economy, including GDP growth conditioning economic development and the living standards of the population. Over 50 per cent of the working population are engaged in agriculture. Other sectors such as industry, construction and tradable services characterized by higher effectiveness employ relatively fewer people. It is necessary, therefore, to support these three sectors. It should facilitate a transfer of the workforce to sectors with better economic performance and a reduction of the surplus of workforce in the agricultural sector. Consequently, it should also lead to a rise in gross value added per farmer. As the level of industrialization is low (in contrast to other parts of Poland), the development of industry should also increase the economic level of the Lubelskie region.


1131


15.7


PLN1878 (87.4)


20

Main academic centre

Lublin

An analysis of the demographic structure of the voivodship in terms of town-country categorization demonstrates the very agricultural character of the voivodship. In 2000, the percentage of rural population was 53.1 per cent against a national level of 38.1 per cent, but it should be observed here that it tends to grow incessantly. There is a discrepancy in the demographic structure of rural areas with respect to the proportion of men and women in particular age groups. There is an excess of men in comparison to the number of women at a productive age. However, in towns there is a surplus of women aged 30–55. Lubelskie is one of the voivodships with the highest migration rate (this trend mainly involves the rural population). It is mainly occasioned by an insufficient provision of social and technical infrastructure in rural areas, poor communication accessibility and a low level of urbanization. Another important factor conditioning the population growth is net migration, which in the case of Lubelskie was rated at minus 1.4 in 2000. 2000 saw a considerable migration of population aged 15–39 (50.7 per cent of total migration) with respect to both men and women. People employed in the private sector represent two-thirds of the total number of professionally active people (78 per cent in the voivodship versus 74 per cent in Poland). The lowest figures, however, mirror the


situation in the hotel and restaurant sector (0.72 per cent). It should be added here that the reverse tendency can be seen in other parts of Poland, where only 28.46 per cent of the total number of professionally active people found employment in agriculture and slightly fewer, 20.68 per cent, in industry. The proportion of people employed in the hotel and restaurant sector was also the lowest and amounted to 1.49 per cent. The dominance of people employed in the agricultural sector is quite clearly reflected in the agrarian fragmentation. On average, there are about 25 people involved in farming per 100 hectares in the region (whereas the average rate for Poland and the European Union is 20 and 8, respectively).

Infrastructure Nearest domestic airport

Warsaw (161 km)


Warsaw (161 km)


71.5 2


4.2


231.4

The network of roads in Lubelskie stretches to 29,000 kilometres (360,000 kilometres exist throughout the country). Public roads can be assigned to one of four categories: national, regional, poviat and gmina level. Roads of national importance (1055 kilometres) lay down the basic framework for the network of road communication. Their construction and maintenance lies within the government’s scope of responsibility. They play an important role in facilitating transport between the West and the East as the majority of the roads running across the territory of the voivodship lead out to Ukraine, Belarus and Russia. In excess of 40 per cent of the volume of goods freighted across the eastern border are connected with these crucial communication routes (the A2, S17, S82 and S44). Railroad routes, which together make up joint infrastructure corridors, accompany the majority of roads. A very strategic railway line for transit freight traffic across Lubelskie is the broad-gauge Metallurgy-Sulphur Line linking Slawków (Upper Silesia) to Ukraine and Russia. The national roads running through the voivodship do not have the requisite parameters for that class of communication route. More than 40 per cent of them have been assigned class C and D categories, which means that they are in urgent need of repair. Lubelskie is ranked 10th in Poland in this respect. The situation with the regional roads (2245 kilometres in length) is even more grave. An astonishing 48 per cent (versus 31 per cent in other parts of Poland) have been categorized as class B and C. Regional roads in a worse condition can be found only in the S´wiêtokrzyskie voivodship (where 64 per cent fall either into class B or C).


The network of roads at poviat level (10,850 kilometres) forms a link between poviat capitals and gminas and between gminas themselves. Its density is a bit higher than in Poland and is rated at 43.2 kilometres per 100 square kilometres versus 40.3 kilometres at national level. Their technical state is comparable with voivodship roads, although they undoubtedly have worse technical parameters. The length of the network of concreted roads at the poviat level comes up to 9005 kilometres whereas that of unmade roads runs to 1828 kilometres. Lubelskie plays an important role in Poland and even in Europe in facilitating transport communication between East and West. On the Polish-Belarussian border, there are road crossings at Kukuryki, Terespol and S§awatycze, there is a railroad crossing in Terespol, and a transshipping port, the so-called ‘dry harbour’, in Ma§aszewicze. On the PolishUkrainian border, there are crossings at Dorohusk, Hrebenne and Hrubieszów. In addition, there is a Polish-Ukrainian border crossing at Usmierz, which is used for light border traffic. On analysing the situation in the region in the field of telecommunications infrastructure during the period 1995–2000, it is clear that there is a noticeable favourable tendency in terms of the number of phone connections (a 46 per cent rise since 1995) as well as in the number of telephone numbers handled by operators (38 per cent). In the region, just like in the rest of Poland, there is a huge discrepancy between urban and rural areas in terms of access to telecommunication service. Cable telephone services compete with mobile phone systems (Centertel, Era, Plus, Idea). The latter covers an area of communication routes, border crossings and the majority of cities (about 90 per cent of voivodships). Certain difficulties may be encountered while trying to obtain telephone connections within the areas of Na§êczów, Krasnobród and the £eczynsko-Wlodawskie Lake District. The total length of the gas distribution network in Lubelskie is 5820 kilometres, which accounts for 6 per cent of the total gas network in Poland. With respect to gas connections, Lubelskie ranks 15th (37.3 per cent of households) just ahead of Podlaskie (26 per cent). The highest gas connection rate is achieved in Podkarpackie and Mazowieckie (70 per cent). The volume of consumed water (which refers to ground intakes in particular) has shown a steady decline. This is an important trend, taking into consideration the fact that the region suffers from water deficits. This can be attributed to economizing on water resources (the obligation to measure the volume of water consumption and reduced consumption of water by industry as a result of the introduction of water-saving technologies), as well as closing down or limiting industry production. A relatively large number of sewerage plants (about 300) of varying efficiency and capacity operate in the region.


Investments Table 5.1.4.1 Top five foreign investors Daewoo

South Korea

Automotive

Metro AG

Germany

Retail trade

Enterprise Investors

United States

Capital investment in Eldorado and Szot International Sp. z o.o.

CC HBC (Coca Cola Hellenic) Bottling Company

Greece

Food processing

Casino

France

Retail trade

One of the most efficient remedies for the uncompetitive production sector in the region is the presence of foreign investors. Usually, foreign investments provide a good opportunity to update technology and upgrade the quality of manufactured commodities in the region. In addition, the presence of foreign investors opens up a new avenue to success as it makes it possible for local partners to gain direct access to the distribution network and foreign outlets that are accessible to these investors. Unfortunately, the percentage of companies with foreign capital is low in the region. As regards the scale of foreign investment, Lubelskie ranks 13th. Table 5.1.4.2 Companies with foreign capital

Total Agriculture, hunting and forestry Fisheries Industry Construction

1998

1999

2000 Dynamics 1999:1998 (%)

Dynamics Dynamics 2000:1999 (%) 2000:1998 (%)

562

622

682

111

110

121

7

8

8

114

114

100

2

2

2

100

100

100

151

161

170

107

106

126 131

35

36

46

103

128

Commerce and repairs

272

304

332

112

109

122

Hotels and restaurants

12

17

18

152

106

150

19

25

27

132

108

142

8

7

8

88

114

100

40

44

52

110

118

130

Education

2

2

3

100

150

150

Health and social care

4

5

6

125

120

150

Other services

9

10

10

111

100

111

Transport, storage and telecommunications Financial services Services related to real estate and companies


The largest foreign investors are Coca Cola Beverages (United Kingdom), Metro AG (Germany), Fortrade Financing SPA (Italy), Makro Cash and Carry (Germany), Cementownia Chelm (United Kingdom), E. Leclerc (France), and Same Deutz-Fahr Polska (Italy). There are many small and medium-sized investments. Companies with foreign capital are located mostly in cities, particularly in Lublin. Most of the rest chose gminas along the Pulawy-Lublin-Chelm and in the regions of Biala Podlaska, Zamosć´ and Bilgoraj.

Links Investment sites Voivodship Office: www.lublin.uw.gov.pl (Polish) Marshall Office: www.lubelskie.pl (Polish)

5.1.5

Lubuskie Voivodship General description Name

Lubuskie


13,984

Population—urban

1,024,400 (65 per cent)

Capital city

Zielona Góra (118,800)

Main industries

Trade, pulp and paper, furniture, food, beverages, textiles


51


1

Lubuskie is located in western Poland and constitutes a part of the larger historical region called Wielkopolska (Great Poland)—and hence the traditional relationships linking Gorzów Wielkopolski (the seat of the voivod) and Zielona Góra (the seat of the Voivodship Council) with Poznan. The main rivers of the region are the Odra, running along the Polish-German border, and its tributaries: the Bóbr and the Warta. The joint activities of two Euroregions operating in the voivodship—SprewaNysa_Bóbr and Pro Europa Viadrina—link the border areas of Poland and Germany (Land of Brandenburg). The border location has eased the development of the voivodship and provided open access to EU assistance funds assigned for trans-regional cooperation, and these funds have been utilized as necessary. The Kostrzynsko-Slubicka Special Economic Zone is also taking full advantage of its proximity to the border. Lubuskie is an excellent example of how a large-scale integration policy can be implemented at regional level. It is traversed by international routes (both road and rail) linking Berlin, Poznan, Warsaw, Minsk and Moscow.


Nearly half of the voivodship’s territory is covered by forest, of which 25 per cent—mainly around large cities and lakes—is protected. Thus, Lubuskie is ideal for anglers, huntsmen, and tourists who appreciate water sports. Accommodation and catering facilities are very well developed.

Economy According to the Central Statistical Office (CSO), Lubuskie is a leading voivodship in terms of economic growth and speed of transition. A report on the investment attractiveness of small and medium-sized towns in Poland ranks the region . in first position, with the towns of Miêdzyrzecz, S§ubice, S´wiebodzin, Zary, Sulê cin, Rzepin, Slechów, Kostrzyn, Gubin and Zagan receiving special mention. Industry is concentrated in the northern and southern parts of the voivodship. . The greatest number of people are employed in the textile industry (Zagan´, Zielona Góra), in production of synthetic fibres (Gorzów Wielkopolski), threads (Nowa Sól), and carpets and decorative fabrics . (Z ary). The metalworking, timber, furniture and food processing industries are also well developed. The most significant company is the state-owned alcohol manufacturer Polmos in Zielona Góra (annual revenue US$172 million). The voivodship’s economy is based around almost 74,000 businesses, mostly small and medium sized, employing over 347,000 people. Most of them (over 30,000) are trade and services companies; the private sector comprises 97.2 per cent of the total number of economic entities. The share of industrial production sales is far higher here than the national average. The development of business support institutions makes the voivodship extremely attractive for foreign investment. Companies with foreign shareholdings play a major part in Lubuskie’s export trade, ranking the region second in Poland in this respect. Germany is the most important trading partner, receiving nearly 70 per cent of the value of all exports. Italy, the Netherlands and Denmark are also significant customers.


433,185


22.6


PLN1877 (83)


8


Zielona Góra, Gorzów Wielkopolski


Lubuskie has one of the highest unemployment rates in Poland, at 22.6 per cent. At the same time, the cost of labour is one of the lowest in the country and seven times lower than in Germany. The gross added value per employee is slightly above the national average, the whole region being very uniform in this respect. It testifies to the high level of the voivodship’s development that over 52 per cent of professionally active population are employed in the services sector, 30 per cent in industry and construction, and only 17 per cent in agriculture. Because of the border location, employment in services is expected to continue to grow, while that in agriculture, with the relatively poor soil quality, is expected to decline. Lubuskie has a young population, with more people of pre-school age and less of retirement age than the national average. There are seven academic facilities in Lubuskie, of which the most significant are the Zielona Góra Technical University (7500 students) and the Zielona Góra Pedagogical College (14,000 students). Students can also study political sciences and environmental protection in Slubice, at the Collegium Polonicum and in dormitories of the first branch in Central and Eastern Europe of the Viadrina European University in Frankfurt on the Oder. The university provides its German and Polish students with language training, promotes research on the trans-border region and teaches general knowledge of Poland and Eastern Europe.


Zielona Góra


Warsaw (413 km), Berlin (150 km)


55.8 2


8.9

Telephone network subscribers (per 1000 population)

234.3

The road and railway networks in Lubuskie are relatively well developed, with good transit connections between the major administrative centres of both Western and Eastern Europe and Scandinavia. The main European road connections in the region are: No. 2 Berlin-SwieckoPoznan-Warsaw-Moscow; No. 18/4 Olszyna-Wroclaw-Przemysl-KijówOdessa; and No. 3 Stockholm-Szczecin-Zielona Góra-Pr ague-Vienna. There are eight border crossings between the region and Germany, of which of major significance to road traffic are Swiecko and Slubice, and in railway traffic Kunowice. The domestic airport in Zielona Góra provides connections to all major Polish cities.


Lubuskie has an excellent system of navigable waterways, including a link via the Odra river to the Szczecin-S´ winoujscie port complex on the Baltic Sea and to the European Union. Table 5.1.5.1 Top five foreign investors Saint Gobain

France

Non-metal goods (Sekurit Saint Gobain Hanglas Polska, Sovis-Kunice)

Casino

France

Retail trade

Nestle S.A.

Switzerland

Food processing (Goplana S.A.)

Jeronimo Martins

Portugal


Shell Overseas Holding Ltd. United Kingdom

Retail trade, power, gas and water supply

Other large foreign investors include: • Kostrzyn Paper S.A. One of Poland’s largest paper production companies, with nearly US$100 million in investment from Tebruk AB of Sweden, Kostrzyn Paper exports two-thirds of its production, mainly to the United Kingdom, Germany and France. • Volkswagen Elektro-Systemy Ltd. Based in Gorzów Wielkopolski, Volkswagen Elektro-Systemy Ltd employs over 2300 people and manufactures electric bundles for the automotive industry, both for domestic sale and for export. Lubuskie is one of the most attractive regions for foreign investors, largely due to its location close to the EU border. In 2000, over 1800 companies with foreign shareholdings—primarily German—were registered in the voivodship. These companies play a major part in Lubuskie’s export trade, ranking the region second in Poland in this respect.

Links Investment sites Voivodship Office: www.uwoj.gorzow.pl (Polish) Marshall Office: www.lubuskie.pl (Polish) Kostrzyn-Slubice Zone: www.zone.shaco.pi

5.1.6

Mazowieckie (Mazovia) Voivodship General description Name

Mazowieckie


35,579

Population—urban

5,075,500 (64.3 per cent)

Capital city

Warsaw (1,615,400)

Main industries

Automobile, oil, telecommunica tions, banking, finance, insurance, IT


582


0

Taking into account both the total area (11.4 per cent of the country’s area) and the region’s population (13.1 per cent of the country’s population), Mazowieckie is the largest voivodship in Poland. It is divided into 42 poviats (counties) and 325 gminas (communities/districts). The voivodship’s biggest cities are Warsaw (Poland’s capital city, population 1,615,400), Radom (231,600), P§ock (130,900), Siedlce (76,300), Ostro§eka (55,500) and Ciechanów (47,500).


Economy Mazowieckie yields 19.6 per cent of Poland’s GDP. Almost all sectors are present in the voivodship—of particular note is the developing oil and chemical industry in P§ock. A significant number of universities and research institutes located mainly in and around Warsaw contribute to increasing industrial activity in the voivodship. Warsaw is Poland’s largest centre of business services, banking and trade. A characteristic trait of Mazowieckie is the high participation of market services in the country in gross added value, totalling almost 50 per cent. The private sector comprises 86 per cent of the total number of economic agents. Sold production per capita increased in 2001 against 2000, at 16.2 per cent and PLN19,300. Mazovian industry centres around the following main branches: food and beverages, chemicals and chemical products, publishing and printing, machinery and equipment, radio, television and communication equipment, clothing and fur. Mazowieckie belongs to one of the most important manufacturers of agricultural goods. The voivodship has the largest cropland in the country, at 2,394,100 hectares. In fact, 49.3 per cent of agricultural land comprises arable land, 9.9 per cent meadow, 5.9 per cent pasture and 2.2 per cent orchard. Mazowieckie can boast an extremely high production of fruit, vegetables and milk. Mazovian orchards comprise almost 28 per cent of the total orchard area of the country and the region’s fruit production amounts to 38 per cent of overall fruit production in Poland.


2605


12.9


PLN2642 (122.9)


83


Warsaw, Plock, Radom

Mazowieckie has a population of more than 5 million, making it the most populated region in Poland. The urban population comprises 64.3 per cent of the region’s population (the county’s average amounts to 61.8 per cent). The largest population density can be observed in Warsaw and its suburbs. Other sizeable cities include Radom (population 231,600) and Plock (130,900)—the remaining urban centres being much smaller. Some 2,387,000 people were employed in Mazowieckie in 2000. The highest rate of employment was registered in Warsaw and neighbouring

Mazowieckie (Mazovia) Voivodship

323

poviats. In recent years, a significant part of the workforce has moved from industry and agriculture towards the service sector. Unemployment in Mazowieckie stands at 12.9 per cent and is the lowest rate in Poland. Table 5.1.6.1 Labour market Total, of which private sector (%)

2,387,000 75.2

Of total number (%): –agriculture, hunting and forestry, fishing

24.9

–industry and construction

22.2

–market services

38.7

–non-market services

14.2

Mazowieckie can boast relatively high levels of education. Ten per cent of the region’s population holds a master’s degree (country average is 7 per cent). The highest number of university graduates can be found in Warsaw (more than 19 per cent of the city’s residents), a centre of administration, education, science and culture. During recent years, an extremely dynamic development of higher education has taken place. There are 86 higher-level schools in the region, including Warsaw University, Warsaw University of Technology, Warsaw School of Economics, Agricultural Academy, and Medical Academy. Many such institutions are also situated outside the capital city. Radom, Plock and Siedlce are other important education centres.


Warsaw


Warsaw


79.5 2


5.0


322.3

Mazowieckie has a developing road and railway network. Hard surface roads per 100 square kilometres amounted to 80.2 in 2000, which is equal to the country’s average. The railway network is less developed than the country’s average. Standard railway lines per 100 square kilometres amount to five.


Eighty-two per cent of foreign and 49 per cent of domestic air passenger transport is focused on this region through Okêcie international airport, which is the largest airport in Poland.

Foreign investments Table 5.1.6.2 Top five foreign investors France Telecom

France

Telecommunications (Telekomunikacja Polska S.A.)

Fiat

Italy

Automotive, banking, insurance

Daewoo

South Korea

Automotive, electrical machinery and apparatus, construction, insurance

Citibank

United States

Banking, capital investment

RAO Gazprom

Russia

Construction

More than 14,000 companies with foreign capital (34 per cent of the total number of such companies active in Poland), including 9200 foreign companies, are present in Mazowieckie. In 2000, more than 580 foreign investors were active in the voivodship, having invested over US$1 million in Poland. The greatest number of investments have been made in Mazowieckie. Investors are active not only in Warsaw however. According to the Research Institute of Market Economy, 12 of the voivodship’s cities rank highly in the list of small and medium-sized cities attractive for investors—but still more than half of foreign investments are concentrated in the capital. Other cities active in this field are P§ock (Levi Strauss, US jeans manufacturer), Ciechanów (Ford, US motor company, and Bauer-Verlag, German publishing company), Radom (Seita, French tobacco company), Ostro§êka (Intercell S.A., paper industry, and Starglass, glass industry). Mazowieckie is very attractive for investors preferring highly urbanized regions with a well-developed infrastructure, a highly qualified workforce and easy access to office and production facilities.

Links Investment sites Voivodship Office: www.mazowsze.uw.gov.pl Marshall Office: www.mazovia.pl

5.1.7

Malopolskie Voivodship General information Name

Malopolskie


15,144

Population—urban

3,238.000 (50.4 per cent)

Capital city

Kraków (738,200)

Main sectors

IT, banking, food processing, spirit, tobacco, chemical, coal, steel

No. of large foreign investors (over US$1 m)

125

Special Economic Zone

Kraków Technology Park

The Malopolskie Voivodship is located in southern Poland. From the south it borders on Slovakia, from other directions it is surrounded by the Polish voivodships S´lá skie, S´wiêtokrzyskie and Podkarpackie. Over 60 per cent of the region’s territory consists of mountains and uplands: Tatras (the highest mountains in Poland reaching 2499 metres above sea level), Beskidy, Pieniny, Krakowsko-Czestochowska Upland and Miechowska Upland. Other parts of the voivodship are Os´wiêcim Valley (Kotlina Os´wiecimska) and Sandomierz Valley (Kotlina Sandomierska). It is located within the Central European climatic zone. Since administrative reform, the voivodship has comprised 22 poviats (counties) and 181 gminas (communities). The largest cities in the province are: Kraków (741,000), Tarnów (121,800), Nowy Sá cz (84,400), Os´wiêcim, Chrzanów, Trzebinia and Nowy Targ.


Malopolska enjoys an enormous wealth of cultural institutions in terms of both ‘high’ and ‘folk’ culture. Kraków is often called ‘the cultural capital of Poland’. Among the most important cultural institutions are the Stary Theatre, the Slowacki Theatre, Kraków Opera and Operetta, the Scena STU theatre, the branches of the National Museum and the Museum of the History of the City of Kraków, the unique Museum of the Salt Mine in Wieliczka, the Auschwitz Concentration Camp Museum, the Regional Museums in Tarnów and Nowy Sacz, the Tatra Museum in Zakopane and the Capella Cracoviensis orchestra. There are four openair museums of regional architecture (skansen) and many other examples of wooden architecture. A Route of Wooden Architecture has been established in Malopolska. In the voivodship there are more than 3000 registered historical monuments, of which over 1100 can be found in Kraków.

Economy The Malopolskie Voivodship is one of Poland’s strongest economic regions, responsible for generating 7.4 per cent of the GNP. In terms of contribution to gross added value, the province contributes most to economic sector III (services), with commercial services contributing 41.6 per cent of the region’s GNP and non-commercial services 16 per cent. The industrial contribution amounts to 29.9 per cent of the GNP, with construction generating 8.9 per cent. The lowest contribution comes from economic sector I (agriculture, forestry and fishing), which amounts to only 4.4 per cent. Industry Malopolska’s industrial structure is diverse. As well as traditional industries such as steel, chemicals, mining, and tobacco—all of which are undergoing a process of extensive restructuring—a growing role is played by new industries. These include cables, telecommunications, computers, Pharmaceuticals, printing and building materials, which together now account for approximately 20 per cent of the region’s industrial production. Forty-three of Poland’s 500 largest companies are registered in Malopolska and 15 Malopolska companies are quoted on the Warsaw stock exchange. Malopolska also has traditional heavy industries; mining and quarrying and electricity generation. There are three power stations in the voivodship (in Skawina, Kraców and Trzebinia). The Kraków Power Station was the first plant in the Polish energy sector to be privatized. Major companies and products in Malopolska are ranked in terms of the total amount of their product sold in the province. Companies producing food and drink and metal products make the largest

Malopolskie Voivodship

327

contribution in these terms, with steel production second and manufacturers of machinery and electrical equipment and chemicals third. Furniture and other types of manufacturing account for approximately 30 per cent of sales. The furniture industry is located in Kalwaria Zebrzydowska and neighbouring areas. Research and development The high proportion of academic researchers working in research and development, as well as the level of investment in research and development, suggest that Malopolska has a high innovation potential in the regional economy. This potential will be realised by both existing and new companies. There is a Special Economic Zone in Kraków and Industrial Grounds in Gorlice. The Special Economic Zone—Kraków Technology Park—was established in 1998 for 20 years (up to December 2017). This land is designated for new development and ‘greenfield’ investments. The Park’s area of 122.35 hectares is divided into four separate sub-zones: • Jagiellonian University Technology Park—36.42 hectares (Pychowice) • Kraków University of Technology Technology Park—29.53 hectares (Czyzyny) • The T. Sendzimir Steelworks Technology Park—35.0 hectares (Branice) • The ‘Plastic Valley’ Tarnow Industrial Cluster—21.4 hectares (Tarno w-Chyszo szow w) Kraków Technology Park is a dedicated place where companies and scientific research centres can target their activities and operations at the development of new technologies. Typical investment ventures here are: • • • • • •

computer systems technologies and telecommunication networks; electronics, including optical- and micro-electronics; materials technology, health protection and medical technology; biotechnology and genetic engineering; environmental protection technologies and alternative energy sources; design and manufacture of measuring and research equipment/ apparatuses

Small and medium-sized enterprises (companies with fewer than 250 employees) play an important role in the economic structure of the Malopolskie Voivodship. They make up over 99 per cent of all companies registered in the voivodship (237,209 in 2001). Over 186,000 (80 per


cent) are individual owner-operated private businesses and over 91 per cent of these have fewer than five employees. The medium enterprise category comprises less than 1 per cent of the total (2,180 companies). Typically, small and medium-sized enterprises are involved in trade and repair, construction, financial and business services, intermediary financing and real estate management—especially rental—and related business activities. Special efforts are now being made to support the development of high innovation companies. Tourism The Malopolskie Voivodship can boast tourist attractions of both natural environment and cultural heritage. There are six National Parks, over 20 Landscape Parks and more than 60 nature reserves in the region. A large area in the south-east of the voivodship belongs to the European ECONET environment protection system and over 50 per cent of the total area of the region is under legal protection. The varied landscape creates many opportunities for active tourism: hiking, cycling and horseback riding, water sports, skiing and even climbing and paragliding. The cultural heritage of Malopolska is equally impressive. Four of the nine Polish monuments on the UNESCO List of World Cultural Heritage are located in Malopolska. These are: the historic Old Town of Kraków, the Wieliczka Salt Mine, the Auschwitz-Birkenau Concentration Camp and the monastery in Kalwaria Zebrzydowska. There are also many tourist attractions in Malopolska: castles, churches, palaces and manor houses as well as museums and exhibitions. The tourist traffic in Malopolska is estimated at 12 million people a year, including around 3 million tourists from abroad.

Human resources Working population (,000)

1,542


14.0


PLN2,061 (95.9)


25


Kraków

There are 3,233 million inhabitants of the voivodship. 49 per cent of these are in rural areas. There is a positive migration rate (1.7 per 1000 residents) and a positive birth rate (+1.7 per cent). Malopolska has the fourth largest population in Poland (approximately 8.3 per cent of Poland’s total population). Sixty per cent are of working


329

age, with a pre-working age population of 25.2 per cent and 14.8 per cent at retirement age. Statistically, Malopolska residents are younger than the Polish average. In terms of population numbers and average age, Malopolska has an attractive labour market. Since the onset of economic reforms, the region’s unemployment rate has been significantly lower than the national average at 14 per cent. As many as 62 per cent of the population of Malopolska have completed vocational education. Almost 200,000 people have university or college degrees. There over 30 public and private universities and colleges in the region, and the number of students amounts to 130,000, nine per cent of the country’s total. The vast majority of students study in Kraków. The largest universities and academies are the Jagiellonian University, University of Mining and Metallurgy, University of Economics, Kraków Technical University, Academy of Physical Education, Academy of Music, Academy of Fine Arts and the State Theatrical Academy.


Kraków


Kraków, Warsaw (295 km) 2

Road network density (km per 100 km )

144.3


7.5


237.3

Roads Malopolska has a good road network with a high density of main roads (48.87 km/100 km2) compared with the national average of 40.73 km/ 100 km2). Three major international roads pass through the region: the E40 (no 4) from Zgorzelec to Medyka, the E77 (no 7) from Gdansk to Chyzne and the E 462 (no 96) from Glogoczów to Bielsko-Biala. Kraków is well connected by road to the capital of Silesia-Katowice (toll highway A4) and a new connection to Germany via the A4 highway will be completed by 2006. Approximately 60 per cent of Malopolska residents live within a 60 minute drive from Kraków, with 93 per cent living within a 120 minute drive. Railways The Malopolska region has 1141 km of railway lines, including 137 km of main lines and 448 km of first grade lines (ie twin tracks). The density


of the rail network is slightly below the national average. Approximately 68 per cent of the province’s residents live within a 60 minute train ride from Kraków and 89 per cent within 120 minutes. The main railway line in the voivodship is part of the international corridor TINA III. Nine road and one railway border crossings to Slovakia are located on the southern border of the province. Airways Balice Airport, the largest in the province, can handle up to 500,000 passengers annually and it serves as a regional, national and international airport. Regular international air travel accounts for the majority of flights (over 60 per cent), with national travel coming second (23.9 per cent). International charter travel accounts for 10 per cent and transit travel is last at 6.1 per cent). In recent years, the number of passengers and cargo handled at Balice airport has grown at a consistent rate of 20 per cent (517,000 passengers and 2,500 tons of cargo in 2000). As an international airport, Balice serves a catchment area of approximately 7.9 million residents living within 100 km and can be reached by car in 90 minutes. The airport is well located close to the A4 toll highway, which links Kraków and Katowice. It is also well located in relation to international air corridors, notably North-South (R 23: Stockholm-Vienna) and East-West (R 236: Copenhagen-Istanbul and LvivFrankfurt). This location provides the airport with considerable potential for further development. Currently Kraków has regular connections with Chicago, Dresden, Frankfurt, London, New York, Paris, Rome, Toronto, Warsaw, Vienna, Zurich, Tel Aviv and Copenhagen. Technical Infrastructure Available water resources in the region are significant (10 per cent of all Polish resources). However, they are not evenly distributed: the largest resources are in the south and the smallest in the North-West. This means that water has to be transported from distant locations. For 60 per cent of Kraków’s residents, water is supplied by a pipeline from Dobczyce located over 20 kilometres away. Electricity is available throughout Malopolska. Some local industry supplies lines need modernization, especially the 15 kV lines. This also applies to transformer stations and electricity supply in rural areas. Two large conventional power plants are located in the voivodship (Skawina Power S.A. and ‘Siersza’ Power S.A. in Trzebinia) with a total installed capacity of 1310 MW, as well as hydro-electric installations. Access to pipeline-delivered natural gas varies across the region. Problems with availability are minimal in large urban areas, but challenges exist in Miechow, Proszowice, Suski and Tatra poviats. A main gas line runs through Malopolska and splits into three branch


331

lines running from east to west. Gas consumption per 1,000 residents in Malopolska is higher than the national average and consumption is highest in Kraków, Tarnow, Chrzanow and Os´wiêcim poviats.

Investments Table 5.1.7.1 Top five foreign investors Bayerische Hypo und Vereinsbank AG European Bank of Reconstruction and Development Metro AG ING Group Enterprise investors

Germany International Germany The Netherlands USA

Banking Capital investment in ‘Bank Przemys§owo-Handlowy’ Wholesale and retail Banking and insurance Capital investment

Malopolska is attractive to foreign investors. German investors have invested the most capital: 42 per cent of Malopolska’s total. Other investors are the USA (25 per cent), France (7 per cent) and Croatia (5 per cent). The sectors attracting the greatest direct foreign investments are banking services, the food industry, metal containers and Pharmaceuticals. A significant number of foreign investments are in start-up ‘greenfield’ operations, particularly those in the production, trade and repair, financial intermediaries and electrical energy supply areas. Investments in manufacturing include the tobacco, food products and chemicals areas. The lead foreign investor in Malopolska is the Bayerische Hypo-und Vereinsbank AG who have bought shares in the privatized Industry and Trade Bank, and had invested approximately US$ 600 million by the end of 1999. The retail market continues to be of great interest to foreign investors: for example the large hypermarkets with galleries of smaller shops which have been built by Carrefour and Geant. Others are the German Hit and Billa (which has been taken over by Re we), the Dutch Allkauf and the specialist furniture hypermarket IKEA. The food sector has also been strengthened by the Danish Carlsberg, which has invested in the Okocim Brewery). Other production-related investments include Polfa in Kraków, which is now controlled by the Croatian Pliva whose investment is valued at US$ 123 million and the French Electricité de France which has invested nearly US$ 80 million in the Kraków Power Plant. Investments by Motorola (telecommunications), Donnelley (polygraph and printing) and companies such as ABB or Delphi Automotive Systems (a research and development centre for design and testing of new types of suspension systems for Delphi factories worldwide) lend


weight to the argument that new technologies can drive development across Malopolska. Other signs of technology-driven growth are the operations and strategic developments of the Nowy Sá cz-based Optimus (internet services), development planned by the Kraków-based KFAP (measuring equipment) or the Tarnów-based Ponar company (computerautomated machine tools). Companies encouraging the develop-ment and improvement of technology through their operations include TeleFonika (fibreoptics, telecommunication cables) and Can-Pak (modern packaging).

Links Investment sites Voivodship Office: www.uwoj.krakow.pl (Polish) Marshall’s Office: www.Malopolskie.pl (Polish) Kraków Technology Park: www.czt.cc.pl

5.1.8

Opolskie (Opolszczyzna) Voivodship General description Name

Opolskie


9412

Population—urban

1,082.700 (52.3 per cent)

Capital city

Opole (129,500)

Main industries

Agriculture, chemical, furniture, food, automobile


39


0

Opolskie covers 3 per cent of Polish territory and is home to 2.8 per cent of the country’s population. It contains 34 cities and over 1500 rural towns. One of the voivodship’s greatest assets is its location along the trans-European Brussels-Kiev transportation route. From the south, Opolskie borders the Czech Republic, where it is linked by four international border crossings and a large number of pedestrian border crossings.

Economy Opolskie is one of the top ten voivodships with the most advanced property transformations in the economy, which is quite differentiated.


In total, there are 19 different branches of industry represented in Opolskie, such as fuel and energy, electro-machinery, cement-lime, food, minerals, chemicals, automotive and furniture. Industrial production constitutes 2.5 per cent of the total state industrial production potential. The following products have a considerable share in that production: hard coal coke, 33.5 per cent; lorries and tractors, 27.4 per cent; cement, 25 per cent; steel casting, 24.3 per cent; chinaware, 69.9 per cent; nitrogenous fertilizers, 14.6 per cent; edible vegetable fat, 15.4 per cent; tractor-elevator diggers, 43.3 per cent; and electric energy, 5.4 per cent. New technologies and good quality have become increasingly significant among service providers and producers. This is confirmed by the increasing number of companies with ISO 9000 certification. Opolskie is one of the voivodships with the lowest level of investment risk. Opolskie is characterized by the fact that the share of industry in the structure of gross added value (30.6 per cent) is higher than the country’s average.

Agriculture Favourable climate conditions and good soil, in addition to the Silesian farmers’ long-steeped tradition of hard work, also have a beneficial influence on the high ranking of Opolskie’s agricultural production. Opolskie is characterized by its long growing period and its climate is among the warmest in Poland. For these reasons, more than 60 per cent of land is used for agriculture. The value of agricultural production per hectare of farmland is 18 per cent higher than the national average. In addition, Opolskie ranks first in Poland in terms of yield per hectare. Opolskie’s countryside, however, is more than just farmland. Its climate and natural assets also contribute to the success of agro-tourism.


Wroclaw (77 km)


Wroclaw (77 km), Warsaw (319 km)


89.1


9.5

Phone network subscribers (per 1000 population) 2 2 9 . 9

Opolskie is located in the south-west of Poland, along the trans-European Brussels-Kiev route. It borders the Wielkopolskie, £ódzkie, S´lá skie and Dolnóslá skie voivodships and the Czech Republic to the south. There are five border crossings along the 185-kilometre boundary, all of which are open to public transport, passenger cars and lorries of up to 3.5 tonnes in weight. The border crossings are:

Opolskie (Opolszczyzna) Voivodship

• • • • •

335

Glucho§azy-Mikulovice on route No. 412; Kondradów-Zlate Hory on route No. 411; Piotrkowice-Krnov on route No. 418; Paczkow-Bily Potok on route No. 410; Ka§ków-Vidnawa.

On the Opolskie section of the Polish-Czech border there are eight additional crossings for small border traffic. A significant advantage of this region is its location on the main road, railway and waterway networks. Unique communication availability is also provided by a welldeveloped communication infrastructure, with density of local roads amounting to 85 kilometres per 100 square kilometres; the A4 motorway linking Western and Eastern Europe; and a railway system providing direct connections to the most important cities of Poland, as well as with Frankfurt, Munich, Budapest, Kiev and the Baltic ports. There are three airports in the region, only one of which—Polska Nowa Wies (Polish New Country), near Opole—is currently used. The condition of local roads is sufficient, and the condition of district, voivodship and national roads is good, particularly in comparison with other Polish roads.


446


17.8


PLN2012 (93.6)


3


Opole

Approximately 53.2 per cent of the population live in cities. Almost 69 per cent of that population is of working age. Among workers employed full time, 10 per cent have completed higher education, 25.4 per cent have finished college, 5.3 per cent have secondary education and 32 per cent have basic vocational education. Women constitute a little over 51 per cent of the population. A desire to develop high-school education and create a strong centre of education and learning in the region has proved successful. The main bases of higher education are the University of Opole and the Polytechnic of Opole. To meet demand, a private College of Management and Administration was also established in Opole. Twenty-four thousand students attend three schools. Opolskie has over 400 educational, research, counselling and innovative institutions.


Investment Table 5.1.8 Top five foreign investors Metro AG

Germany


BP International

United Kingdom

Distribution of petroleum products, retail trade

Lafarge

France

Other non-metal goods (Bras Polska Sp. z o.o.)

Telia AG

Sweden

Telecommunications, publishing, printing (Netia Telecom)

Jeronimo Martins

Portugal


Opolskie is one of the regions with a low investment risk. Interest in the region is increased by a positive attitude towards investors. Foreign investors have already invested US$356 million and also hold an important share in privatization. Foreign investors own 20.3 per cent of initial and share capital of Opolskie’s companies, 39.2 per cent of which belongs to German capital, 28.3 per cent to Dutch and 13 per cent to Belgian. Many foreign-capital partnerships operating in the voivodship have created small and medium, often multi-branch, companies. The largest foreign investors in the building industry are Lafarge BRAAS GmbH, Bekaert NV und FNE, Norgips and Kludi Armaturen. The largest in the cement-lime industry are Heidelberger Zement-CBR and Chaufourneries de Hergenrath (from Belgium). The largest in the food industry are Nutricia, Zott, Schooner Capital Corporation and Schoeller. Other Opolskie investors include Metro AG, Jeronimo Martins, BP Amoco, Mota Compania S.A., Ahlers, Samsung, Dea Mineraloel, Schiedel Cegelec, Willich and Saint Gobain.

Links Investment sites Voivodship Office: www.opole.uw.gov.pl (Polish) Marshall Office: www.umwo.opole.pl (Polish)

5.1.9

Podkarpackie Voivodship General description Name

Podkarpackie


17,926

Population—urban

2,129,900(41 percent)

Capital city

Rzeszów (162,300)

Main sectors materials (sulphur)

Steel, military, tyres, food, raw

No. of large foreign investors (over US$ 1 million)

57


2

The Podkarpackie Province, formed on 1 January 1999 as a result of the latest administrative reform, is situated at the very south-east of Poland. The province covers approximately 18,000 square kilometres (5.7 per cent of the total area of the country) and has a population of 2,129,900 (5.5 per cent of Poland’s total population). The Podkarpackie region has a huge variety of natural features. There are three types of natural geographical lands: the Carpathian Mountains (Bieszczady and Beskid Niski), the Carpathian Plateau and the Sandomierska Valley. The southern and eastern border of the province also forms 370 kilometres of the Polish border and the region’s neighbours are Ukraine and Slovakia. The border’s situation and close proximity to eastern markets create favourable conditions for economic and cross-border cooperation within the Carpathian Euroregion.


Economy The Podkarpackie Province has great production potential. There are several state factories involved in the electromechanical and chemical industries. The main industry sectors within the province are: automotive, electronics, electromechanical, light, food and farm product, cosmetics, Pharmaceuticals and tourism. Industry contributes approximately 30 per cent of the gross national product. The industrial tradition dates back to before the First World War and is connected to the formation of the Central Industrial District. High production is guaranteed through the use of advanced technology. Figure 5.1.9.1 Number of registered businesses

Source: GUS

Companies within the province are willing to compete in the European market and therefore appreciate the quality assurance system of ISO 9000. Quality certificates have been awarded to more then 60 companies in the region. Figure 5.1.9.2 Distribution of industrial areas

Source: GUS

The economic transformation in Poland has had a significant influence on the structure of the province’s economy, resulting in an increase in the importance of small and medium sized companies in the private sector. The majority of people are employed by SMEs and their development has increased the competitiveness of the local economy.

Podkarpackie Voivodship

339

Human resources Working population (’000)

1,129


17.3


PLN1,872 (87.1)


14


Rzeszów

Source: GUS

The Podkarpackie voivodship has a population of over 2.1 million, 5.5 per cent of the country’s population. On average there are 119 inhabitants per square kilometre. Population growth in the region is greater than the national average and the population is relatively young with 26 per cent of the population at the pre-working age and 59 per cent working. An important factor in the province’s increasing competitiveness is human resources; the market becomes more attractive as the level of education of its inhabitants increases. The province has a well-developed, modern network of school and education units. The character of education, particularly at the higher level, is constantly improving and adjusting to market requirements. The city of Rzeszów plays a central role in further and higher education.

Figure 5.1.9.3 Graduates in 2000

Source: GUS

Reconstruction of educational institutions and improved accessibility to education is necessary to ensure the dynamic development of education in the region. The process of adjusting education to the needs of the local economy requires a modernisation of training and the development


of postgraduate studies in the most pressing issues of reforms, European integration and adapting the Polish economy to the requirements of the European Union.


Rzeszów


Warsaw (303 km)

Road network density (km per 100km2)

81.4

Railway network density (km per 100km2)

5.5

Phone network subscribers (per 1,000 inhabitants)

202.5

A major advantage of the region is its favourable situation at the crossroads of the communication routes east-west and north-south. The most important roads are national routes: international route E40 and the future A-4 motorway, national routes No 9 and No 19. After modernisation these will perform the function of express routes. There is a significant railway line, Kraków—Rzeszów—Medyka (eastern border). The province is within the European transport line E30 and a direct railway line leads to the industrial centres of the Ukraine. The network consists mainly of main and local railway tracks. There are border crossings with the Ukraine and Slovakia: railway crossings in Medyka, Malhowice, Kroscienko and £upków and road crossings in Korczowa, Medyka and Barwinek. Additional border crossings are planned: two with Slovakia in the communities of Krempna and Komancza and five with the Ukraine in the communities of Lutowiska, Czarna, Ustrzyki Dolne and Lubaczów. Additional road and tourist crossings are planned to cope with the traffic. The Airport in Rzeszów deals with air transport in the region, both passenger and goods transport nationally and abroad. It has excellent conditions and technical equipment allowing even large aircraft to land. The situation of the airport has strategic importance for the development of air traffic in the south-east of the country. There is an airport for agricultural aviation located in Mielec and there are plans to use this for passenger and goods transport for the Euro-Park Mielec and Tarnobrzeg Special Economic Zones situated nearby. The telephone network is technologically very modern; however there is a great disproportion in telephone services in towns and villages. The co-efficient on the average of telephone services provided in the province is lower than in the rest of the country.

Podkarpackie Voivodship

341

Figure 5.1.9.4 Telecommunication development in the city of Rzeszów

Source: GUS

The total number of subscribers is 273,000, of which 173,000 are in towns and 100,000 in villages. The dynamic development of the telecommunication systems now taking place will soon level the disproportion, as will the construction of a modern cable phone network system and the introduction of a wide range of wireless networks, ie cellular phones such as Centertel, digital networks like Era, Plus GSM, Idea and a radio and Internet network.

Investments Table 5.1.9.1 Top five foreign investors Enterprise Investors

USA

Capital investment in ‘Stomil Sanok’

Philip Morris

USA

Tobacco

Harbin BV

Netherlands

Food processing

Krono-Holding AG

Switzerland

Wood and wooden products

International

Capital investment in ‘Huta Szk§e Jaros§aw’

International Finance Corporation Source: PAIZ

The increase of foreign trade is a very positive development for the region. Its economic cooperation—particularly trade with Slovakia, Hungary, the Czech Republic and Romania—has been facilitated by the Central European Free Trade Agreement (CEFTA). Investment opportunities Special economic zones (SSE) and territories within the province offer huge investment opportunities. Regulations, preferences and simplified administrative procedures pertaining to these areas attract prospective investors. There are two SSEs in the voivodship: Tarnobrzeg and Mielec. The Tarnobrzeg Special Economic Zone ‘Euro-Park Wislosan’, covering an


area of 609 hectares, includes four sub-zones: Stalowa Wola, Tarnobrzeg, Staszów and Nowa Deba. The zone offers qualified staff, a research and development base, co-operation possibilities, building and development areas equipped with all necessary fittings and extensive reserves of energy. The area directly adjoins the railway line and enables reliable trade with the Ukraine and Russia. The tradition of the region makes heavy and electromechanical industry, chemical industry, food industry and production requiring advanced technology the most preferred areas of production:. 24 concerns have created their business within the zone and the total value of investment is 110 million PLN. Special economic zone Euro-Park Mielec covers an area of 627 hectares. This partly developed industrial area includes an airport. The special zone in Mielec offers ground for industrial development, production areas in halls, storage rooms and offices in the existing premises, a rich infrastructure, tax breaks up to 2015 and available, qualified staff. So far PLN1.1 billion has been invested in the Mielec SSE by foreign and domestic investors.

Links Investment sites Voivodship Office www.uw.rzeszow.pl Marshall Office www.podkarpackie.pl Mielec Special Economic Zone www.europark.com.pl Tarnobrzeg Special Economic Zone www.tsse.pl

5.1.10

Podlaskie Voivodship General information Name

Podlaskie


20,180

Population—urban

1,220,600 (58.6 per cent)

Capital city

Bia§ystok (285,000)

Main industries

Textile, food processing, wood, tobacco, beer


32


1

Podlaskie is situated in the north-eastern part of Poland and borders three other voivodships—Warmin´sko-Mazurskie, Mazowieckie and Lubelskie—and to the east the countries of Lithuania and Belorussia. Podlaskie is Poland’s sixth-largest voivodship and 14th in terms of population. Because of all its natural resources, the entire voivodship is included within an area described as the ‘green lungs of Poland’. Thus, its major assets include active tourism and being a gateway to eastern markets.

Economy The biggest industrial centres in the region are Bia§ystok (textiles, electrical machinery and apparatus, and food production), £omza and


Suwalki. As a result of the agricultural nature of the voivodship, the food and agriculture industry is localized. Small and medium-sized enterprises are of most importance to the regional economy.

Tourism Podlaskie is attractive to those who like peace, quiet and close contact with nature (ie it appeals mainly to stressed inhabitants of large European cities!). The forested areas of the Knyszyn Woods, the Narew River Valley, the picturesque Bud River Valley and the Biebrza marshes are well preserved and unique in Europe. However, the pride of Podlaskie is the last-remaining natural bison reserve: the Bialowieza National Park. The region also has many cultural monuments, in addition to places of historical interest and folk tradition. It attracts tourists from both within Poland and the whole of Europe. All the hotels of a higher standard are booked up during the main tourist season. However, there are four new high-standard hotels currently being built in the city of Bialowieza. Podlaskie is a multi-cultural and multinational region. It is probably the most ethnically diverse Polish voivodship. The region is inhabited by Poles, Belorussians, Lithuanians, Ukrainians, Tatars and Gypsies.


571


15.1


PLN1834 (85.3)


17


Bia§ystok

The percentage of the population who have completed higher education is 6.1, ranking the region in seventh place in Poland. Podlaskie has a relatively well-developed higher education system. In addition to state establishments in Bia§ystok (University, Academy of Medicine, Institute of Technology), there are eight private colleges (in Bia§ystok, £om¿a and Suwa§ki) and these produce graduates in economics, engineering, physics and teaching. In 2001, the rate of working population per 1000 inhabitants amounted to 405.8 and was 5.2 per cent higher than the national level. At the end of 2001, in Podlaskie, there were about 86,500 registered unemployed, over 43,700 of whom were women. The unemployment rate amounted to 15.1 per cent of the working-age population.

Podlaskie Voivodship 345


Warsaw (188 km)


Warsaw (188 km) 2


51.4


4.2


255.2

The length of regional public roads is 18,200 kilometres, of which 10,700 kilometres (58.8 per cent) are hard roads. The density rate of hard roads is 52.9 kilometres per 100 square kilometres, of which improved roads are 33.9 kilometres per 100 square kilometres, and amounts to 64.6 per cent and 51.5 per cent of the national average. In functional division there are 947 kilometres of public roads, 1196 kilometres of voivodship roads, 7847 kilometres of poviat-level roads and 8171 kilometres of gmina-level roads. The most important are: No. 18 WarsawBia§ystok-border; No. 19 Lublin-Bia§ystok-Augustów; No. 61 Warsaw-Ostrów Mazowiecka-£om¿a-Augustów; and No. 63 Augustów-Suwa§ki-border. The arrangement of national- and voivodship-level roads proves that the needs of connections between individual settlement units are satisfied. Nevertheless, the national roads do require modernization. The opening of new checkpoints on the border with Belorussia and Lithuania has resulted in an increase in heavy goods vehicles on roads that are not fit for the purpose. The plan is to build express road ‘Via Baltica’, linking Warsaw-Bia§ystok-Suw§ki-Budzisko-Kaunus-Tallin-Helsinki, as part of the Trans-European Transport Network. The region’s railway network consists of 845 kilometres of normal track, mostly single-gauge, which includes only 235 kilometres of electric line. The railway routes are: Warsaw-Bia§ystok-Ku¿nica-border; Bia§ystok-Bielsk Podlaski-Czeremcha-border; Sokó§ka-Augustów-Suwa§ki. In recent years, Podlaskie has witnessed a rapid development in telecommunications, both in quantity and in quality. About 80 per cent of old manual analogue PBX to digital PBX network were exchanged for fibre-optic lines. Podlaskie is considered to have good access to telecommunications services.

Investment Table 5.1.10.1 Top five foreign investors Philips British American Tobacco Industries Plc PepsiCo Intercellulosa AB Pam-Gas B.V.

The Netherlands Germany United States Sweden The Netherlands

Electrical machinery and apparatus Tobacco Food processing Pulp and paper Power, gas and water supply


With respect to foreign investment, Podlaskie is placed last in Poland. There are 31 large foreign investors who have invested over US$1 million in direct investments operating in the region. The largest ones include British American Tobacco Industries Plc, Metro AG, Akerlung-Rausing, Pol-Amer. Ent. Fund, Binding Braurei and PepsiCo. They have invested mainly in the tobacco industry, trade and services.

Links Investment sites Voivodship Office: www.bialystok.uw.gov.pl (Polish) Marshall Office: www.sejmik.bialystok.pl (Polish) Suwalki Special Economic Zone: www.ssse.com.pl

5.1.11

Pomorskie (Pomeranian Region) Voivodship General information Name

Pomorskie


18,293

Population—urban

2,201,900 (68.2%)

Capital city

Gdan ´ sk (457,900)

Main sectors

Shipyard, refinery, electrical, transport, fishing

Large foreign investors (over US$ 1 million)

144


2

The Pomeranian Region lies in the north of Poland on the Baltic Sea, at the mouth of Vistula, the largest Polish river. It borders on the regions of: Warmia-Mazury, Kujawy-Pomerania, Wielkopolska and West Pomerania. It also borders on Russia (the Vistula Split). The region is 18,293 square kilometres in area and accounts for 5.9 per cent of the entire country. The coastal location largely determines the region’s economy. The Pomeranian Region offers manifold tourist attractions: over 400 clean lakes of the picturesque Kashubian Switzerland are ideal for lovers of water sports. The historic sites of Gdansk, the castles of Gniew, Malbork and Bytów, as well as numerous country manors offer an unforgettable history lesson. The Tuchola Forests provide an ideal


setting for walking while the waters of Puck Bay host world windsurfing championships. A chain of seaside resorts stretches from Jurata and Wladyslawowo up to the town of Hel.

Economy The main economic sectors are shipbuilding, refinery, textiles, furniture, foodstuffs, cellulose and paper, high-tech, tourism and agriculture. The region has a high economic potential. Alongside traditional industries, the high-tech sector has been developing rapidly. This modern sphere of economy is supported by well-qualified staff who have studied at the numerous local universities. All these factors combine to provide an excellent foundation for the Centre of Technology Transfer now being established in the region. Special Economic Zones (in Karnowiec-Tczew and S§upsk) attract investors with their tax relief and well-developed infrastructure. There are two locations of the Special Economic Zone ‘Karnowiec Tczew’. The objectives of ‘Karnowiec’ industrial area (Krokowa and part of Gniewino communities) are the effective use of the existing buildings and infrastructure and management of the territories taken over from the discontinued construction of the Karnowiec Nuclear Power Station. The objectives of ‘Rokitki’ and ‘Czatkowy’ industrial areas (Tczew municipality) are the reduction of unemployment, the development of new technical and technological solutions in current and new production branches and the creation of opportunities to co-operate with businesses operating outside the territory of the Zone. Objectives for the Stupsk Zone are the creation of new workplaces, management of natural resources in line with sustainable development principles, proper management of present industrial property and economic infrastructure. The total area available is 135.9 hectares and there were 22 new permits for business activities issued by the end of 2000. Planned capital expenditure is PLN48.2 million and 1,500 staff are planned.


903


18.0


PLN2124 (98.8)


19


Gdansk, Gdynia, Sopot, Stupsk

The Pomeranian region has well-qualified people in various specialized areas. There is a well-developed network of state and private universities offering education in many specialized fields. Public universities

Pomorskie (Pomeranian Region) Voivodship 349

with the highest academic potential are Gdan´sk Technical University, which offers mainly technical qualifications, and Gdansk University, which specializes in sciences and humanities. Alongside these two, there are a number of public universities with a specific profile, such as the Medical Academy in Gdan´sk, the Merchant Marine Academy and Navy Academy, both in Gdynia, the Academy of Fine Arts in Gdan´sk, the Academy of Music and the Academy of Physical Education. In the course of the past 10 years the potential represented by the public schools has been supplemented by several private schools which offer mainly specialist education in economics, finance, management and administration. Table 5.1.11.1 Registered unemployed people by level of education Level of education

1998

Tertiary

1354

2478

3499

Post-secondary and technical and vocational secondary 1 6 , 1 1 7

22,239

27,315

General secondary

1999

2000

5316

7334

8942

Basic vocational

34,876

46,960

55,029

Primary and no education

36,016

45,665

52,434

Main towns Gdan ´sk Gdan´sk covers 262 square kilometres and has a population of 456,600. It is the capital of Pomerania and lies on Gdan´sk Bay in the northern part of the Province. It is conveniently linked to the rest of the world by air, land and sea lines. The Gdan´sk-Rebiechowo International Airport (16 kilometres from the city centre) provides connections with Warsaw, London, Hamburg and Copenhagen. The well-developed railway network ensures a direct link with other cities in Poland and Europe. The port of Gdan´sk—the deepest and among the largest ports on the Baltic Sea— can take ships of a capacity up to 150,000 DWT. Regular ferries run to the Swedish ports of Nynasham and Oxelosund. The principal sectors of the local economy are shipbuilding, oil processing, machine and electrical engineering, chemicals, metals, timber, sea transport, food processing, building, financial services and trade. Gdan´sk, with its thousand-year-long history, is considered to be one of the most attractive tourist cities in Europe, and indeed the world. This is reinforced by the nomination of Gdan´sk (the Main City, Mot§awa Arm and Wis§oujsćie Fortress) to the UNESCO World Heritage list. Gdynia Gdynia covers an area of 136 square kilometres and has a population of 255,400. It lies in the northern part of the province. Together with Sopot


and Gdan´sk it forms an urban agglomeration called the Tri-City. Gdynia is an international transport hub and boasts a large seaport, railway and motorway junction with excellent access to the international airport in Gdan´sk-Rebiechowo. Its main areas of activity are industry and trade, and tourism. The principal sectors of the local economy are shipbuilding, sea transport, trade and services and tourism. Gdynia, a rich and dynamic city, is the calling card of the Polish Coast. It is also one of the most beautifully located Polish cities spread over seven hills, surrounded by woods, with beaches winding their way into the very heart of the city. Gdynia offers its visitors a number of attractions. Apart from the interesting and varied cultural event calendar, tourists are especially fond of the beach and the sea, perfect for windsurfing and other water sports. Stupsk S§upsk covers an area of 43 square kilometres and has a population of 102,200. It occupies the north-western part of the province, about 130 km from Gdan´sk and 50 km from Bytów and Lê bork. It lies on national road no. 6 from Gdan´sk to Szczecin and has convenient railway connections with Warsaw, Kraków, Wroclaw, Gdan´sk, Szczecin and Berlin. Its main activities are industry and tourism and the principal sectors of the local economy are industry (machines, food processing, footwear, automobiles, clothes and furniture). Slupsk lies in a region of exceptional value in terms of its beautiful countryside and clean natural environment. The town’s rich history goes back to the ninth century, and its period of peak prosperity came in the 14th to 16th centuries when Slupsk became the seat of the Griffite House and was the duchy’s capital. In Hansa times Slupsk found itself among the first centres of the Reformation in Western Pomerania. The same period was marked with the rapid development of brewing, amber processing and trade, including sea-trade via the port of Ustka. The second half of the 19th century saw a period of development of the construction and food processing industries. Sopot Sopot covers an area of 17 square kilometres and has a population of 41,800. It is situated in the northern part of the province, directly on Gdan´sk Bay, about 15 kilometres from the centre of Gdan´sk (20 kilometres from the airport in Gdan´sk-Rê biechowo), and about 8 kilometres from the centre of Gdynia. Together with Gdan´sk and Gdynia it forms the third part of the Tri-City agglomeration. Its main activity is tourism and the principal sectors of the local economy are tourism and recreation and financial services.

Pomorskie (Pomeranian Region) Voivodship 351

Sopot is a beautiful city with exceptional landscapes and spas. Bordering on the Gdan´sk Bay, it stretches between the sea on one side, and wooded hills on the other. Sopot’s cityscape is dominated by the silhouette of the wooded edge of the Gdan´sk Heights. The urban architecture, with its Art Nouveau and modernist buildings, all sunk in the green below, adds to what must be one of the most beautiful views along the Polish coast.


Gdan ´ sk


Gdan ´sk, Warsaw (339 km)


63.3


8.3


278

Ports The Pomeranian region has four seaports, including two commercial ports (Gdan´sk and Gdynia) and two fishing ports (£eba, Ustka). The commercial ports, whose share of the Polish foreign trade amounts to 40 per cent, are accessible to all seafaring vessels entering the Baltic Sea (up to 150 thousand DWT) and offer regular passenger services to Sweden; from Gdynia to Karlskrona and from Gdan´sk to Nynasham and Oxelosund) and from summer 2002 will be offering a regular connection from Gdynia to Copenhagen. Roads National roads link the Pomeranian Region with Southern Europe (E-75, E-77—Czech Republic and Slovakia); with Western Europe (E-28— Germany) and with Eastern Europe (road no 22—Kaliningrad Administration). The A-1 Highway will be of great importance to the Region. Railway Well developed railway lines ensure direct express connections with the biggest Polish cities and with Berlin, Prague, Kaliningrad, Grodno and St. Petersburg. Airport International Airport Gdan´sk-Trójmiasto, situated 16 kilometres from Gdan´sk, offers daily direct flights to Warsaw, Hamburg, London, Copenhagen and Brussels.


Investments Table 5.1.11.1 Top 5 foreign investors Saint Gobain

France

Other non-metal goods

IPC

USA

Pulp and paper

Philips

Netherlands

Electrical machinery and apparatus

Nestlé SA

Switzerland

Food processing

Telia AB

Sweden

Telecommunications

In terms of investment size, American, German, and Scandinavian (particularly Swedish) firms prevail. Holland has also secured a strong position for itself thanks to its investment in Kwidzyn (Philips). Among the largest foreign investors in the region are: International Paper (USA) in Kwidzyn, Philips Consumer Electronics in Kwidzyn, Gaspol (France, Great Britain), General Electric Capital Corporation (USA), Fazer (Finland), Nestlé (Switzerland), Federal Mogul Corporation (USA), Flextronics (international corporation) and Malma Danuta (France). Other investors known and recognized in the world market include: Eaton Truck Components (USA) in Tczew, Scania in Slupsk, PepsiCo in Gdan´sk, and Coca-Cola in Gdynia. Substantial investments have also been made in the furniture manufacturing and distribution, retail and production of building materials trades. The involvement of foreign capital has recently increased in financial services, for example STU Hestia Insurance, Alte Lipziger Hestia and the Municipal Bank in Gdynia. Furthermore, foreign capital is increasingly being invested in firms operating on the high-tech market. American Intel bought the research branch of the Danish Olicom concern in Gdan´sk and formed a Gdan´sk-based limited liability company called Intel Technology Poland. WS OY, a Finnish media concern, has invested in another tele-information company, Young Digital Poland, which specializes in producing multimedia software. Investment is also significant in the field of plastic processing, for example in the case of Domplast in S§upsk which has been taken over by the American Rubbermaid concern, and Mabo-Turlen in Karnowiec (whose shareholder is the Norwegian concern of Norsk Hydro). Foreign investors’ share in trade is also substantial and this group of investors includes the international concern of Auchan, HIT, Gean-Casino, Obi, IKEA, and Real.

Links Investment sites Voivodship Office www.uw.gda.pl (Polish) Marshall Office www.woj-pomorskie.pl Slupsk Special Economic Zone www.parr.slupsk.pl Pomorska Special Economic Zone www.sse.gd.pl

5.1.12

Warminsko-Mazurskie Voivodship General information Name

Warmin ´sko-Mazurskie


24,203

Population—urban

1,468,900 (60.2 per cent)

Capital city

Olsztyn (172,600)

Main industries

Food, metal, electro-engineering, chemical, wood, textile


47


1

Warmin´sko-Mazurskie is situated in the north-eastern part of Poland and covers 7.7 per cent of Polish territory, which ranks it the fourth-largest province on the administrative map of Poland. Farms cover 54 per cent of its area, forests 29 per cent, and water approximately 5 per cent. Traditionally, it is considered a very attractive place for tourism and is called ‘the land of a thousand lakes’.

Economy This voivodship’s economy consists of 93,700 firms—3 per cent in the public sector and 97 per cent in the private sector. The majority of those


(38 per cent) are trading companies. Production constitutes 11 per cent of commercial activity. The construction sector makes up 10 per cent and transport 8 per cent. Production in the voivodship is dominated by food and beverages, lumber processing, and the manufacture of plywood and carpentry boards as well as furniture. Car tyres, electrical and steam turbines; machines for food, agriculture and forestry products manufacturing; light fixtures, clothing and knitting products are also produced.

Agriculture Agriculture is one of the region’s key sectors. Agricultural areas make up over 7 per cent of the national area. Individual farms hold over 72 per cent of agricultural properties; the national average is 82 per cent. The region leads in national poultry production. It is exactly such large, specialized farms that represent local agriculture’s potential. The largest individual farms were established as a result of a purchase of lease lands located, among other places, in Kwitajny (about 3400 hectares), Równin (over 2000 hectares), £oznik (over 1400 hectares), Slobity, Mikó§ow (about 1200 hectares), Szkotów and Brzeszczyn near Pieniêzno (about 1000 hectares). Large players also entered this sector. Near Go§daipia, RomiAgro operates over 7000 hectares of the former state-owned Romnicki Kombinat Rolny. Animex S.A. is its majority shareholder.

Tourism Tourism is a key sector of the regional economy, with 67,500 hotel beds in mostly seasonal tourist facilities. The region provides over 9 per cent of the national bed capacity. As such, it ranks fourth in the country. Some owners of small farms transformed their properties to accommodate agro-tourism. Agro-tourism encompasses over 120 farms. The voivodship covers an area of outstanding environmental significance. Legally protected areas make up 45 per cent of the area, with the national average at 30 per cent. There are eight sightseeing parks and over 60 nature reserves. The natural environment is relatively unpolluted.


642


28.7


PLN1943 (90.4)


12


Olsztyn, Elblá g, Szczytno

Warmin ´ sko-Mazurskie Voivodship

355

Warmin´sko-Mazurskie has a population of 1,468,900, 60 per cent of whom live in the cities. The rate of occupancy is rather low, at only 60 inhabitants per square kilometre. One of the most crucial problems facing Warmin´sko-Mazurskie is the state of its job market. It has Poland’s highest unemployment level, at 28.1 per cent. Only 454,000 of its population are employed. Warmin´ sko-Mazurskie has a relatively well-developed higher education system. There are eight state and private colleges.


Gdan ´sk (134 km)


Warsaw (213 km) 2


50.3


6.0


228.8

The region has relatively good road and rail links to the rest of the country. On the Polish-Russian border, there are six border crossings: by road in Bezledy, Gronów and Goldapia, and by rail in Braniewo, Bartoszyce and Skandawa. There are also domestic and foreign flights via the international airport in Szymany, near Szczytno.

Investments Table 5.1.12.1 Top five foreign investors Philips

The Netherlands Electrical machinery and apparatus

Harbin BV

The Netherlands Food processing

Heineken

The Netherlands Food processing

Investment Fund for Central and Denmark Eastern Europe

Capital investment

Michelin

Rubber and plastics, automotive

France

The French concern Michelin became a majority shareholder in Stomil Olsztyn S.A. The Swiss-Swedish concern ABB bought Elblá g Zamech in 1990. The German businessman Rolf Demuth and his Grupa Schieder are majority owners of Mazurskie Meble International in Olsztyn. The Australian Brewpole owns breweries in Elblá g and Braniewo. The Dutch Philips Lighting BV bought Kêtrzyn’s Polam-Farel in 1995. The US corporation Jerome Foods is a shareholder in Olsztyn’s Indykpol


S.A. The French Texel (Rhone Poulenc) bought Olsztyn’s Biolacta. Near Lubawa, Sweden’s IKEA has built a modern furniture factory, SwedwoodPoland. The Dutch Hoogwegt Group BV bought a declining dairy in Lidzbark Warminski and invested in its modernization and rebuilt its supplier network. The majority shareholder in the biggest Polish producer of mail packaging, NC Koperty in Goldapia, is German envelope manufacturer Neuwieder Couvertfabrik. In addition, Heineken, Provimi (The Netherlands), Safilin Filatures (France), Asea (Sweden) and MMI Beteiligungen (Germany) are also active in the region.

Links Investment sites Voivodship Office: www.uw.olsztyn.pl (Polish) Marshall’s Office: www.wm.mw.gov.pl (Polish) Warmin´sko-Mazurska Special Economic Zone: www.wmsse.com.pl

5.1.13

Wielkopolskie Voivodship General description Name

Wielkopolskie


29,826

Population—urban

3,363,300 (57.6%)

Capital city

Pozn ´ an (576,900)

Main sectors

Food, power, metal, engineering, wood and furniture, tobacco


237


0

The Province of Wielkopolskie lies to the west of Central Poland. It covers parts of the geographical regions of Pomorskie Lake District, Wielkopolskie Lake District, and Wielkopolska Lowland. The region is a lowland and numerous hills, lakes and forests lend variety. The total area of the province (about 30,000 square kilometres) makes it the second largest among Poland’s 16 provinces, while its population (3.3 million) is the third largest in the country. This is a similar area to Belgium and Brandenburg and a comparable population size to Ireland and Lithuania. The majority of the population (57.6 per cent) lives in 109 cities, the largest of which is Poznan—the capital of the region with 580,000 residents. Other large cities and major social and economic centres are Kalisz, Konin, Pila, Ostrów Wielkopolski Gniezno and Leszno. The province comprises 226 gminas which belong to 35 poviats.


Economy The economy of Wielkopolskie is structurally balanced, well developed in terms of branch diversity and leading the country in many fields of economic activity. Its key constituents are a diverse and dynamically expanding industry, efficient and highly productive agriculture, and a vigorously evolving commercial and financial services sector. The region produces more than 85 per cent of the national production of food concentrates and potato flour and around a third of the national production of neutral spirits, chocolate, and vegetable preserves. Similarly important, constituting a 16 per cent share of the country’s production, are the sugar industry and animal preparation. Production of a wide range of foodstuffs, including confectionery, milk, cheese, butter, flour, meat and meat preparation, accounts for approximately 10 per cent of national production. The greatest economic potential is concentrated in and around the city of Poznán. It is a visible pinnacle of growth and has dominated the region in terms of industrial output, supply of services, number of business environment institutions, educational and cultural institutions. The central and southern parts of the voivodship are characterized by well-developed industry, in particular in food processing, textiles, clothing, and the electromechanical industry, concentrated in large and small cities. Additionally, this area prides itself in having the best quality agricultural production and the highest productivity rate in the country. The key economic and urban centres are Kalisz, Ostrów Wielkopolski and Leszno. The eastern part of the province centres on the city of Konin. It is dominated by the fuel and power-production industry, based on the extraction of brown coal and production of electric power. The Wielkopolskie Voivodship is third in the country in terms of GDP and the value added branch structure is dominated by commercial services (37 per cent) and industry (32 per cent). The province’s economy also has a higher than average value of industrial production sold per person employed, and the industry is distinctive for its high rate of growth. The vast majority of goods manufactured in the region are produced within the private sector; 97 per cent of all registered companies are private, and the industrial landscape is dominated by small and medium-sized companies which make up 97 per cent of all businesses.


1,564


15.2


PZL1,961 (91.3)


31


Pozn n an ´

Wielkopolskie Voivodship 359

Education is the single most important factor in the Wielkopolskie Voivodship’s economic development. It is represented by 25 higher education institutions, 21 scientific research institutes, and the centres of the Polish Academy of Sciences. Approximately 126,000 people study in these establishments. The higher education institutions based in Poznan (such as Adam Mickiewicz University, the Academy of Economics and Poznan Higher Technical School) head the national rankings. However, the educational and academic potential of Wielkopolska is not being fully exploited, due to a lack of institutions linking science and the economy, facilitating transfer of technologies and innovative ideas. As far as population potential is concerned, the province of Wielkopolskie, with 3361 thousand inhabitants, is the third most populous in the country. The population is growing as a result of a high birth rate and positive migration balance. According to demographic forecasts, the city population will continue to grow steadily, while the rural population will decrease as people move from agriculture to other economy sectors. The working population of the voivodship amounts to 1,374,000 people, and more than one-third of these are employed in the enterprise sector (ie businesses involved in commercial activity). The Wielkopolskie labour market has one of the lowest unemployment rates in Poland at 15.2 per cent.


Pozn n an ´


Poznan ´, Warsaw (310 km)


78.5 2


7.7


268.3

Wielkopolska is a dynamically developing region. One of the key stimuli of its growth is a favourable geographical location in terms of major European transport routes. The region forms a bridge between Eastern and Western Europe. The major transit routes linking Wielkopolska with both parts of the continent run through Poznan´, Konin, Wrzeksńia and Kolo. The international road from Gdan´sk towards southern Europe runs through Poznan´ and Leszno. Eurocity trains which go from Warsaw to Poznan provide a fast means of transport to Berlin, Paris, and other European cities. An important part in the linking of Wielkopolska with European cities will be played by the ‘£awica’ Airport, which, once its expansion is completed, will meet the highest European standards and will be the


second largest airport in Poland in terms of passenger numbers. At present the airport offers regular flights to the German cities of Dusseldorf and Hanover, and to Copenhagen and Brussels, as well as domestic flights to Warsaw and Zielona Góra.

Investments Table 5.1.13 Top five foreign investors Bayerische Hypo und Vereinsbank

Germany

Banking

Allied Irish Bank Plc

Ireland

Banking

Reemtsma Group

Germany

Tobacco

Philips

Netherlands


Nestlé SA

Switzerland

Food processing

Foreign investments have made structural changes within the region’s economy. It is estimated that the value of foreign investments in Wielkopolska exceeds US$5 billion. Nearly 4000 enterprises with foreign capital participation operate in the province, mostly in the industry sector. Foreign capital’s share in financial and commercial sectors is also considerable. The biggest foreign investors in the food sector in Wielkopolska are: Nestlé, Bestfood, Unicom Bols, Wrigley. A major share of foreign investments involved in the province goes into tobacco production (one in four Polish cigarettes comes from Wielkopolska) undertaken by a well-known Reemtsma company. More than 10 per cent of passenger cars manufactured in Poland come from the Wielkopolska region, as well as nearly a quarter of the total number of freight cars and tractors produced, and almost the entire production of passenger train cars. The major producers in this field are established names such as Volkswagen/Skoda, MAN and Neoplan. Other significant foreign investors in Wielkopolska are Briggestone/ Firestone (rubber); Glaxo Wellcome (pharmaceuticals) and Beiersdorf (cosmetics), while other European and world economic powers who have had a role in shaping the industrial landscape of Wielkopolska, are Philips in Pila (also recently operating in Gniezno in co-operation with Japanese Matsushita), Pratt & Whitney in Kalisz, supplying components for aeroplanes and NordiskWavin, manufacturing plastic pipes in Buk.

Links Investment sites Regional information www.wielkopolska-region.pl (English) Voivodship Office www.poznan.uw.gov.pl (Polish) Marshall Office www.wielkopolska. mw.gov.pl (Polish)

5.1.14

Zachodniopomorskie (Western Pomerania) Voivodship General description Name

Zachodniopomorskie


22,900

Population—urban

1,733,000

Capital city

Szczecin

Main industries

Maritime, agriculture, food processing, brewing, chemical, power, manufacture of wood and paper products


61


–

The Zachodniopomorskie voivodship is situated in the northwest of Poland. In the north, it embraces a part of the Baltic coastline and in the west it borders Germany. The main river of the region, the Odra, discharges its waters to the Szczecin Lagoon (Zalew Szczecin´ski), which is closed on the sea side by the Wolin and Uznam Islands. In 1995, the Pomerania Euroregion was established, which actively adopts measures to support investment and economic development programmes.


It covers a considerable part of the voivodship on the Polish side and border areas of Brandenburg and Meclenburg on the German side. Communes from Sweden and Denmark which border Poland through the Baltic Sea have also expressed a willingness to join the Euroregion. Maritime industry presents opportunities for the future development of the voivodship. The proximity to Berlin and the development of infrastructure is likely to render the Szczecin-S´winoujsćie port complex one of the main harbours in the region, providing services for German capital. The voivodship is rich in natural resources; there are mines of iron ore and limestone, a variety of peat and peat moss sources, geothermal waters, in addition to crude oil and natural gas in the southern part of the voivodship.

Economy Zachodniopomprskie is an integral maritime economy region. Szczecin, together with S´winoujsćie, constitutes the largest port in Poland, which is also one of the largest Baltic harbours. It reloads over half of the cargo for the entire Polish sea trade, and over 80 per cent of transfer shipping. The voivodship has very good conditions for agricultural development, possibly due to its good national agrarian structure. An average farm is about 18 hectares, which is similar to farms in Western European countries. The leading industry is shipbuilding, with 57.2 per cent of the Polish waterborne capacity, 68.3 per cent of sea fishing and 98.7 per cent of the Polish maritime transport fleet capacity. Well-developed industries include: food (fish processing), meat, sugar, potato products, paper, wood and furniture. Its economy consists of 130,000, mostly small and mediumsized, companies. Almost 98 per cent of all businesses belong to the private sector. Tourism is a fast-developing sector in Zachodniopomorskie’s economy. Each year, 1.5 million Polish and foreign visitors are attracted to the region’s natural landscape, therapeutic climate, free access to the sea and wide sandy beaches. Forests which cover one-third of Western Pomerania are both attractive for tourists and stimulate further development of the wood-processing industry.

Human resources Working population (million)

735 900


24.7


89.9


15


Szczecin, Stupsk, Koszalin

Zachodniopomorskie (Western Pomerania) Voivodship 363

Infrastructure Nearest international airport

Szczecin


56

Railway network density (km per 100 km2) Major sea ports Phone network subscribers (per 1000 population)

´winoujsćie, Kolobrzeg, Police Szczecin, S 301.8

The national airport in Szczecin is also used for international flights, while the small airports in Kolobrzeg and Koszalin provide connections to Warsaw. The region’s capital marks a crossing point of two important international routes: one linking Berlin with Gdan´sk and the other linking Prague to the port in S´winoujsćie. The main national route runs from Szczecin, via Bydgoszcz and Torun´, to Warsaw. There are 22 border crossings in the voivodship.

Foreign investment Table 5.1.14.1 Top five foreign investors NAME

ORIGIN

SECTORS

Hypo Vereinsbank Bank

Germany

Banktime

Metro AG

Germany


Casino

France

Retail trade

Krospan Holdings Ltd

Cyprus

Wood and wooden products

Carrefour

France

Retail trade

Zachodniopomorskie ranks as the fifth voivodship in Poland in terms of value of foreign investment. There were 2855 companies with foreign capital in 2000. The per capita foreign investment ratio was 56 per cent larger than the national average, which ranked the region second in the country.

Links Investment sites Voivodship Office www.zachodniopomorskie.com.pl Marshall Office www.um-zachodniopanorskie.pl

5.1.15

£ódzkie Voivodship General information Name

£ódzkie


18,219

Population—urban

2,638,200 (64.8 per cent)

Capital city

£ód¿ (800,100)

Main industries

Textile, energy, chemical, electromechanical, construction


119


1

£ódzkie is situated in the very centre of Poland, next to the three main voivodships of Mazowieckie, Wielkopolska and Malopolska. Its compact shape (with its capital £ódz in the middle) covers almost 20,000 square kilometres. It is the ninth-largest voivodship but £ódz is the second most populous Polish city. There are 18 towns and cities, 24 combined municipal and rural communities, and 135 strictly rural communities. Due to its central location, £ódzkie enjoys an excellent logistical environment with an extensive railway and road network. In addition, junctions of the main gas transportation pipelines and energy networks are situated in the region. The logistic opportunities are the main prospective assets of the region and seem to be the most important vehicles of economic growth.

£ódzkie Voivodship 365

On an administrative level, the region is divided into 24 poviats (counties) and 177 gminas (communities/districts).

Economy There are 211,347 companies operating in the region. Most of them (92.2 per cent) are private entities with over 530,000 employees. Although the region’s industry is very diversified and irregularly spread throughout the region, it is still the most important source of both wealth and workplaces. Industry is concentrated in a few large industrial areas, which specialize as follows: £ódz Agglomeration (£ódz, Pabianice, Zgierz, Aleksandrów, Konstantynów, Ozarów, Brzeziny, Koluszki, Glowno), textiles, clothes, food processing and beverages, machinery, chemicals, Pharmaceuticals, cosmetics, dyes, paper production, wood processing and furniture production, printing and publishing; Be§chatów Industry Zone, coal mining, electricity production, rubber, construction materials, textiles and clothing; Piotrków Poviat, clothing, mining machinery, furniture and wood processing, glass making and glassmaking machinery, food processing; Kutno Poviat, Pharmaceuticals, farming machinery, electronics, transportation equipment, food mills, clothing, poultry farming and fodder production; Tomaszów Poviat, clothing, ceramics, decoration, milk processing, poultry farming; and Radomsko Poviat, furniture, food processing, glass making, clothing, metal and machinery industries, packaging. The voivodship is rich in sizeable mineral deposits, which impacts significantly on the development of the mining industry and energy engineering. One of the most successful Polish companies is a group of mining and energy engineering companies, Be§chatów S.A. It is the supplier of almost 20 per cent of the national gross production of energy. Lódzkie is home to the leading producers of ceramic tiles. ZC Opoczno, Ceramika Paradyz, Ceramika Tubá dzin and several others manufacture over 70 per cent of Polish ceramic tiles. The region hosts 30 trade events each year, most of which are international. These include INTERTELECOM International Telecommunication Fair, INTERFLAT International Interior Fittings and Building Fair, INTERFLOWER International Landscape Architecture, Gardening and Floriculture Fair, International Tourism Fair ‘Where the Cultures Meet’, and CEDE Central Europe Dental Products Exhibition. The voivodship’s share in national gross production of chosen products is as follows: ceramic tiles 70 per cent, hosiery trade 65 per cent, brown coal mining 58.4 per cent, glass making 51.3 per cent, roofing paper 45.5 per cent, cotton fabrics 41 per cent, electricity 20.4 per cent, and clothing 15.5 per cent.



1275


18.1


PZL1838 (85.6)


24

Major academic centre

. £ódz

There are 2,643,400 people living in £ódzkie and the region’s unemployment rate is quite high (18.1 per cent in 2001). The most important production centres are £ ódz, Piotrków Trybunalski, Pabianice, Tomaszów Mazowiecki, Be§chatów, Zgierz and Skierniewice. The £ódz Agglomeration provides them with substantial scientific support due to its established high schools and academic institutions. There are 19 higher-learning institutions in Lódzkie, 13 of which are private. Over 80,000 people study in £ódz, most of whom attend lectures at the University of £ódz and the Technical University of £ódz. There are also private institutes, such as Mazovian Higher Humanistic and Pedagogic School in £owicz, Higher School of Entrepreneurship and Management in £ódz, Higher Humanistic-Economic School in £ódz and Higher Merchant School in Zgierz. The most popular subject is economics, although law and administration attract similar interest. Every university and college adopts its scope of studies according to labour market demand.


. £ódz


Warsaw (134 km)


88.8 2


5.9


272

The main international routes cross the region and provide connections between the country’s borders. National roads connect the region with Northern Europe: route No. 1 to Scandinavia and Southern Europe; route No. 1 to Czech Republic; and route No. 14 to Slovakia. Western Europe can be reached by driving along route No. 2 into Germany. Route No. 72 in the opposite direction leads to Belarus and route No. 71 to Lithuania and Latvia. There is a plan to build a junction of the

£ódzkie Voivodship 367

continental A1 and A2 highways which will be relatively close to £ódz, thus greatly facilitating access to the heart of the region. . In addition, the £ódz region hosts Poland’s most significant railway junctions and the most important rail connections. Among them are the . lines Warsaw-Katowice and Warsaw-£ódz-Wroc§aw, Warsaw-KutnoPoznan´, and the main one—the so-called ‘coal railway route’—from Silesia to the Baltic ports. There are few railway junctions of national importance in Kutno, Koluszki or Zdun´ska-Wola-Karsznice. . The £ódz-Lublinek passenger airport serves both domestic and international passengers.

Investment Table 5.1.15.1 Top five foreign investors Daewoo

South Korea

Electrical machinery (Daewoo-Fonika, Daewoo Electronics Zzn Sp. z o.o.) Capital investment in Polanil

European Bank for Reconstruction International and Development (EBRD) Metro AG Germany Wholesale and retail trade Enterprise Investors United States Capital investment in Polfa Kutno S.A. and Zak§ad P§yt Wiórowych Prospan in Wieruszów Saint Gobain France Other non-metal goods, Gramis

Regional economic development policy makes the best of the business opportunities that are available in £ódzkie. The best investment . conditions are offered by the £ódz Special Economic Zone, established in 1997. It covers over 283 hectares of land, divided into nine parts, each in a different town (£ódz, Zgierz, Ozarów, Pabianice, £ êczyca, Kutno, Radomsko, Rawa Mazowiecka and Tomaszów Mazowiecki). Thirty-two companies from all over Europe operate in the Zone, jointly declaring investment outlays of PLN550 million. Other business opportunities are offered by the Kleszczów Entrepreneurship Zone, developed and managed by the Kleszczów Commune Development Foundation. It offers 108 hectares of land in the centre of the community. The Foundation plans to construct and develop bonded warehouses, a duty-free zone, parking facilities, hotels, a bank, etc. The Zone offers tax allowances and free employee training, among many other services and facilities available. In recent years, over 90 foreign companies have invested in £ódzkie. These companies include ABB, Amcor Ltd, Barry Callebaut France, Bosch-Siemens, British Oxygen Corporation, (BOC Group), CC HBC (Coca Cola Hellenic), Bottning Company, Continental Can Europe


GmbH, Daewoo Bank, EBRD, IKEA, Intercellulosa AB, LG Group, Merloni, Philips, Provimi Holding BV, and Sud Wolle AG. Following the agreement by £ódzkie Voivodship Development, reached in June 2001, a provincial contract between the national government and the Board of £ódzkie Voivodship provides the financial framework for supporting the social, economic and functional development of the region. It also refers to the region’s transport system, and includes future ring roads round Kutno and Piotrków Trybunalski, the modernization of Rokicinska street and route No. 713 in Andrespol, as well as the modernization of the viaduct in Skierniewice. The contract also supports the implementation of the Regional Information System, which will enable direct access to an integrated database on various aspects of the region’s space management.

Links Investment sites Voivodship Office: www.uw.lodz.pl (Polish) Marshall’s Office: www.lodzkie.pl (English) £ódzka Special Economic Zone; www.sse.lodz.pl

5.1.16

S´láá tskie (Silesian) Voivodship General Information

Name

Slaskie


12,294

Population—urban

4,840,200 (79.4%)

Capital city

Katowice (343,200)

Main sectors

Mining, iron, lead and zinc meta allurgy, power, engineering, automobile, chemical, building materials, textile


266


1

The S´laskie region is situated close to the state’s southern border. Its neighbours are Slovakia, via the Beskid Kywiecki mountains, and the Czech Republic via the Ostrava Valley. In the north it borders with the £ód3 Voivodship, in the west with the Opole region and in the east with the S´wiê tokrzyskie and Ma§opolskie Voivodships. The major border crossing points are located in Zebrzydowice (railway) and Cieszyn (road). The capital of the voivodship—Katowice—is located in the very heart of the voivodship and is easily accessible.


The modern S´lá skie Voivodship is located in the area where the historical Upper Silesia, Zag§êbie (the Coal Basin) and Western Lesser Poland (Ma§opolska) meet. Its multi-industrial character was shaped in the 19th century as a result of the development of coal mining and metallurgy in Prussia. The region is situated on the watershed between the Vistula and Oder Rivers. The Gliwice Channel facilitates the connection between the Oder River and the navigable rivers of Western Europe and the Baltic Sea. Among the 16 voivodships, S´lá skie is the 14th smallest in terms of area, yet has the 2nd highest population. This relatively small area of 12,294 square kilometres—3.9 per cent of Poland’s area—is inhabited by 4.847 million people, or 12.5 per cent of Poland’s total population. This is the highest population density ratio in the country: 394 people/ km as compared with 123.5 people/km in Poland as a whole. There are 69 towns in the region, and in 13 of these the population exceeds 100,000.

Economy The S´lá skie Voivodship is the most industrialized and urbanized region in Poland. There is a very dense urban network of 55 cities covering 10,000 square kilometres. The S´lá skie Voivodship is a polycentric region— in other words no one place fulfils all the metropolitan functions of administration, finance, insurance, universities, culture etc. These are dispersed among Katowice, Sosnowiec, Bytom, Gliwice, Zabrze and Chorzów. A significant role is played by the capitals of sub-regions: Rybnik, Bielsko-Bia§a and Czêstochowa. The Upper-Silesian Agglomeration is a group of cities of intensive business activity, practically adjacent to each other, in the 70 kilometreslong zone from Dabrowa Górnicza to Gliwice. It covers 18 per cent of the voivodship’s area (1200 square kilometres) and is inhabited by around 60 per cent of the region’s population (2.3 million people). The average population density here is over 1900 people per square kilometre. It is also a large transport junction, due to its location and volume of transportation work. S´lá skie Voivodship has many natural resources and its extractive industry is the best developed in Poland. The region has extensive hard coal and calciferous raw material deposits. The coal deposit area comprises the entire central part of the province and is divided into the Upper Silesian Coal Basin and Rybnik Coal Basin. The total resources are estimated at 70 billion tons. The raw materials occurring in Silesia have determined its economic structure. There are hard-coal mines, steel plants, ten large power plants, mining plants and non-ferrous metal works.

´ láá tskie (Silesian) Voivodship S

371

The amount of hard coal being extracted is now decreasing, due to exploitation conditions becoming less advantageous and coal mines becoming less profitable. The hard coal mining industry, ferrous metallurgy and steel works have recently undergone an extensive restructuring process. The modern machine industry has evolved to service the needs of the extractive industry. After some initial difficulties at the beginning of the 1990s, this industry became active on foreign markets and forms an important part of the voivodship’s economic landscape. The branch structure of businesses in S´lá skie means that among the commercial law companies operating in the voivodship, including companies for which the State Treasury is the single shareholder, as many as 15 per cent deal with real-estate and rendering services to companies. There are almost 1000 commercial and co-operative bank branches in the Slaskie Voivodship. Branches of all the insurance companies registered in Poland operate within the region, as well as branch offices of major international consulting firms. The business support network also consists of educational institutions such as colleges of higher education, which educate professional staff for all branches of business. There are also commercial institutions offering training programmes in the fields of accountancy, finance, modern management methods and foreign languages (including business language). Additionally, within the framework of the PHARE SPP program, in 2001 the Regional Centre for Technology Innovation and Transfer (RCITT) was created with its base at the Upper-Silesian Agency for the Transformation of Enterprises. The RCITT’s mission is to support technology transfer and innovation in order to improve the competitiveness of small- and medium-sized enterprises, as well as to improve the S´lá skie Voivodship’s economic growth.


2,016


14.8


PZL2,417 (112.5)

Higher education institutions (incl. branches) 4 0 Main academic centres

Katowice, Gliwice, Czê stochowa, Bielsko-Bia§a

The S´lá skie Voivodship is the second largest scientific and academic centre in the country. There are over 30 colleges of higher education with almost 179,000 students. There is a continuous development of public schools and language colleges.


Figure 5.1.16.1 Higher Education in the S´lá skie Voivodship

Unemployment in the region has risen as a consequence of the restructuring of the Silesian economy. The rate of unemployment in this region is on the level of 15.5 per cent.

Figure 5.1.16.2 Rate of unemployment in the S´lá skie Voivodship by age group (July 2001)

The situation on the labour market is promising as the region’s work force is relatively well educated. However, the unemployment rate in Silesia has recently risen more dramatically than in other regions, mostly due to the liquidation of unprofitable coal-mines and in the metallurgic sector.


373


Katowice


Kraków (69 km), Warsaw (257 km) 2


160.9


16.4


253.5

Road Four out of the ten roadways forming part of the TransEuropean transport network cross Poland and two of these run through S´lá skie Voivodship: Roadway III (Berlin—Lvov) and Roadway VI (Gdan´sk -Kylina). Some national routes of historical importance also run through the S´lá skie Voivodship from north to south and east to west, of which three railway trunk lines are classified as belonging to the international ‘E’ network (AGC): E30 (Dresden—Moscow), E59 (Malmö—Chalupki) and E65 (Gdynia -Vienna). There are 27 national roads and 68 regional ones in the area. The agglomeration is an important transport junction, situated at the crossroads of two transport routes of European significance. The predominant direction in the agglomeration is the east-west direction and it is in this direction that the A-4 motorway is going to run, as well as the Highway Through Route—Katowice-Gliwice (DTS´). According to predictions, the total amount of traffic in the east-west direction in 2005 will reach around 150,000 vehicles every 24 hours. Both routes will fulfil different functions in the agglomeration transport system: the basic function of the motorway will be to serve the long distance traffic, including transit, while the Highway Through Route will serve the needs of the local traffic and so will have 26 junctions, compared to the motorway’s six. The Highway Through Route (DTS) The Highway Through Route (DTS), has been under construction for the last 15 years and is one of the largest road investment projects in the Upper-Silesian Agglomeration. Its completion will shorten the journey time from Katowice to Gliwice by three-quarters. DTS will run from Katowice through Chorzów, Swietochlowice, Ruda Slaska, Zabrze to Gliwice. DTS is an inter-city route, also referred to as a ‘municipal motorway’. Construction of the route is of primary importance for implementing the agglomeration’s integrated, collective communication system and


will contribute towards traffic organization and control in the agglomeration’s junction zone. It will also relieve side, district and town centre streets from traffic and will be the basic connecting route between the cities for the individual traveller. According to the calculations made by the creators of the DTS, the route’s completion will shorten the way from Katowice to Gliwice by 26 per cent, reducing the journey time by 76 per cent, reducing fuel consumption by 47 per cent and reducing the number of accidents by 82 per cent. Operational costs are expected to drop by 39 per cent and air pollution by 50 per cent. Rail About 50 per cent of Poland’s domestic rail journeys take place in the region. The railway junction in Tarnowskie Góry, one of the biggest in Europe, is of considerable significance. It is the Central Coal Trunk Line that allows for fast transport between Bielsko, Katowice and Warsaw, as well as the Port Trunk Line between Katowice and Gdynia where most goods from the voivodship are transported. The length of railway network within the province is as follows: • PKP normal rail track lines—1,373 km • PKP narrow-gauge lines—62 km • Transmission lines—330 km In recent years the area around the wide track, the ‘Metallurgic-Sulphur Line’ has become economically activated, and this will be used to develop economic relations with the east. The wide track terminal has a connection with the regular track that enables quick reloading of goods without needing to roll them. Its location (70 kilometres from the southern, 280 from the eastern and 400 kilometres from the western Polish borders), rail and road connections (40 kilometres from the airports in Katowice and Cracow, 60 kilometres from the inland port in Gliwice and 550 kilometres from the Baltic Sea ports), as well as the technical equipment which enables 18 goods trains with a load of 4000 tons each to pass every 24 hours, all place it in a unique position in Europe. The largest network density is found in the central part of the Upper-Silesian Agglomeration. Water Within the voivodship, there is an inland port in Gliwice, which via the Gliwice Channel connects with the Oder River and so with the sea ports Szczecin and Swinoujscie. The port is located within the Free Customs Area, whose surface is 47.6 hectares. There are 12,000 square metres of roofed warehouse surface, railway siding, container station and harbour cranes.


375

Air transport There is an International Airport in Pyrzowice and two international airports in the vicinity: Balice (near Krakow) and Ostrava. When compared to other airports in Poland, Katowice International Airport has the lowest number of ‘no flights’ days due to the excellent weather conditions. Katowice has direct international connections with Frankfurt and Düsseldorf and via those airports with virtually the whole world. The number of connections is planned to expand in the near future. The very high share of international traffic testifies to the airport’s great potential and international significance, and also to its reserves in relation to domestic traffic. With respect to the amount of international traffic, Katowice is currently third only to Warsaw and Balice Airports. Analysis of passenger traffic statistics shows the dominance of business traffic: about 80 per cent of the passengers arriving at and departing from the IAP Katowice are travelling on business. However, it is the charter flights, organized for tourists from the airport’s service area that are the potential source of private traffic growth at Katowice.

Investments Table 5.1.16.1 Top five foreign investors Fiat General Motors Corporation

Italy USA

Automotive, banking, insurance Automotive

ING Group

Netherlands

Banking, insurance

Saint Gobain

France

Non-metal goods

Philips

Netherlands


In spite of its restructuring problems, the Slaskie Voivodship remains a very attractive region for localised investment. Its potential is to be found in the well-developed infrastructure, effective business environment and high regional market absorbing power, combined with the huge concentration of cities. Its economy’s considerable progress can be seen in the transformation that has occurred during the privatization process, as well as a growth in the investment of foreign capital. The Slaskie Voivodship also offers significant opportunities in terms of privatization processes. It receives the second largest amount of direct investment of any region in Poland and has the third highest number of significant foreign investors. The region has one feature unique in the country that may be an important factor in attracting foreign investors. It is divided into two parts—a highly industrialized area and a very attractive recreational


part. In the Beskidy Mountains are the well known and popular resorts of Ustron, Wisla and Szczyrk, all that are considered to be highly attractive to investors. The Czê stochowa Poviat also has great tourist potential, particularly the area round Jura Krakówsko-Czêstochowska. The S´ lá skie Voivodship, together with the Mazowieckie and Wielkopolskie, is a highly attractive investment area and offers the lowest risk for foreign investment capital. Recent investors in S´lá skie Voivodship include GM Opel, FIAT, Isuzu Motors, Delphi Automotive Systems, Ekocem, M.M. Duda, Power Train, Guardian Industries Poland, SILESIA Sanitary Products Plant, Timken, Poland Business Park, Agora Poligrafia, Lakma, Manuli, Mecalux, Plastal (Sapa), Alupol, Manuli, Final, Lucas Varity, Vetrad Polska, Pulverit, Ergom Poland, Atlas, Lidl Polska, Tenneco Automotive Eastern Europe, Berger, Hobas System Polska, Vitrum Polska, Toyo Seal Poland, Sest Luve Polska, Jopex, 3-T Optical Media, VAB Tomowicz Tychy, HP Polska, Mokate, Tras, Lear Corporation, Fabryka Plastików Gliwice, Final S.A., Agro-Rynek, Nowe Slaskie Kable, Internationale Nederlanden Group, PepsiCo, Philips, British Oxygen Corporation Group, DuPont, Metro AG, Tesco, Eastbridge N.V., Lobbe, Saint Gobain, Kraft Foods Polska, Gerolsteiner, Alstom, Telia AB, Statoil, British Petroleum, Shell, Aral, EBRD, Citibank, Creditanstalt Bankverein, Societe Generale, Raiffeisen Zentralbank Oesterreich AG, ABN Amrobank, Dresdner Bank, Banco Commercial Portuguese. The considerable number of investors from the automotive sector is remarkable and reflects the dynamic growth of this industry in the region.

Links Investment sites Voivodship Office www.katowice.uw.gov.pl (Polish) Marshall Office www.silesia-region.pl Katowice Special Economic Zone www.ksse.com.pl

5.1.17

S´wiêê tokrzyskie Voivodship General information Name

´wiê tokrzyskie S


11,691

Population—urban

1,321,400 (46.0%)

Capital city

Kielce (211,700)

Main sectors

Agriculture, engineering, glass, ceramics, lime, cement, food processing


47

Special Economic Zone

1

The S´wiê tokrzyskie Voivodship is situated in the central-southern part of Poland on the territory of Kielecka Upland, Nidzian´ska Syncline and Przedborska Upland. The region is surrounded by six highly populated voivodships and the biggest urban agglomerations in the country— Warsaw, Kraków, Katowice and £ódz. The distance from the voivodship capital of Kielce to the centres of these agglomerations is between 120 and 180 kilometres. The area of S´wiêtokrzyskie Voivodship, one of the smallest in Poland, is 11,672 square kilometres and accounts for 3.7 per cent of the country’s area. The density of population is lower than the national average and amounts to 113 per square kilometre. Over 60 per cent of the voivodship’s land is arable and a further 27 per cent is taken up by forest. Urban and construction areas constitute 6.3 per cent. The voivodship is


one of the least urbanized regions in the country with only 29 towns. Kielce (210,900 inhabitants) is the administrative, cultural and economic centre of the region. In the national system of settlement Kielce is nominated as a centre of sustainable development. The following towns also act as regional development centres: Ostrowiec S´wiê tokrzyski . (population 78,700), Starachowice (56,600), Skarzysko-Kamienna (52,900) and Sandomierz (27,400). The S´wiê tokrzyskie Voivodship has many tourism attractions. Ecologically, it is one of the cleanest regions in the country, which is an undeniable advantage. It is also easily accessible for tourists, being located close to the big urban agglomerations of Krakówska, Katowicka, Warszawska and £ódzka. The voivodship is characterized by a great variety and wealth of land, geology, soil structure, climate and hydrological conditions and flora and fauna. There are many areas of great natural value which are also tourist attractions. The natural wealth of the region provides very profitable conditions for alternative and eco-tourism. There are numerous artificial water resources in S´wiêtokrzyskie, wellused for recreation. Thanks to the levelling of the area of the S´wiêtokrzyskie Mountains, there are good skiing conditions. In the areas ´ iecka Solecka there are numerous mineral springs. of Ponidzie and N This is the third most important area for mineral water springs in Poland, after the Sudety and the Karpaty. The most valuable springs are the sulphur-saline ones, which are in Busko and Solec as well as in some other neighbouring places such as Baranów, Gadawa, Owczary and others. There are famous highly concentrated salt waters—some of the highest concentrations in Europe. Two health resorts have been established based on these supplies in Busko-Zdrój and Solec-Zdrój, where iodide-bromine brine with a large content of sulphates can be found and rheumatic diseases, nervous defects and heart or blood vessel diseases are treated there. Solec-Zdrój resort specializes in rheumatic diseases.

Economy The most important natural resources of the region are minerals: the layers of gypsum stone in the S´wiêtokrzyskie region are among the richest in Europe. The available quantities and variety of these resources and the volume of extracted minerals are the highest in Poland. The voivodship holds the leading position in terms of gypsum production (almost 92 per cent of the national volume), lime (41 per cent) and cement (30 per cent). Moreover, 39 per cent of the national production of sulphur and 9 per cent of construction-crushed mineral stones originate in the region. There are 338 mineral deposits in the territory of S´wiêtokrzyskie, with the total of the resources exceeding 8800 million tons. Extraction

s´ wiêê tokrzyskie Voivodship 379

exceeds 21 million tons annually, placing the region first in the country in terms of extraction of minerals for the cement industry, fire-proof quartzites and gypsum, and second in terms of the volume of sulphur and stones available for construction and road-building purposes. Carbonate rocks (limestone, dolomite and marl) are of great importance to the mining industry. Their total quantity in 116 quarries constitutes 82 per cent of all mineral sources in the voivodship. They are extracted from 27 ledges, mainly for the lime processing industry but also for cement, building and roads aggregates processing. They are also used in the metallurgic, food and chemical industries. The extraction of other minerals is also of great importance for the regional and national economy. This refers especially to gypsum, sulphur and quartzite sandstone, which are carbonate rocks characteristic of the S´wiêtokrzyskie Voivodship. There are 78 active sources of minerals in the region. The major economic activity in S´wiêtokrzyskie is industrial. The value of sold production in 2000 amounted to PLN11,055.5 million, and there is 77.7 per cent private sector participation, compared to the national average of 71.3 per cent. An important role is played by the food industry—13.9 per cent of the total sales income in 2000 was delivered by food processing plants. At the end of 2000 in 9216 national businesses were registered in the S´wiêtokrzyskie region; 2.4 per cent of the nation-wide volume. 72,500 companies were owned by individuals. The majority of businesses—68.5 per cent—are located in towns. The entrepreneur ship rate (calculated by the number of enterprises per 1000 inhabitants) amounts to 610 in the region. The highest percentage of businesses entered on the REGON register are engaged in trade and repairs (39. 2 per cent), followed by: • • • • •

remaining sections—21.4 per cent building –11.4 per cent industry—10.2 per cent real-estate property services—10.1 per cent transport, storage and communication—7.7 per cent

As of 31 December 2000, there were 90 state-owned companies, 2643 commercial units (including 428 with a foreign capital share), 7391 joint stock companies civil partners and 567 cooperatives registered in the voivodship. Agriculture is a very important part of the voivodship’s economy. The surface area of farming land amounts to 731,300 hectares, constituting 62.5 per cent of the total area of the region. Arable land occupies 562,200 hectares, making 76.9 per cent of the farmland. In relation to the total area of fields, the greatest amount of arable land is in the Kazimierski


district (89 per cent) and the Sandomierski district (81 per cent). Despite its small area, the S´wiêtokrzyskie Voivodship is the 4th in the country in terms of total area of orchards, and the second in terms of orchards as arable lands. The area of greenlands is 147,000 hectares (20.1 per cent) of the arable lands. In three poviats of the voivodship (Kielecki, Konecki, and Buski) nearly 50 per cent of the area is meadow. The natural conditions in the voivodship are perfect for agricultural development. As far as the structure of properties is concerned most farms are small and individual and number about 135,000. The average size of farms amounts to 4.7 hectares of arable land, the most numerous being farms of 2–5 hectares (41.7 per cent).


713


18.3


PLN2,021 (94.0)


10


Kielce

The working population is 59.6 per cent of the total voivodship population. This group has been growing since the beginning of the 1990s. Only 45.8 per cent of the population lives in towns and cities (the 15th lowest percentage in the country). 6.1 per cent of the population live in towns with less than 10,000 inhabitants, 9.5 per cent in towns with 10,000– 50,000 inhabitants, 14.2 per cent 50,000–100,000 and 15.9 per cent above 200,000 (Kielce). The number of children and young people decreased from 366,500 in 1995 to 318,300 at the end of 2000 while the number of people at retirement age increased from 207,600 in 1995 to 216,300 in 2000. The number of employed people at the end of December 2000 came to 594,200 (3.9 per cent of the country’s total). The majority of these are employed in agriculture (48.6 per cent), with 14.7 per cent in industry and 4 per cent in construction. Agricultural activities account for the main source of earnings for 288,900 people. In the voivodship there are 842 primary schools, 85 secondary comprehensive schools, 362 secondary professional and post-graduate secondary schools and 87 vocational schools. There are 11 schools of higher education of which 9 are in Kielce, In those schools there are 38,000 students, 36 specializations, and over 1500 academic teachers. Over 6000 students graduate each year.


Infrastructure Nearest domestic airport Nearest international airports Road network density (km per 100 km2) Railway network density (km per 100 km2) Phone network subscribers (per 1,000 inhabitants)

Kraków (101 km) Warsaw (181 km) 96.2 6.2 203.8

Roads The length of national roads in the S´wiêtokrzyskie Voivodship amounts to 765 kilometres. There are no highways in the region. National trunk-road No. 7 (Gdan´sk-Chyzne) and No. 74 (Piotrków Trybunalski—Barwinek) are considered express roads, while this category also includes road No. 9 (Radom—Rzeszów) and No. 78 (Jê drzejów—Siewierz). The network of national roads provides connections with every region in the province. National road no. 7 is the busiest—the average traffic over 24 hours amounts to 12,000 vehicles compared to the national average of around 7500. The road network is well developed and guarantees good connections with regional towns. A significant problem for some small towns is the lack of bypass roads which would reduce the traffic in these towns. Within the road network are 306 bridges and viaducts with a total length of of 8,986,041 metres. Rail All the railway lines are electrified and so they are the most environmentally-friendly means of transport for passengers and goods. Ten railway lines with a total length of 725 kilometres pass through the S´wiêtokrzyskie Voivodship: 610 kilometres are main lines of national importance and 114 are local lines. The most important line is No. 8, which provides connections with Warsaw and the northern part of Poland as well as with the voivodships Malopolskie, S´lá skie and Podkarpackie. This line is also significant for the transport of livestock. The electric power plants in Polaniec and Kozienice are supplied with coal via this line. It is also an outlet for minerals, cement and lime transport. Throughout the S´wiêtokrzyskie Voivodship there is an LHS transit freight line connecting Poland with the Ukraine. This line will have great importance for the voivodship when commercial contacts with Eastern partners develop. Railway junctions important for the region’s economic growth are . located in Kielce, Skarzysko Kamienna and Sêdziszów. Also in Sêdziszów, within the LHS line, is the only station in central Poland to allow railway chassis exchanging. The railway is mostly electrical (except the LHS) which is important in ecological terms.


A significant element of the transport infrastructure is the airport, located in Mas§ów, east of Kielce. Over the last few years the airfreight has increased three-fold. It is assumed that after the airport extension and modernizing is complete, foreign business as well as tourism will expand. The total length of the sewage system in the voivodship amounts to 1476.8 kilometres. Of 102 gminas, 66 possess community water treatment plants. There is one power plant in the region, in Po§aniec, which is connected by a 400 V line to the power plant in Kozienice in the Mazowieckie Voivodship. Electric energy is transmitted from Polaniec by the highest voltage networks (400 and 220 kV) to system stations, where after reducing the voltage level it is transmitted further by high voltage lines (110 kV). In the voivodship there are 63 sub-stations, reducing 110 kV voltage to 15 kV. Their technical state and power reserves are satisfactory. 110 kV lines are able to match double the current demand for energy in the region. The structure of the distribution network in the province consists of 15 kV lines—medium voltage and 0.4 kV—low voltage. There are 7562 15 kV/0.4 kV stations and there are 1028 medium and low . voltage stations in Kielce, Ostrowiec S´ wiê tokrzyski, Skarzysko Kamienna, Starachowice and Sandomierz. The S´wiêtokrzyskie Voivodship is supplied with gas by high-pressure gas pipes located in northern and eastern Poland. In the whole region 154,000 people are connected to the gas grid, including 139,000 in cities and 15,000 in rural areas. Network gas consumption per recipient in the voivodship amounted to 1483.4 cubic metres per recipient (1400.9 cubic metres in the country). At the end of 2000 there were 286,000 registered cable phone subscribers, 192,700 in urban areas and 93,300 in rural areas The Polish Satellite Services Centre operates on the territory of the voivodship in Psary near Kielce, providing intercontinental communication services. The Centre is one of the most modern of this type in the world.

Investments Table 5.1.17.1 Top five foreign investors Lafarge

France

Pilkington International Holdings

UK

Non-metal goods Glass

CLH Plc

Ireland

Non-metal goods

Dyckerhoff

Germany

Non- metal goods

Seita

France

Tobacco


Among the 27 countries which have invested in the voivodship, the largest amount of capital originates from Holland (31.2 per cent), Germany (14.7 per cent), Austria (11.1 per cent), Belgium (10.1 per cent), United States (9.2 per cent) and the UK (9.1 per cent) The largest amount of capital was invested in state-owned companies by the UK (46.9 per cent), Germany (21.7 per cent), Belgium (17.0 per cent), Italy and Holland (6.3 per cent each). The S´wiêtokrzyskie Voivodship possesses a reasonably well-developed network of institutions and business support organizations.

Links Investment sites Voivodship Office www.kielce.uw.gov.pl Marshall Office www.sejmik.kielce.pl (Polish) Starachowice Special Economic Zone www.sse.com.pl

5.2

Public Finance Evaluation of Six Polish Cities Myriam Fernandez deHeredia, Christian Esters, Kersti Talving, Standard & Poors Two years after Poland overhauled its local government structure, the six Polish municipalities rated by Standard & Poor’s (listed in Table 5.2.1) are still adapting to the new environment. Table 5.2.1 Standard & Poor’s ratings of Polish cities Bydgoszcz Gda n´sk Kraków £ód¿ Szczecin Wroc§aw

BBB-/Stable/– BBB/Stable/– BBB+/Stable/– BBB-/Stable/– BBB/Stable/– BBB/Stable/–

Overall, the impact of the reform has been substantial for the cities’ fiscal flexibility and financial performance, although it has not triggered any rating action thus far. The four Polish municipalities rated by Standard & Poor’s before the reform have maintained the same ratings and outlooks. It should be noted, however, that the sovereign rating has been on the rise, whereas the cities’ ratings remain unchanged. This illustrates the challenges that Polish sub-sovereigns are facing, with new expenditure responsibilities, insufficient fiscal flexibility and stringent debt limits in a country where basic infrastructure needs remain substantial. The 1999 administrative reform created two new layers of sub-sovereign government, bringing the total number of self-governing layers to four: the sovereign, regions (voivodships: 16), counties (poviats: 373, including the urban poviats), and communities (gminas: 2489). Table 5.2.2 delineates the entities’ expenditure responsibility distribution.

Public Finance Evaluation of Six Polish Cities 385

Table 5.2.2 Expenditure responsibility by level of government Voivodship

Poviat

Gmina

Economic and labour market development

Agriculture, forestry, fisheries

Libraries, theatres and museums

Higher education (incl. science and research centres)

Secondary schools (incl. teachers’ salaries)

Primary schools/kindergartens

Health care

Social and welfare policies

Flood and fire protection

Cultural heritage and promotion

Real estate management

Town planning and electricity supply

Environmental protection

Land registry and construction

Provision of heating

Public roads and transportation

Public roads and transportation

Local transportation

Sports and tourism

Public order and security

Public order and security

Water and sewage management

Maintenance of public facilities

Urban road infrastructure

Consumer protection

Cartography and land surveying

Municipal housing

Rigid revenue budget depends on state transfers The administrative reform has had a profound impact on both the revenue and expenditure structure of the Polish cities rated by Standard & Poor’s. These entities have assumed the revenue and expenditure responsibilities of both a municipality and a county. As a result, the city budgets have become more dependent on transfers from the central government. Revenue flexibility remains very limited. A Polish municipality’s ownsource revenues include local taxes—such as vehicle registration and real estate taxes, as well as various fees and charges—which have not been affected by the reform. The central government sets limits on local tax rates and all cities have virtually reached the ceiling. In 2000, ownsource revenues accounted for 26–35 per cent of operating revenues in the six Polish cities rated by Standard & Poor’s (Table 5.2.3). The allocation of taxes shared with the central government has changed however. Whereas the proportion of corporate income taxes that municipalities are allowed to retain has remained at 5 per cent, cities with poviat status now obtain 28.6 per cent of personal income taxes (27.6 per cent as a municipality and 1 per cent as a poviat) collected on their territory, which compares favourably with the pre-reform 17 per cent. For the cities rated by Standard & Poor’s, this has been more than offset, however, by the abolition of the additional amount from national personal income tax collections that they had received under the Large


Cities Act—now defunct—which had been distributed according to a coefficient based on some large expenditure items. Consequently, shared taxes account for only 18–23 per cent of operating revenues in these cities today, compared with 38–49 per cent before the reform. Nevertheless, since the income from taxes shared with the central government now fully reflects the local tax base, the reform has improved the cities’ ability to increase tax revenues by strengthening their local tax base. The largest revenue source, accounting for about 50 per cent of operating revenues, is subsidies and grants from the central government—in particular for education, roads and other delegated tasks. Since subsidies and grants are often earmarked for specific expenditure items for which the central government has assigned the responsibility to the cities, growth in transfers received from the central government— which has been substantial in recent years—has not improved the cities’ overall budgetary performance. Moreover, the recent transfer of expenditure responsibilities has not been sufficiently matched by central government transfers, putting pressure on municipal budgets. Table 5.2.3 Operating revenue structure of Polish cities Own-source revenues (% of operating revenues) Bydgoszcz 2000 26 1998 25 Gda n´sk 2000 34 1998 31 Krakow 2000 29 1998 32 £ód¿ 2000b 27 1998 28 Szczecin 2000 26 1998 32 Wroc§aw 2000 35 1998 34 b: budgeted

Shared taxes

Subsidies and grants

21 49

54 26

20 40

46 29

21 44

50 24

23 48

50 25

20 38

54 30

18 42

47 24


New responsibilities affect expenditure structure The cities’ expenditure structure has also changed, with fresh responsibilities assigned to the municipalities and newly created poviats. The cities’ budgets are still primarily concentrated on operating spending, which accounts for more than 80 per cent of total expenditures in most of the rated cities. However, the proportion of education expenditures in total operating expenditures—which already represented the largest item in municipal budgets before the reform—has further increased (Table 5.2.4), accounting for 39–47 per cent of operating expenditures in 2000. This is a consequence of new municipal tasks in the education sector. In addition to kindergartens and primary schools, which Polish municipalities have been responsible for since the first half of the 1990s, secondary schools and other educational centres have been added. Expenditure pressure has arisen in particular from teachers’ salaries, since these are set at the national level but are paid from the municipal budgets. Some new responsibilities in social care have contributed to the increasing proportion of social welfare expenditures, which represented between 9 per cent (Gdansk, Wroclaw) and 14 per cent (Krakow) of 2000 operating expenditures. The proportion of municipal expenditures for public security has grown more than any other expenditure item in the six cities. Newly assigned tasks include responsibilities for certain police expenditures, state fire brigades and civil defence. Accounting for 2 per cent or less of operating expenditures in 1998, public security represented about 10 per cent of operating expenditures in 2000, making it one of the most important single expenditure items after education. Public security, as well as social welfare payments, is funded mostly through state subsidies, however, and therefore does not represent a significant additional burden for the city budgets. Since all Polish cities rated by Standard & Poor’s obtained poviat status after the reform, they have been assigned maintenance costs for roads defined as poviat roads, in addition to those for the gmina roads. Consequently, the cities’ expenditures for road maintenance have also grown, standing at up to 6 per cent (Krakow) of 2000 operating expenditures. However, the Polish municipalities have been relieved of important responsibilities in the health care sector, including the maintenance of hospitals. Therefore, only 2–3 per cent of operating expenditure went to the health sector in 2000, versus 13–17 per cent in 1998. Less essential expenditures, such as those for culture and sports, usually account for only 5–10 per cent of operating expenditures in a municipal budget. Although these expenditures provide a certain cushion in the medium term, they have traditionally proved difficult to cut in the short run because the cities are committed to improving their inhabitants’ quality of life.


Overall, the cities’ expenditure budget has become more rigid, given their large share of education spending—most of these costs are personnel related, which are controlled by the central government and hard to cut—and fairly modest room to manoeuvre. Table 5.2.4 Operating expenditure structure of Polish cities Education Municipal Social administration welfare (% of operating Bydgoszcz 2000 1998 Gda n´sk 2000 1998 Kraków 2000 1998 £ód¿ 2000b 1998 Szczecin 2000 1998 Wroc§aw 2000 1998

Public security

Road maintenance

Health

expenditures) 47 43

7 8

11 9

10 2

2 0

2 17

45 41

8 7

9 6

8 1

4 0

2 14

47 44

8 8

14 8

9 1

6 0

2 14

39 34

8 8

13 11

9 0

2 0

3 18

43 37

9 10

12 9

8 0

5 0

3 13

39 34

7 7

9 6

8 0

5 0

2 13

b: budgeted

Most cities’ budgetary performance remains robust The impact of the administrative reform has not been evenly spread among the cities in the two years since the reform was enacted. Although newly transferred expenditure responsibilities have not been adequately covered by additional transfers, the cities’ budgetary performance did not weaken significantly in 1999. This occurred in 2000, however, mainly because the central government raised teachers’ salaries (Figure 5.2.1). Of the six cities, only Gdansk and £ódz showed better financial performance in 2000 than in 1998, as measured by the deficit before debt repayment as a percentage of total revenues; the remainder


saw their deficits rise. Apart from the teachers’ salary increase, in Krakow and Wroclaw the weakening financial performance is also a consequence of large investment expenditures and declining proceeds from asset sales. In both cases, the ratings already incorporated the expected deterioration in budgetary performance following ambitious investment programmes. For the aggregate Polish local government sector (which includes other administrative entities such as voivodships and is therefore not directly analogous to the six cities rated by Standard & Poor’s), the balance before debt repayment weakened to a deficit of more than 4 per cent of total revenues in 2000, from less than 2 per cent in 1999. The financial performance of the Polish cities rated by Standard & Poor’s is expected to weaken, particularly owing to the economic slowdown in Poland, which means lower tax revenues, and to the maintenance of ambitious investment programmes. Some cities might nevertheless post better results than projected in their budgets, since budgeting is often conservative and outperformed by actual results. Figure 5.2.1 Cities’ balance before debt repayment

Debt burden is small, but growing Whereas no city had a direct debt burden exceeding 10 per cent of its total revenues in 1996, the debt burden of most Polish cities rated by Standard & Poor’s has increased significantly over the past few years (Figure 5.2.2). This is because budgetary deficits started to grow in the second half of the 1990s. At year end 2000, the city of Krakow had the highest debt burden among the six rated cities, amounting to 34 per cent of total revenues, followed by Bydgoszcz and Gdansk, with 27 per cent each. Since the 2001 budgets provided for more hig-net new borrowing, the debt burden is projected to continue rising in the next few years. For the aggregate Polish local government sector, including voivodships and


poviats, debt increased to 13 per cent of total revenues at year end 2000, from less than 10 per cent in 1999. The pace of debt accumulation in Polish local governments is tightly linked to how ambitious the locality is when planning its investments and how effectively it implements these. Among the rated entities, Krakow might see the highest increase in its debt burden, directly linked to an extensive public transportation investment programme. In the other cities, debt might accumulate more slowly given their more moderate investments. Needs are high in all cities, however, and flexibility is low because economic expansion very much depends on how developed the basic infrastructure is. Under national law, sub-sovereign governments must limit debt to 60 per cent of total revenues. In light of the rated cities’ current debt burden, this constraint means that the municipalities still have some flexibility to cover expenditure needs by increasing debt, although the debt burden must remain manageable. Regardless of the limit set by Polish law, Standard & Poor’s monitors debt developments in Polish cities. Continued high growth of the debt burden could put ratings under pressure, since the debt level would be hard to reduce. Figure 5.2.2 Cities’ debt burden

Government support is somewhat poor, but a new system is being refined Several factors characterize the Polish local government financing system: • Limited equalization and centralization of decision-making power at the central government level. Transfers are made to all levels of government so they can meet minimum standards, incorporating an equalization component—which is, however, not as strong as in more developed systems in Europe (eg Austria, Germany, Spain).


Moreover, since transfers are calculated as a share of national taxes, their evolution also very much depends on tax decisions at the state level and thus is not controlled by the local governments. Finally, there has been a recent downloading of responsibilities (secondary education) that is not well compensated by state transfers. On the positive side, funds are transferred to the local governments on time. • Low and uncertain support in case of financial distress. In other words, there is no clear procedure to support local governments facing difficulties. Although the state government keeps a small reserve to help local governments in emergencies, timeliness is not ensured. Nevertheless, the system has proved flexible: additional funds have been allocated to the areas most affected by natural disasters over the past four years. • Some state controls on the overall budgetary performance of the cities, but no early-warning systems. All levels of government are monitored by the regional auditing offices, whose work focuses more on checking the legality of the localities’ actions than on preventing mismanagement. The only debt information to which the Ministry of Finance has (quarterly) access concerns borrowing to cover deficits. The two-year ‘transition period’ of the new administrative reform has expired, but still there is no consensus on the system’s final parameters. One issue, for example, is that sub-sovereign governments are requesting more resources (to finance their current responsibilities) and adequate compensation for new responsibilities that the central government would potentially transfer to them. In the long term, the system is expected to give poviats and voivodships more independent taxing authority. Another positive aspect is that the legally imposed controls on total debt and debt service ensure that Polish sub-sovereigns’ debt level stays within manageable limits. Standard & Poor’s would like to see an evolution toward a more stable and supportive system. Ideally, a degree of equalization of revenues among all sub-sovereign governments would be in place, and subsovereigns would have some revenue flexibility without receiving responsibilities that are not matched by adequate revenue sources. The implementation of enhanced monitoring systems, which now focus mainly on checking the legality of a sub-sovereign’s decisions, would be another positive rating factor.

A challenging future All six of the rated Polish cities currently have a stable outlook, reflecting Standard & Poor’s view that they are well positioned to face political,


economic and financial challenges in the medium term. Thus far, all have generally coped well with low revenue flexibility, rising education costs not fully compensated by additional revenues from the central government, and high infrastructure needs. Financial performance has not deteriorated beyond what the cities or Standard & Poor’s had expected, and debt is still manageable, though rapidly rising. In the future, the cities will face a lack of financial flexibility and an expected economic slowdown. In addition, there are uncertainties linked to the recent changes in the political landscape: • The general weakening economic environment and austerity measures that the newly elected central government needs to undertake after the burdensome fiscal costs of recent structural reforms could negatively affect revenues and expenditures for the rated cities and slow the 2002 budgeting process. • Local government elections in 2002 might change the composition of city councils and their priorities. Nevertheless, the expected stability of administrative teams should ensure the continuity of financial management. Nevertheless, Polish cities have several economic and financial features that will help them maintain solid finances and manageable debt, thereby ensuring ratings stability: • Robust medium-term economic-growth prospects. Although weaker than two years ago, these prospects are still healthy, particularly for the rated municipalities. These six cities, along with the capital, Warsaw, receive an important share of Poland’s foreign direct investment (FDI). Poland’s accession to the EU will also boost economic growth. • Large EU pre-accession funds. These expected funds will be key to containing the cities’ direct infrastructure spending and will therefore reduce the pace of debt accumulation. • Prudent management. Budgetary policies and financial management are generally prudent in the rated cities. Monitoring and planning procedures are gradually improving, which facilitates tight control on spending and prevents large deficits. • Tight debt control. Central government limits remain strict in terms of debt ratios.

Differences in credit quality Standard & Poor’s long-term ratings on Polish cities range between BBB+ (Kraków) and BBB-(£ódz), which is a narrow band. These cities are among the largest and most sophisticated in Poland, albeit with


varying degrees of economic development. Given that the vast majority of Polish sub-sovereign governments are not rated, Standard & Poor’s expects any future rating levels among the four layers of Polish government to be broader than those of the six cities currently rated. Ratings differences would mainly reflect the following factors: • The diversification of a local government’s economy, degree of privatization, growth prospects and pending restructuring processes. • The political situation, stability of government and ability of the ruling political party or political coalition to prevent large shifts in policies and disruption of day-to-day management. • Capital expenditure requirements, which, being hefty throughout the country, are particularly intense in some regions. • Management’s ability to cope with new expenditure responsibilities, more stringent reporting and budgetary requirements, and a higher level of debt. • Prudence in debt accumulation and servicing. Polish municipalities are gradually adapting to a new, stricter scenario, with rising operating costs and lower revenue growth. Until now, the rated cities have managed to contain deficits and debt accumulation, but the uncertain economic and legal developments present fresh challenges. Prudent management and a good use of EU pre-accession funds will be key to maintaining the cities’ creditworthiness in the medium term.

5.3

Case Study: Provident Polska The travails of Poland’s transition to a market economy during the 1980s and 1990s, while filling the country’s department stores with a diversity of new products, have also fuelled one of the more difficult aspects of transition for much of the population: a scarcity of disposable capital. Although inflation has decreased significantly since the currency reforms of the mid-1990s, prices for many basic consumer products, relative to incomes, remain high. In Warsaw, while one will now find the same goods and services to those in the major Western capitals available in similar abundance, the stores in the Polish capital likewise tend to price their stocks at a tariff nearing that of the United States or Western Europe. Income levels in Warsaw, however, suggested at around PLN2000 (US$500) per month, are substantially lower than in the developed market economies, making disposable income available to the Polish middle classes for consumer spending comparatively scarce. In this environment, where goods are now in abundance but where the capital required to access them tends to be more scarce, one foreign enterprise has expanded rapidly in Poland, marketing its service effectively in accordance with the fast growing level of demand. Provident Polska, a subsidiary of the well-established British company, Provident Financial plc, has developed a wide reputation in Poland as a primary source of credit readily available to much of the country’s working population. Recently dubbed by some sources within Poland as ‘the bank that comes to you’, Provident Polska specializes in providing Polish households with small loans for a variety of purposes, ranging from PLN500 (US$120) to PLN5000 (US$1200), repayable over six, nine and twelve months in weekly instalments. Working in Poland on largely the same operational principles as its British parent company, Provident Polska has marketed a rather unique financial service since the entire process of evaluating and approving a loan, as well as repayment of the instalments, all take place at the customer’s home.

Case Study: Provident Polska

395

When a potential customer contacts the company with an enquiry for a loan, Provident arranges for one of its many representatives to call at the individual’s home to assess their creditworthiness and reason for borrowing funds. It is then the representative’s responsibility to decide whether a loan should be granted, and if—as is often the case—the answer is yes, the loan amount is delivered to the customer’s home within 48 hours. In actual fact, in most cases the funds are with the client the next day. Customers have to be Polish citizens, of working age, with a permanent income from gainful employment. A time frame for repayment is also established and it becomes the task of the Provident representative to make weekly house calls to collect instalments from the new customer. The most powerful predictor of future payment performance for any lending company is past performance. Provident will therefore only make small loans to begin with, to see what track record the customer can achieve. In addition, the more a lender knows about the financial dynamics of a customer and his household, the better the lending decision will be. Provident’s representatives visit each customer every week and can build up a detailed view of these dynamics. Therefore, the decision of whether to approve a loan to a particular customer is uniquely influenced by the representative’s view of the customer’s ability to pay, thus making the whole process of committing and repatriating funds a highly personalized affair. Provident Polska commenced operations in Poland in August 1997 when it was incorporated as a joint-stock company owned solely by Provident Financial plc. The latter enterprise is highly established in the United Kingdom, founded as early as 1880 for the purpose of lending small amounts of finance to the consumer sector. The company is quoted on the London Stock Exchange, has around 3.2 million customers worldwide, and showed a gross profit of £169.6 million in 2001. Prior to commencing its formal operations in Poland in 1997, the UK-based Provident Group conducted an in-depth feasibility study of the Polish market, assessing the opportunity of marketing its financial service in the country. The company hired professional consultants for this task, including the well-known British think-tank, Oxford Analytica, in an effort to understand exactly how Poles borrow money. The study found that in the largely cash-based Polish consumer economy, individuals were often unable to obtain credit from banks (due to excessive bureaucracy, high interest rates on small, short-term loans, and often unrealistic demands for collateral and other securities) and were dependent on friends and family as the primary source of credit. Although such credit usually came without interest, Provident found that there was a so-called ‘emotional interest’ attached to the loan, which often made the party in debt not just financially but also emotionally dependent on the lender. The survey found that there were


sufficient numbers of individuals who would be willing to look to alternative sources to obtain credit, where emotions would be detached and where loan feasibility and the repayment scheme would be more in accordance with consumer demand. Provident Financial also carried out similar studies in Hungary, the Czech Republic and Slovakia, and, having found that Central Europe offered great potential for its financial services, readily established itself in Poland as well as the other three countries. In a similar vein to Joshua Waddilove, the founder of Provident Financial, granting the first loan in Britain in 1880, Provident Polska has expanded remarkably since its first loan was granted in Poland in 1997. The company has lent money to a remarkable number of customers and currently has over 560,000 customers—an extraordinary feat when taking into account the fact that Poland’s entire population is around 39 million. During its five or so years of doing business in Poland, Provident’s representative offices have mushroomed to over 220, and the half a million plus customers are serviced by the company’s 8885 representatives and 1600 permanent staff. The two latter statistics equate to the fact that the company has created just over 10,000 earning opportunities in Poland during the past five years—a feat that is bettered by very few foreign enterprises in the country. Such an impressive record with job creation also gives the company substantial credibility in the eyes of the pro-foreign investor Polish government. Provident Financial has also invested heavily into the business of its Poland-based subsidiary during this period, amounting to some PLN300 million (around £50 million). Much of the investment has gone on marketing Provident’s product (a substantial budget for advertising its services throughout the country), as well as investment in the company’s human resources (training its staff) and real estate (leasing and modernizing its office space throughout the country). Provident’s substantial investment in Poland is clearly starting to pay off, since the company recorded a gross profit of £6.7 million in 2001 and issued £158 million of credit in the same year. A PLN1000 (US$240) loan is typically repayable over 26 weeks, at PLN59 per week—a total repayment of PLN1534 (US$360) on a six-month loan. However, while the charges might at first glance appear high, one must take into account that Provident is not just providing a loan, but rather a complete, tailor-made financial service, giving a virtually instant decision on commitment of funds and calling at the customer’s home as the mechanism for collecting instalments. For example, a 26-week loan involves the representative making at least 26 visits to the customer and perhaps more. This highly personal service produces very high scores in customer satisfaction surveys. The home visit service in particular renders the company’s business unique, since it is simply not in the mainstream financial service culture of this transitional

Case Study: Provident Polska

397

economy for a bank to come so readily to the consumer. It is perhaps for this reason that Provident Polska is not defined as a bank under Polish law, and lends money under Articles 720–724 of the Polish Civil Code (and the Consumer Credit Act which came into force on 19 September 2002) on the basis of its own financial resources. The company’s bad debt indicator (ie the amount of default on approved loans) is within the projections of its senior management and currently runs at around 9–10 per cent. A legal framework is in place to prosecute defaulters, although it does not appear to have been employed often by the company’s management since legal procedures are both costly and time consuming, and the relative amount of default is small scale. The 9–10 per cent figure must be pleasing for the company’s executive, given the many occasions that foreign companies have lost substantial funds in the high-risk sectors of the transitional economies. Instead of losing money, Provident has been able to put funds back into the Polish community, providing grants and donations for schools and hospitals and supporting the initiatives of local government. Overall, the historic British financial services enterprise has been reaping the potential of its Polish investment, having seriously committed itself to Poland during the past five years and having already drawn up its business plans for at least the next five. The company has encountered few structural problems during its development of business in the country and has emphasized its commitment to operating strictly on the basis of the Polish legal regime—avoiding any business informalities with either state or society along the way. It has outsourced the assistance of professional, foreign legal and taxation advisers to assist with its business and has also maintained close ties with institutions supporting big business in emerging markets such as Poland—primarily the commercial department of the British Embassy in Warsaw and the British-Polish Chamber of Commerce. The company’s executive gladly espouses the message that there is no shortage of room for other foreign enterprises in a country like Poland, provided they are willing to operate by the established laws of business and have a strong organization standing behind them in their home country.

5.4.1

Case study: Era GSM, the largest mobile phone operator in Central and Eastern Europe BOSS Economic Information Agency, Warsaw

Era GSM is getting ready to attack the monopolist position of Poland’s largest fixed-line telephone operator TP S.A. by planning to take over some of its clients disappointed with the latest drastic rise in telephone fees. The latest data on mobile telephony in Central and Eastern Europe shows that Era GSM was the largest mobile phone operator in the region in the first quarter of 2001, followed by Plus GSM. Era is also the only Eastern European mobile phone operator (out of 50) with more than three million clients. The first 10 positions in the ranking of mobile phone operators are dominated by Polish companies, with Idea/Centertel ranking sixth. Czech, Hungarian and Romanian operators also have a strong position in the region as at least two from each of those countries are ranked among the 10 largest mobile networks. The number of Eastern European mobile phone users was some 26–27 million at the end of the first quarter of 2001. Poland’s Era recorded the largest, more than 11.5 per cent, market share, while Plus had 9.8 per cent. All in all, Poland’s three operators have captured some 27.5 per cent of the Central and Eastern European market. The Czech operators, ranked next, accounted for some 16.9 per cent of the market and the Hungarian operators for 12.4 per cent. In Romania, whose population is similar to that of Poland, the number of mobile phone subscribers is three times lower than in Poland, which gives the three Romanian operators together a 10 per cent market share in the region, which is less than Era GSM’s alone. The position of Russian mobile phone operators, despite their large number, is fairly weak. Thirteen Russian networks operating in that country’s European part serviced slightly more than four million

Case study: Era GSM

399

subscribers as at the end of the first quarter, which gave them a 14.8 per cent share in the Eastern European market. The majority of them, however, operate in Russia’s large cities, and more than five operators continue to use analogue technology. In Ukraine, in spite of an almost 170 per cent increase in the number of subscribers, mobile telephony has practically ceased to develop if the number of its current users (some 855,000 as at the end of 2000) as a proportion of the country’s population (more than 51 million), is taken into account. In line with the worldwide trend, GSM (both 900 and 1800 MHz) is the dominant mobile phone system in Central and Eastern Europe. Nevertheless, in some other countries (Russia, Bulgaria, Ukraine, Belarus), the old NMT-450i analogue system (in which Centertel operates) still plays a significant role. Since mobile telephony is an advanced and expensive technology, telecommunication giants mainly from Western Europe, Scandinavia and the United States are strategic partners for a great majority of Central and Eastern European operators. France Telekom, Deutsche Telekom, TeleDanmark AS, Norwegian Telenor, Finland’s Sonera and the US giant Vodafone are the most active in the region. Austria’s Mobilkom is very active in neighbouring countries (eg Croatia, Slovenia), but it has fewer subscribers in its home country than Poland’s Era GSM. In addition, in some countries (eg the Czech Republic, Croatia, Hungary and Poland) national fixed-line telephone operators hold a significant position of the local mobile phone market (eg Cesky Telekom, Croatian Telecom), remaining strategic shareholders in mobile networks (eg Czech Eurotel, Croatian Cronet or Poland’s Idea GSM). Although, in terms of the absolute number of mobile phone subscribers, Poland is a leading country in the region, the market penetration ratio (ie the number of subscribers per 100 population) puts the country last in the regional ranking with a ratio of around 20 per cent. In the Czech Republic, for example, the market penetration ratio is expected to reach some 55–60 per cent shortly, which is the Western European level. A similar situation exists in Hungary, where the market penetration ratio has already exceeded 35 per cent, and in the Baltic states such as Estonia and Latvia, where mobile phone market penetration ratios are comparable. Meanwhile, it may turn out that Era’s attempt to take over TP S.A.’s customers will result in a significant increase in the penetration of the mobile phone market. According to unofficial data, the largest Polish mobile phone operator plans to distribute more than 10 million letters among the present and potential TP S.A. customers advertising Era’s services and in particular its cheapest monthly subscription fee of PLN24.3, compared with the new TP S.A. tariff which sets the monthly fee at PLN42.7 (the cheapest one is PLN28 but this has far higher call rates). It should be also taken into account that it is possible to have a


mobile phone and activate it for PLN1 whereas TP S.A. charges PLN366 for connecting to the network. With the gradual reduction of prices for the services of Polish mobile phone operators (free minute packages, better profiled tariffs, attractive promotions, etc), it may turn out that Era’s planned campaign (which is likely to be followed by other mobile operators) will not only increase the penetration of the market with mobile telephones but will also initiate a stage of actual competition in the telecommunications market and the breaking up of the current dictate of the national operator.

5.4.2

Case Study: Jarocinskie Fabryki Mebli S.A. BOSS Economic Information Agency, Warsaw Jarocinskie Fabryki Mebli S.A. (JFM) is the largest manufacturer of office furniture in Poland. The company’s market share has been estimated at about 12 per cent. However, due to a recent decrease in demand for office furniture, JFM has been reporting significant losses. The salvation programme that is now being implemented aims to make the company generate a small profit this year. Jarocinskie Fabryki Mebli S.A. was established in 1945 as a manufacturer of home furniture. Following a change of profile, however, JFM has been Poland’s leading producer of office furniture, as well as furniture for hotels and ships, for the last 12 years or so. The company also produces a wide range of work furniture made of laminated boards and office furniture in natural veneer, as well as high-quality furniture for hotels. In the office furniture market, JFM’s market share is put at 12 per cent, and in the hotel furniture market at 21 per cent. Customers of the company include, among others, the Polish President’s Office, the Foreign Ministry, as well as many corporations and hotels (eg Warsaw’s Marriott and Victoria Hotels). For the last few years, however, the company has been experiencing serious problems. Due to an uncontrolled increase in costs, failed investments (such as creating a Building Materials Distribution Centre in Jarocin) and a drop in demand for office furniture, in 1999 JFM reported a net loss of US$8.2 million. Table 5.4.2.1 Selected financial data (PLN million) 1998

1999

2000

Total assets

61.5

55.9

52.7

Own capital

42.2

34.1

31.2

Long-term liabilities

0.0

0.0

1.4

Short-term liabilities

19.0

21.0

18.8

Revenue from sales

78.7

65.4

64.4

Operational profit (loss)

3.5

-5.6

-0.6

Net profit (loss)

0.9

-8.2

-2.9

Source: Monitor B


Poor results forced the company to implement a restructuring programme, under which JFM sold off its plant in Kêpno. The Kê pno plant’s share in JFM’s sales had been just 14 per cent, while its location, far from the main Jarocin plant, meant that the cost of transportation of semi-finished products significantly increased the company’s overall costs. Moreover, JFM sold its fixed assets, such as land, its holiday home and company warehouse, thus raising resources to purchase new technological lines for the production of veneer furniture. To improve its results, facing a slowdown on the market of office furniture, the company also wants to expand its offer to home furniture, the demand for which is more stable, as well as to increase the share of ship furniture in its sales from the current 2 per cent to 8–10 per cent. The restructuring process also included the rationalization of employment: JFM has cut its employment from 1400 in 1998, to about 700, hence increasing its work effectiveness by about 40 per cent. These actions have brought about very concrete effects. Despite the poor market in 2000, the company was able to maintain its revenues at a level close to the previous year, and to lower the net loss to PLN2.9 million. Current plans call for an increase of sales to PLN70–75 million and the making of a small net profit by the end of 2002. Currently, revenues from exports make up about 40 per cent of the company’s sales. JFM exports its furniture mainly to Russia and Austria. In order to lower the risk in trading with Russia, JFM is using a system of pre-payments in about 90 per cent of transactions. The remaining 10 per cent are insured with the KUKE and Compensa insurance companies. Recently, JFM, which had been owned by the National Investment Funds (with NIF Magna Polonia being the leading fund), was merged into furniture group Swarzedz. According to analysts at the brokerage firm DM PBK, JFM will generate about 40 per cent of the group’s revenues.

Part Six

Appendices

Appendix I

Foreign Trade Poland’s exports and imports, 1992–2000 (US$ million) Exports Merchandise

Commercial services

Imports Total trade Merchandise Commercial services

Total trade

1990 14,320

3200

17,520

11,570

2847

14,417

1991

13800

3687

17,487

18,390

2994

21,384

1992 14,500

4773

19,273

18,540

4045

22,585

1993 14,140

4201

18,341

20,180

3631

23,811

1994 17,240

6655

23,895

22,680

3746

26,426

1995 22,895

10,637

33,532

29,050

7008

36,058

1996 24,440

9786

34,226

37,135

6314

43,449

1997 25,750

8969

34,719

42,310

5681

47,991

1998 28,230

10,890

39,120

47,055

6559

43,614

1999 27,405

8430

35,835

45,910

6936

52,846

2000 31,650

9496

41,146

48,940

7408

56,348

Source: WTO international trade statistics, 2001


Poland’s merchandise exports and imports worldwide (US$ million, % total merchandise trade) Exports 1998 Total merchandise

28,230 %

1999

Imports 2000

1998

27,405 31,650 47,055 %

%

%

1999

2000

45,910

48,940

%

%

North America

3.0

3.1

3.7

4.3

4.0

4.8

Latin America

1.0

1.2

1.2

1.4

1.2

1.3

Western Europe

70.9

73.9

73.2

69.2

68.5

64.5

European Union

68.3

70.5

70.0

66.0

65.0

61.2

CEE/Baltic States/CIS

14.0

18.3

20.9

17.1

17.3

12.9

CEE

7.1

7.8

8.0

6.0

6.2

6.6

Russian Federation

5.7

2.6

2.7

5.0

5.8

9.4

Africa

1.1

1.4

1.2

1.1

0.9

0.6

Middle East

1.3

0.7

1.0

0.4

0.5

0.4

Asia

1.7

2.3

2.1

10.6

10.7

9.8

Agriculture

12.6

11.0

9.6

9.7

9.0

8.2

Mining

10.1

10.3

10.3

9.0

9.8

13.6

Manufactures

77.1

78.6

80.0

80.2

81.0

77.9

Major product groups

Source: WTO international trade statistics, 2001

Poland’s exports in selected product groups (US$ million, % total merchandise trade) 1995 Machinery & transport equipment

1998

1999

2000

2000 %

4829

8021

8278

10,821

34.2

996

1839

2438

3601

11.4

Office machines & telecoms equipment

406

1146

1206

1279

4.0

Textiles

512

753

727

769

2.4

Automotive products

Clothing

2304

2387

2201

1884

6.0

Total manufactures

16,270

21,770

21,540

25,320

80.0

Total merchandise

22,895

28,230

27,405

31,650

100.0

Appendices

407

Poland’s imports in selected product groups (US$ million, % total merchandise trade) 1995

1998

1999

2000

2000%

Machinery & transport equipment

8688

17,858

17,543

18,114

36.7

Automotive products

1693

4770

5593

5803

11.8

Office machines & telecoms equipment

1816

3793

4345

4717

9.6

Textiles

2165

2747

2544

2433

4.9

Clothing

318

599

621

536

1.1

Total manufactures

21,610

37,760

37,170

38,140

77.4

Total merchandise

29,050

47,055

45,910

48,940

100.0

Appendix II From Chapter 1.5

Results from a survey of Polish exporters’ opinions on Poland’s exports

On average, three-quarters of Polish exporters were active on the foreign markets during the period 1994–2001, which means that they were striving for an increase in their market share (every other exporter) or, at least, to maintain their current position (one in four). Nearly half of the exporters surveyed by the Foreign Trade Research Institute (IKC HZ) exported goods under their own trademark. For 60 per cent of them, the main method for competing on foreign markets is price competition. The exporters also reported that the chief internal obstacles for the development of exports were the low level of modernization of the production assets, poor R&D and over-employment. Among the external factors that blocked exports, they mentioned the high exchange rate of the zloty and the interest rate, which, for the last seven years, has been viewed more often as negative than as positive. The Foreign Trade Research Institute (IKC HZ) surveyed 600 companies in the processing industry during 1994–2001, of which between 50 per cent and 70 per cent responded each year. They included companies of all sizes. Over 40 per cent of those surveyed answered that they were operating on not more than three foreign markets, while one in three exported goods to one or two countries only, thus making exports highly dependent on the market situation in these countries. Among the companies surveyed, 38 per cent exported their goods to more than six countries, and among these, 17 per cent had buyers in more than 10 countries.

Appendices

Number of export markets

%

>10 6–10 4–5 1–3 No data

17 21 16 41 5

409

Source: Foreign Trade Research Institute (IKC HZ)

Nearly half of the surveyed companies (48 per cent) exported their goods under their own trademark, while one-third of the companies sold their products under the trademark of the foreign buyer. For many Polish companies, selling products under foreign trademarks is often the only chance for exports at all. Even if they make goods of high quality, rarely can they afford to build a distribution network and promote their products. Altogether, 17 per cent of companies operated on foreign markets anonymously. Over the years, two types of behaviour have developed among Polish exporters: active and passive. In 1994–2001, on average, three-quarters of Polish exporters were active on the foreign markets, and among them half were trying to increase their market share, and a quarter simply attempted to maintain their current market position. Among those companies that operated on the foreign markets in a passive manner, most did not have a clearly defined target of their export activity. Aim of export activity

%

Maintain market position Achieve small increase in market share Achieve significant increase in market share Accept current market share No target

27 27 21 17 8


In 1994–2001, price competition was the main form of competition on foreign markets for over 60 per cent of the surveyed companies. Only 13 per cent of exporters believed that a different type of competition had been the source of their successes on foreign markets, while 23 per cent did not have a clearly defined strategy for competition, but the latter figure was gradually falling over the years, which must be considered a positive signal. After Poland’s accession to the European Union, the most important change for export activity—according to 70 per cent of the surveyed


companies—will be the abolition of customs checks. More than half of those surveyed believe that lack of discrimination as far as EU market norms are concerned and the lowering of the export transaction risk are also very important. One in three companies, however, does not consider the above benefits important. Only one in four of those surveyed appreciate the removal of the threat of anti-dumping procedures once Poland joins the European Union. As many as 56 per cent of them do not consider this benefit as very important, most likely because they have never encountered such a threat. Benefits of Poland’s accession to the European Union (%)

No customs checks No discrimination in EU market norms Lowering of export transaction risk No threat of anti-dumping procedures

Important

Not important

No opinion

70 52 52 25

25 34 34 56

5 14 14 35


As far as the negative effects of Poland’s membership of the European Union are concerned, increased competition on the domestic market seems to be causing the most alarm, as it was mentioned by 64 per cent of the surveyed companies. Also important in the opinion of over 50 per cent of the companies will be a tightening of environmental protection legislation. Nearly half (47 per cent) of those surveyed claimed that the increase in labour costs following a migration of labour into the European Union would also have important consequences for their exports. Over 40 per cent believed that their export activities would be affected by increased social requirements after Poland’s accession to the European Union, while the same number was of the opposite opinion. Negative effects of Poland’s accession to the European Union (%) Important Not important No opinion Competition on the domestic market Increase of labour costs following migration of labour into European Union Increased social requirements Tightening of environmental protection legislation

67

27

9

47 45

36 41

17 14

50

35

15


Appendices

411

From the point of view of exporters’ interests, there are two important macroeconomic instruments: the currency exchange rates and interest rates. In the period when the research was undertaken, the respondents more often evaluated the exchange and interest rates as unsatisfactory than as satisfactory. This was particularly visible during the last two years. In 2001, the number of positive evaluations of both indicators was close to zero, while 70–80 per cent of the surveyed companies were negative about them. The remaining respondents gave no opinion. A short-term appreciation does not elicit any reaction from 37 per cent of the exporters, while among the others the most popular adjustment is to lower production costs (26 per cent). Only then do they make the decision to shift sales to the domestic market (12 per cent) or to limit their output (10 per cent). The least popular method to regain profitability is to raise prices for foreign buyers. Exporters’ reactions to short-term and long-term zloty appreciation (% of respondents) Appreciation

Withdrawing from exports Shifting sales to domestic market Lowering output Lowering production costs Raising prices in export contracts No reaction Total No response

Short-term 7 12 10 26 5 37 97 3

Long-term 6 12 8 40 13 16 95 5

Source: Results of 2001 survey

A long-term appreciation, however, does not elicit a reaction from only 16 per cent of exporters. Others undertake adjustment actions, such as, first of all, cost cuts (40 per cent). Other companies attempt to raise prices in their export contracts (13 per cent) or try to shift their sales to the Polish market (12 per cent). Only 6 per cent withdraw from exports altogether. This demonstrates that Polish exporters have relatively little room to manoeuvre, as even longer appreciation of the exchange rates does not make them try to raise prices. As far as external conditions are concerned, exporters point to custom duties and Polish-Polish competition as the main obstacles for their export operations (45 per cent). Foreign quotas and the threat of anti-dumping procedures can be obstacles of lesser importance (20 per cent of respondents).

Appendix III From Chapter 4.1

Source: GUS

Source: GUS

Appendices

Source: GUS

Source: GUS

Source: GUS

413


Source: WSE

Source: WSE

Metallurgy public companies quoted on the WSE YTD % (2001–09–07)

52-week change %

Free float (PLN mn)

Capitalization (PLN mn)

-40.9

-50.2

790.3

2,990.0

KGHM KETY

-0.9

4.7

221.7

442.1

IMPEXMETAL

-35.9

-44 .4

43.3

183.9

STALPRODUKT

-19.0

-28.3

44.7

77.3

HOWELL

-81.8

-83.7

18.0

36.6

STALEXPORT

-85.6

-88,0

18.3

32.5

FERRUM

-76.8

-84.1

7.5

27.4

HUTMEN

-49.2

-51.6

5.5

17.1

11.5

-32.6

2.2

5.7

Sector

-36.6

-43.9

–

3,210.6

WIG

-26.2

-28.6

–

91,743.0

ODLEWNIE

Source: Emitent, WSE

Appendices

415

Top companies in the metallurgy sector Sales (PLNmn) Name

2000 Change/ H1 2001 Change/H1 1999 (%) 2000 (%)

1 KGHM Polska Miedz S.A. refined copper (cons) production

5608.8

22.7

2 544.

1-4.3

2 HUTA KATOWICE S.A.

steel production

3782.8

16.3

n/a

n/a

3 HUTA SENDZIMIRA S.A.

steel production

3184.9

6.6

n/a

n/a

4 STALEXPORT S.A. (cons) holding: steel 2949.5 trade&production

23.6

1 026.5

-30.6

5 IMPEXMETAL S.A. (cons) holding: metals trade, steel production, aluminum production

2917.8

20.2

n/a

n/a

6 HUTA Czestochowa S.A. steel production

1123.9

34.5

n/a

n/a

7 HUTA STALOWA WOLA S.A. (cons)

steel production

867.4

5.6

n/a

n/a

8 HUTA Zawiercie S.A. Impexmetal Group

steel production

792.4

20.3

395.0

n/a

steel production

753.4

11.9

n/a

n/a

steel production

679.9

65.8

294.9

-17.6

1 1 HUTA ALUMINIUM KONIN aluminum S.A. Impexmetal Group production

659.4

31.7

n/a

n/a

1 2 GRUPA KETY S.A. (cons) light metal packaging production

639.6

9.0

280.2

-31.4

1 3 HUTA LUCCHINIWarszawa Sp. z o.o.

steel production

629.3

32.7

n/a

n/a

1 4 HUTA CEDLER S.A.

steel production

533.5

19.6

n/a

n/a

1 5 HUTA SZOPIENICE S.A.

non-ferrous 532.3 metals production

17.5

n/a

n/a

1 6 HUTA POKOJ S.A.

steel production

519.7

61.5

274.7

n/a

1 7 HUTA CYNKU Miasteczko Slaskie

zinc and lead production

454.6

13.8

n/a

n/a

1 8 TEKSID POLAND S.A.

casting of iron

442.9

0.7

n/a

n/a

1 9 ZGH BOLESLAW

lead, zinc and tin production

426.3

4.9

n/a

n/a

8.5

n/a

n/a

19.28 10280.6

-10.5

9 HUTA OSTROWIEC S.A. 1 0 STALPRODUKT S.A.

2 0 HUTA BATORY Sp. z o.o. steel production Sector

361.1 23228.2

416 Doing Business with Poland Net Profit (PLNmn) Name

2000 Change/ H1 2001 Change/ 1999 H1 2000 (PLNmn) (PLNmn)

1 KGHM Polska Miedz S.A. refined copper (cons) production

498.5

521.1

-43.8 -319.1

2 HUTA LUCCHINIWarszawa Sp. z o.o.

steel production

113.5

191.5

n/a

n/a

3 HUTA SENDZIMIRA S.A.

steel production

72.2

80.4

n/a

n/a

4 IMPEXMETAL S.A. (cons) holding: metals trade, steel production, aluminum production 5 ZGH BOLESLAW lead, zinc and tin production

36.8

13.5

n/a

n/a

26.6

13.2

n/a

n/a

6 GRUPA KETY S.A. (cons) light metal packaging production

21.5

-1.7

26.1

14.6

7 STALPRODUKT S.A.

16.1

9.7

-2.4

-13.1

8 HUTA ALUMINIUM KONIN aluminum S.A. Impexmetal Group production

6.4

14.0

n/a

n/a

9 HUTA Zawiercie S.A. Impexmetal Group

steel production

4.7

-6.5

2.5

2.5

1 0 HUTA POKOJ S.A.

steel production

4.1

3.8

1.8

1.8

1 1 HUTA CEDLER S.A.

steel production

2.0

9.7

n/a

n/a

1 2 HUTA BATORY Sp. z o.o. steel production

0.1

89.9

n/a

n/a

1 3 HUTA CYNKU Miasteczko zinc and lead Slaskie production

0.0

-11.4

n/a

n/a

-17.0

-10.7

n/a

n/a

steel production

1 4 HUTA SZOPIENICE S.A.

non-ferrous metals production

1 5 TEKSID POLAND S.A.

casting of iron

-40.2

-30.1

n/a

n/a

1 6 HUTA STALOWA WOLA S.A. (cons)

steel production

-59.7

0.0

n/a

n/a

-78.7

-211.7

steel production

-147.4

5.7

n/a

n/a

1 9 HUTA Czestochowa S.A. steel production

-173.1

9.9

n/a

n/a

2 0 HUTA KATOWICE S.A.

-300.7

-103.0

n/a

n/a

969.4 790.40

223.3

471.1

1 7 STALEXPORT S.A. (cons) holding: steel trade&production 1 8 HUTA OSTROWIEC S.A.

Sector

steel production


-126.7 -139.3

Appendix IV From Chapter 4.9

Source: GUS


Source: State—Industry Sector Reports, Febr 2001

Source: Emitent

Source: WSE

Appendices

419

Pharmaceuticals companies quoted on WSE YTD % (2001–09–19)

52-week change %

Free float (PLN mn)

Capitalisation (PLN mn)

12.3

4.0

200.3

412.3

PGF JELFA

31.0

54.7

122.9

336.6

120.0

158.5

31.0

282.2

FARMACOL

32.2

41.2

93.5

187.2

ORFE

22.8

19.9

15.8

158.4

1.0

20.9

53.8

109.2

26.8

35.3

641.1

881.7

-22.6

-13.3

–

100,451.0

POLFA KUTNO

PROSPER Sector WIG Index Source: WSE, Emitent

Source: PAIZ


Top foreign investors in Polish Pharmaceuticals market INVESTOR

CAPITAL PLANS ORIGIN INVESTED (US$mn) (US$mn)

COMMENTS

1 Glaxo Wellcome

230.4

n/a

Great Britain Glaxo Wellcome Pozna n ´ (formerly Polfa Poznan ´)— Pharmaceuticals production, storage and packaging company in Duchnice, Mazowieckie Voivodship

2 Pliva d.d.

154.0

16.0

Croatia

Pliva Kraków S.A. (formerly Polfa—Kraków S.A.)— manufacture of Pharmaceuticals

3 ICN Pharmaceuticals 5 1 . 1 Inc.

35.9

USA

80 per cent stake in ICN Polfa —Rzeszów S.A.— manufacture of Pharmaceuticals

4 Bayer AG

30.3

n/a

Germany

Bayer Sp. z o. o. (Warsaw)— manufacture of pesticides and Pharmaceuticals

5 Novartis

18.0

n/a

Switzerland Novartis Poland Sp. z o. o.— Pharmaceuticals, construction of pesticides warehouse (Warsaw)

6 Byk Gulden

13.4

n/a

Germany

Byk Pharma Sp. z o. o. (Warsaw), Byk-Mazovia (£yszkowice, £ódzkie Voivodship) formerly £owickie Zakledy Farmaceutyczne Polfa £yszkowice—manufacture of Pharmaceuticals

7 Solco Basel

13.0

1.0

Switzerland Przedsiebiorstwo Zagraniczne Solco Basel Polska Sp. z o. o. (Warsaw)— Pharmaceuticals production

8 Lek d.d. Ljubljana

10.0

50.0

Slovenia

Lek Polska Sp. z o.o (Pruszków)—production of Pharmaceuticals

9 Novo Nordisk A/S

9.6

n/a

Denmark

Novo Nordisk Pharma Sp. z o. o. (Warsaw)— Pharmaceuticals production

8.9

n/a

Germany

Pharmaceuticals plant (Kutno), BASF Polska Sp. z o. o. (Warsaw)

1 0 BASF AG

Appendices

421

Top foreign investors in Polish Pharmaceuticals market (cont’d) INVESTOR

CAPITAL PLANS ORIGIN INVESTED (US$mn) (US$mn)

COMMENTS

1 1 Gerresheimer

8.0

4.0

Germany

Fabryka Materia§ów Medycznych Polfa S.A. (Boles§awiec, Dolnós’lá skie Voivodship)— Pharmaceuticals production

1 2 US Pharmacia

5.5

n/a

USA

Pharmaceuticals production in Wroclaw

1 3 L.Molteni & C.dei F.lli Alitti SpA

4.2

1.5

Italy

Molteni Farmaceutici Polska Sp. z o. o. (Kraków)— Pharmaceuticals factory

1 4 Martin Bauer GmbH

4.0

n/a

Germany

Zakled Zielarski Herbapol (Klê ka near Poznan´)— Pharmaceuticals production

1 5 Schwarz Pharma

1.5

1.9

Germany

Schwarz Pharma Poland Sp. z o. o. (Warsaw)—distribution of Pharmaceuticals

Source: PAIZ

422 Doing Business with Poland Sales (PLNmn) Name

2000

Change/ Q3 2001 Change/ 1999 (%) Q3 2000 (%)

1 PGF S.A. (cons.)

Pharmaceuticals wholesale

2907.2

63.4

1771.8

13.9

2

ORFE S.A. (cons.)


1228.5

14.9

793.9

10.9

3

FARMACOL S.A. (cons.)


1176.8

36.4

1043.1

40.2

4

PROSPER S.A. (cons.)


1087.3

65.2

995.6

38.5

5

CORMAY Poland S.A.


800.3

41.6

n/a

n/a

6

Centrala Farmaceutyczna CEFARM w Warszawie


647.5

10.7

n/a

n/a

7

GlaxoWellcome Poznan S.A.

Pharmaceuticals production

627.5

62.1

n/a

n/a

8

PHARMAG S.A.


585.8

45.6

n/a

n/a

9

NOVARTIS Poland Sp.z o.o. w Warszawie

Pharmaceuticals production and distribution

583.0

35.2

n/a

n/a

1 0 POLPHARMA S.A.


569.8

3.3

n/a

n/a

1 1 APOFARM GROUP Sp. z o.o. (cons.)


441.8

n/a

n/a

n/a

1 2 TORFARM S.A. (cons.)


332.3

37.8

n/a

n/a

1 3 POLFA Tarchomin S.A.


304.0

-9.2

n/a

n/a

1 4 ROCHE Polska Sp. z o.o.

Pharmaceuticals distribution

281.5

11.3

n/a

n/a

1 5 BAYER Sp. z o.o.

Pharmaceuticals distribution

271.9

18.2

n/a

n/a


Appendix V

Sources of Further Business Information on the Internet POLISH COMMERCIAL SITES: Master Page, Poland www.masterpage.com.pl A searchable directory of business and tourism links. It is the leading English language source of information about Poland that is published in Poland. The Poland Import Export Center www.pba.pl A multilingual resource that focuses on international trade with Poland. Polish Agency for Foreign Investment (PAIZ) www.paiz.gov.pl Information on PAIZ activity, basic economic information, how to do business in Poland, information on investment conditions and procedures. Kasna.com www.kasna.com A portal aimed at providing access to Central and Eastern European business opportunities. Search and language tools along with its won links database of every major east European business web site. Polish Business News www.pbn.com.pl A day to day coverage of business, finance, real estate issues, etc Polish Market www.polishmarket.com Basic information on banking, telecommunications, Pharmaceuticals and other sectors, market research.


Inside Poland www.insidepoland.com.pl Basic information on Poland, company directory, information on Polish business, economy etc. Tradebizz.pl www.tradebizz.pl Polish consumer goods information centre Polish World www.polishworld.com A huge collection of links to business, economy, investment etc. websites. Polish Connections www.zem.co.uk/polish A UK based web-site with a rich list of Polish links Poland Regional Directory www.anicheengine.com/regional This site contains categorised information for each region in Poland. British-Polish Chamber of Commerce (BPCC) www.bpcc.org.pl Information on the working of the BPCC and its structures. Polish Chamber of Commerce (KIG) www.infodata.kig.pl Basic information on KIG activities, structure; directory of business opportunities. The Official Web-Site of Poland www.poland.pl Basic information on Poland, economy and its institutions. Business Polska www.polska.net General information about Polish economy, business etc. Poland now ! www.sarnow.com/poland/business/index An online magazine devoted to Polish business, economy and industry

Appendices

425

Polish Press Review www.pai.pl A review of the most essential and highlighted articles published recently in the Polish Press. Site managed by the Polish Press Agency’s (PAI) Internet Department

BRITISH GOVERNMENT: Trade Partners UK www.tradepartners.gov.uk Advice and information from the UK Government network that helps UK companies trade internationally; also includes basic information on Poland’s economy Trade UK www.tradeuk.com Trade Partners UK’s Internet service for international buyers and UK exporters. British Embassy Warsaw www.britishembassy.pl Information on the working of and services provided by the British Embassy in Poland.

Appendix VI

Contributors’ Contact Details AWS Consulting Tel: +44 (0)1892 667 891 Fax: +44 (0)1892 610 891 Email: [email protected] Web: www.awsconsult.co.uk BOSS Informacje Ekonomiczne Sp. z o.o. Al. Jerozolimskie 87 02–001 Warsaw, Poland Tel: +48 22 331 07 15 Fax: +48 22 331 07 20 Email: [email protected] Web: www.boss.com.pl British Embassy in Warsaw (Commercial Section) Warsaw Corporate Centre Ul. Emilii Plater 28 00–688 Warsaw Tel: 0048 22 625 30 30 Email: [email protected] CMS Cameron McKenna Warsaw Financial Center ul. Emilii Plater 53 00–113 Warsaw Tel: +48 22 520 5555 Fax: +48 22 520 5556 Coface 12, Cours Michelet 92065 Paris La Defénse Cedex Tel: +33 149 02 2000 Fax: +33 149 02 2713

Appendices

Deloitte & Touche Fredry Street 6 00–097 Warsaw Poland Tel: +48 22 511 07 41 Fax: +48 22 511 07 32 Mobile: +48 6091944374 Euromoney Polska SA Swede Center Aleje Jerozolimskie 56C 00–803 Warsaw, Poland Tel: +48 22 630 2345 Fax: +48 22 630 2346 Contact: David Kennedy Email: [email protected] Corporate Headquarters: Internet Securities, Inc. 225 Park Avenue South New York, New York 10003 Toll Free: 1 -888-ISI-4-INFO Tel: (212) 610 2900 Fax: (212) 610 2950 The Merchant International Group Limited 75–79 Knightsbridge London SW1X 7RB United Kingdom Tel: +44 20 7259 5060 Fax: +44 20 7259 5090 Polish Agency for Foreign Investment Al. Róz 2, 00–559 Warsaw, Poland Tel: +48 22 334 98 00 Fax: +48 22 334 99 99 Email: [email protected] Web: www.paiz.gov.pl President: Mr. Antoni Styrczula Vice-President: Ms. Teresa Malecka Member of the Board: Mr. Roman Kornacki

427


Polish Bank Association Smolna 10 A 00–375 Warszawa Poland Tel: +48 22 828 27 44 Fax: +48 22 828 14 06 Contact: Pawel Pniewski Email: [email protected] Jonathan Reuvid Little Manor Wroxton St Mary Banbury Oxfordshire OX15 6QE United Kingdom Tel: +44 (0)1295 738 070 Fax: +44 (0)1295 738 090 Email: [email protected] Marat Terterov St Antonys College Oxford OX2 6JF United Kingdom Tel: +44 (0)7931 383 336 Fax: +44 (0)1865 554 465 Email: [email protected]

Index References in italic indicate figures or tables

accountancy 93, 95–100 acquis communautaire 16 acquisitions 51 administrative structure, regional 301–02, 384, 385 Advent International fund 269 advertising 39, 287, 290 advocates 72 agricultural sector 10, 17, 215 Opolskie 334 Swietokrzyskie 379–80 Warmin´sko-Mazurskie 354 see also food industry aircraft manufacture 181–82, 182 airports and airways see infrastructure of voivodships annual reports 95–96 ‘anti-crisis’ package 9, 11–12 Anti-monopoly Office 47–48 appeals, civil courts 67–68 arbitration 64, 69–71 Arbitration Court 70–71 audit 96 automotive industry see motor vehicle industry banks 22, 89–90 batteries and cells production 158, 159, 160, 164, 166 BBAG group 221 Belka, Marek 5, 9 bonded warehousing 116, 121 branch offices 52, 106

brand loyalty 38–39 brewing industry 217–25, 218, 222 major producers 220–22, 221, 223 foreign trade 224–25, 224 output 218–19, 217, 219 B2B market 284–85 budgetary performance, Polish cities 388–89, 389 building materials 134–35, 134 business entities 45, 52–56 buyer behaviour 38–39 Bydgoszcz 307, 384–93, 384, 386, 388, 389, 390 cable industry 167–73, 168, 172, 173 leading manufacturers 170–71 other electrical sectors compared 158, 159, 160, 164, 165–66 production structure and output 168–70, 169 capital flows 13, 16 EU accession 17–18 car industry see motor vehicle industry cassation appeals 67–68 CEFTA countries, trade with 26 cellular telephony see mobile telephony cement production 134–35 Centra S.A. 160


chemicals industry 185–92 foreign trade 188–89, 188, 189 institutional environment 191–92 investment 189–91, 190 market environment 185–87, 186, 187 value of sales 187, 187 workforce 191, 191 see also Pharmaceuticals sector children, influence on buyer behaviour 39 CIT see corporate income tax cities, evaluation of six 384–93, 384, 385, 389, 390 budgetary performance 388–89, 389 credit quality 392–93 debt burden 389–90, 390 effect of new responsibilities 387–88, 388 government support 390–91 revenue and expenditure structure 385–86, 386 civil courts 65–69 civil law transactions, taxation 112–13 Civil Procedure Code 69–70, 80 clothing industry 198–209 distribution 206–07 domestic market 204–06, 205, 206 financial condition 202–04, 202, 203, 204 foreign trade 200–02, 201 clothing retail chains 253 Coface risk assessment 30–34 Commercial Companies Code 53 commercial office market 135–36 Committee for European Integration 19 communications practices 290–97 companies, limited liability 53–54 competition issues 33

complaint appeals 68 concessions 46 construction market 132–37, 134, 135 commercial office space 135 industrial market 136 residential market 137 retail space 136–37 consumer durable goods 37–38 consumer market 35–41 attitudes to money 38, 38 employment 35–36, 36 food 214 main characteristics 40–41 recreation and tourism 40, 40 spending habits 37, 37 contracts of employment 57–59 convertible bonds 49 Copenhagen Council 16, 18 copper cable industry 169 corporate governance, financial sector 93 corporate income tax (CIT) 102–06 corporate structures 45, 52–56 corruption levels 33 cost structure, shipbuilding industry 156 costs of litigation 68 court system 64, 65–69 credit cards 38, 90 credit ratings 384, 384, 392–93 crime levels 32, 34 cultural issues 34 currency controls 99–100 current account balances 13 customs and duties 115–18 telecommunications 246 transport equipment 176 customs bonded warehousing 116, 121 debt burden, Polish cities 389–90, 390 dental services 264–65, 267

Index

depositary receipts 49 diesel consumption 138–39, 139, 140 disabled persons, grants for employing 122 dispute resolution 64–73 arbitration 69–71 civil courts 65–69 legal professions 71–73 dividends, taxation of 103 do-it-yourself retail chains 253 Dolnóslaskie Voivodship 303–06, 306 domestic clothing market 204–06, 205, 206 double taxation avoidance treaties 111 Drukarnia Prasowa S.A. 242 DTS (Highway Through Route) 373–74 duty-free zones 120–21, 121 dzierzawa form of lease 78, 79 e-banking 286–87 EBRD 129–30 ECGD (Export Credit Guarantee Department) 91 e-commerce 248–49, 254, 285 economic activity, freedom to conduct 45 Economic Activity Act 45–47 economic factors 3–8, 9–14 risk assessment 30–34, 31 shipbuilding industry 151–53 economic strategy 5–6 economic structure, regional Dolnóslaskie 304 Kujawsko-Pomorskie 308 £ódzkie 365 Lubelskie 311–12 Lubuskie 318 Ma§opolskie 326–28 Mazowieckie 322 Opolskie 333–34 Podkarpackie 338, 339

Podlaskie 343–44 Pomorskie 348 Slá skie 370–71 Swiê tokrzyskie 378–80 Warmin´sko-Mazurskie 353–54 Wielkopolskie 358 Zachodniopomorskie 362 EFTA countries, trade with 26 Elbrewery 220 electrical engineering sector 157–66, 158, 166 employment 163–65, 164, 165 foreign investment 161–62, 162–63 leading manufacturers 160–161, 161 output 158–160, 159, 160 electricity generation 144–48, 144, 145, 146 Elektrim Kable 160, 170–71 employment 35, 36 cable industry 172–73, 173 chemicals industry 191, 191 clothing industry 202 electrical engineering sector 163–65, 164, 165 food industry 210 law 5, 57–63 public relations 292–93 transport equipment sector 174–75, 175 voivodships see human resources, voivodship comparisons energy sector 144–48, 144, 145 foreign investment 147–48 trends 146–47, 146 enforcement methods court judgements 68 foreign arbitral awards 70 Enterprise Investors 269 e-Penbiz 284 ‘ePolska’ 282–83 Era GSM 398–400 EU accession 4–5, 14, 15–19

431


agricultural issues 10–11, 17 employment law 62–63 PR comparisons 294 EU foreign investment agreement 47 EU trade 24–25 Europe Agreement 15–16 evidence, civil courts 66 exchange controls 99–100 excise tax 107–08 expenditure structure of cities 387–88, 388 Export Credit Guarantee Department (ECGD) 91 exports see foreign trade Far Eastern trade 27–28 fax machine market 247–48, 247 FDI see foreign investment financial services 89–94 e-banking 286–87 case study 394–97 financial statements 95–96 financial support from EU 18–19 first instance, court of 65 ‘fiscal unity’ concept 104 fixed-line telephony 245, 245, 249–50 food industry 210–16, 210, 211, 212 global challenges 212–13 main trends 214–15 foreign employees 59 foreign investment 6, 13, 20–22, 32 chemicals sector 190–91, 190 clothing industry 199 construction market 132, 133 electrical engineering 161–62, 162–63 food industry 211, 211, 212, 213, 214 fuel and energy sector 142–43, 147–48 health care 268–71, 270

incentives 119–23, 121 motor vehicle industry 179–80, 179, 180 motor vehicle parts industry 181 packaging industry 231, 232–33 regulations 45–51 telecommunications 246, 249–50 voivodship comparisons Dolnóslaskie 305–06, 306 Kujawsko-Pomorskie 309 £odzkie 367, 367–68 Lubelskie 315, 315–316 Lubuskie 320, 320 Ma§opolskie 331, 331–32 Mazowieckie 324, 324 Opolskie 336, 336 Podkarpackie 341, 341–42 Podlaskie 344, 345–46 Pomorskie 352, 352 Slaskie 375, 375–76 Swiêtokrzyskie 382, 383 Warminsko-Mazurskie 355–56 Wielkopolskie 360, 360 Zachodniopomorskie 363, 363 foreign trade 7–8, 13, 15, 23–29, 24 brewery sector 224–25, 224 chemicals sector 188–89, 188, 189 clothing industry 200–02, 201 EU accession 15 exports structure 27–28, 28, 29 financing trade 91 geographical structure 24–26, 24, 25 merchandise structure 26–27, 27 packaging industry 233–34, 234 printing industry 239–40

Index

regulations 114–18 transport equipment 176, 176 free circulation procedure 115 free movement of workers 18 fuel sector 138–44 gas 143–44, 143, 144 petroleum 138–43, 139, 140, 141 furniture trade 27 case study 401–02, 401 gas sector 143–44, 143, 144 gasoline consumption 138–39, 139, 140 Gdansk 349, 384–93, 384, 386, 388, 389, 390 Gdynia 349–50 glass packaging 228, 228, 229–30 global economic factors, effect on shipbuilding 151–52 ‘gminas’ level of administration 301–02, 384, 385 GP consultations 266–67, 267 grants, government cities 386, 386 job creation and employing of disabled 122 health care system see medical services health insurance contributions 99, 262–63, 263 Heart of Poland Sp. z o.o. 269–70 heat-set printing sector 241 high-quality clothing market 205, 206–08 Highway Through Route (DTS) 373–74 hipoteka (mortgage) 81–83 holiday leave 62 hotels 297–98 hours of work 61–62 household statistics 36, 214

housing market 137 human resources, voivodship comparisons Dolnóslaskie 304–05 Kujawsko-Pomorskie 308–09 £odzkie 366 Lubelskie 312–13 Lubuskie 318–19 Ma§opolskie 328–29 Mazowieckie 322–23, 323 Opolskie 335 Podkarpackie 339–40, 339 Podlaskie 344 Pomorskie 348–49, 349 Slá skie 371–72, 372 Swietokrzyskie 380 Warmin´sko-Mazurskie 354–55 Wielkopolskie 358–59 Zachodniopomorskie 362 hypermarkets 252, 253 imports see foreign trade income, average household 36 industrial construction market 136 industrial structure, Malopolskie 326–27 infrastructure of voivodships 5 Dolnóslaskie 305 Kujawsko-Pomorskie 309 £odzkie 366–67 Lubelskie 313–14 Lubuskie 319–20 Malopolskie 329–31 Mazowieckie 323–24 Opolskie 334–35 Podkarpackie 340–41, 341 Podlaskie 345, 349–51 Slaskie 373–75 Swiê tokrzyskie 381–82 Warmin´sko-Mazurskie 355 Wielkopolskie 359–60 Zachodniopomorskie 363 insurance 92, 97–99, 98 interest, taxation of 103

433


International Court of Arbitration for Marine and Inland Navigation 71 international trade 7–8, 13 Internet 282–87, 287, 288 future prospects 248–49, 249, 250 top 20 companies 288–89 investment chemicals sector 189–91, 190 finance for 91–92 foreign see foreign investment incentives 119–23, 121 local opportunities 7 inward processing of goods 116 iron and steel sector 127–30, 128 ISPA programme 18–19 Jarocinskie Fabryki Mebli S.A. (JFM) 401–02, 401 job creation grants 122 joint stock companies 53–54 judgements, civil courts 66–67 judges 71–72 knitted clothing trade 201, 201 Kolodko, Grzegorz 9, 11, 13–14 Kompania Piwwarska 220–21, 222 Kraków 326, 327, 384–93, 384, 386, 388, 389, 390 Krakowska Fabryka Kabli (KFK) 160, 171 Ksiega Wieczysta 78 Kuj awsko-Pomorskie Voivodship 307–09, 309 Labour Code 5 labour market see employment land acquisition permits 83–84 Land and Mortgage Register 78 Land Register 77 leases 78–80 leasing 80–81 leave, holiday and maternity 62

legal issues financial services sector 92–93 printing industry 237–38 telecommunications 246 legal profession 64, 71–73 leisure facilities 39–40, 298 licensing requirements, imports 114–15 lighting equipment production 158, 159, 160, 164, 165–66 limited liability companies 53–54 limited liability partnerships 53 litigation costs 68 local taxes 111 Lodz 366, 384–93, 384, 386, 388, 389, 390 £odzkie Voivodship 364–68, 367 loss carry forward rules 104, 122 Lower Silesia see Dolnóslaskie Voivodship Lubelskie Voivodship 310–16, 315 Lubuskie Voivodship 317–20, 320 Malopolskie Voivodship 325–32, 331 management structure of companies 56 mandatory offers 50 market for property 85–86 maternity leave 62 Mazovia see Mazowieckie Voivodship Mazowieckie Voivodship 321–24, 323, 324 medical services 262–71, 264, 268, 270 financing 262–66, 263, 265 privatization 267–68 services 266–67, 267 medicines, expenditure on 264 merger control 47–48 metal packaging 228, 228, 229, 230–31

Index

metallurgy sector 127–31, 128, 131 Miller, Leszek 4, 9 minerals trade 26–27 Minister of Finance 102 Minister of Interior permits 47 mobile telephony 245, 245, 248, 250, 272–81, 272, 273 case study 398–400 divisions 274–75, 275 financial condition 279–81, 280 range and capacity 276, 276 rates, promotion and churn 278–79 Simplus, Tak Tak and POP 277, 277 structural changes 276–77, 277 money attitudes of consumers 38, 38, 90 mortgages 81–83, 90 motor vehicle industry 175, 175, 177–80, 177, 178, 179 foreign investment 179–80, 179, 180 motor vehicle parts industry 175, 180–81, 181 mutual agreement, termination by 58–59 najem form of lease 78, 79–80 National Chamber of Commerce, Arbitration Court 70–71 non-ferrous sector 130–31, 131 notaries public 73 notice, termination with and without 58, 59 OECD report on Poland 9 Office of the Committee for European Integration (UKIE) 19 office space market 135–36 oil sector see petroleum sector Okocim 221, 222 Opolskie Voivodship 333–36, 336

optical cable industry 169–70 Oresa Ventures fund 269 outward processing 117 PABXs (private branch exchanges) 246–47 packaging industry 226–34, 227 foreign investment 231, 232–33 foreign trade 233–34, 234 product range 227–31, 228 paper and cardboard packaging 228, 228, 229 partnerships, limited liability 53 permits 46, 47 personal income tax (PIT) 108–09, 109–11, 110 personal rights of shareholders 55–56 petrol stations 141, 141–42 petroleum sector 22, 138–43, 141 demand 138–39, 139 supply 140, 140 PHARE programme 18 Pharmaceuticals sector 193–96, 194, 195 manufacturing 195–96, 196, 197 Philips Lighting Poland S.A. 160 PHS (Polskie Huty Stali) 128–29 PIT see personal income tax plastic packaging 228–29, 228, 230 pleadings 65–66 Podkarpackie Voivodship 337–42, 338, 339, 341 Podlaskie Voivodship 343–46, 345 Pol, Marek 5 Poligrafia S.A. 241, 242 Polish Language Act 48 political situation 3, 4 Polkomtel S.A. 274, 275, 275, 279, 280–81, 280 Polska Telefonia Cyfrowa (PTC) 274, 275, 279–80, 280, 281

435


Polskie Huty Stali (PHS) 128–29 Pomeranian region see Pomorskie Voivodship Pomorskie Voivodship 347–52, 349, 352 population 35 ‘poviat’ level of administration 302, 384, 385 power cable industry 170 Powszechny Zaklade Ubezpieczen (PZU) 21–22 POZ basic medical care scheme 267–68 PPP schemes see Private-Public Partnership schemes PR see public relations preference shares 55 preliminary agreements 48 pre-paid mobile phone services 277, 277 prices, property 135 pricing, transfer 105–06 primary sector, economic progress 10–11 printing industry 235–44 legal and tax aspects 237–38 sector leaders 240–43 trade 239–40 private branch exchanges (PABXs) 246–47 private medical expenditure 264–66, 264 Private-Public Partnership (PPP) schemes 5–6, 91 privatization 6, 13, 20–22, 22 fuel sector 142 health care services 267–68 iron and steel 129–30 productivity levels, electrical engineering 164–65, 165 professional property WWWservices 84–85 project finance 91 property ownership 74–86 leases and leasing 78–81

mortgages 81–83 permits to acquire land 83–84 restitution claims 84 types of title 74–78 property prices 135 Provident Polska 394–97 PTC see Polska Telefonia Cyfrowa PTK Centertel 279, 280, 280, 281 public administration 301–02, 384, 385 public company takeovers 48 public relations (PR) 290–95 agencies 293–95 public telephone exchanges 246 PZU (Powszechny Zaklade Ubezpieczen) 21–22 R.R. Donnelley Europe Sp z o.o. 241, 242 radca prawny 72 railway rolling stock manufacture 183–84, 183, 184 railways see infrastructure of voivodships reciprocity arrangements 46–47 recreation facilities 39–40, 298 redundancies 59–60 refineries 140–41 regional administration 301–02, 384, 385 registration of title 77–78 regulation accountancy 95–96 chemicals industry 191–92 financial services 93–94 foreign investment 45–51 insurance 97–99, 98 rejestr gruntow 77 remuneration 61 repair services, shipbuilding industry 154, 155 representative offices 52 research and development, Malopolskie 327–28

Index

residential housing market 137 restitution claims, land 84 retail chains, foreign 252–53 retail sector 251–54, 260–61 top investors 254–58 top 20 companies 259–60 retail space construction market 136–37 revenue structure, cities 385–86, 385 risk assessment, Coface 30–34 roads, regional comparisons see infrastructure of voivodships roaming agreements 276–77 RPU (right of perpetual usufruct) 75–77 Russian trade 25–26, 28 SAPARD programme 19 Sava Investments Group (SIG) 269 SEC (Securities and Exchange Commission) approval 49 second-hand clothing market 204–05, 205 secondary sector, economic progress 11 Securities and Exchange Commission (SEC) approval 49 Self Governing Committees (SKOs) 76 SEZs see Special Economic Zones SIG (Sava Investments Group) 269 SFK (Slaska Fabryka Kabli) 160, 171 shares 54–56 acquisition notification 49 sheet-fed offset printing sector 240 shipbuilding industry 11, 149–56 characteristics 149–51 economic factors 151–53

other transport equipment sectors compared 175, 175 products and services 154 Silesia see Slaskie Voivodship SKOs (Self Governing Committees) 76 Slaska Fabryka Kabli (SFK) 160, 171 Slaskie Voivodship 369–76, 372, 375 Slupsk 350 social security system 97–99, 98 health care 99, 262–63, 263 Sopot 350–51 Special Economic Zones (SEZs) 11, 119–20, 121 Malopolskie 327 Podkarpackie 341–42 printing service inequalities 238 spending habits, consumers 37, 37 stamp duty 111–12 Standard & Poor ratings of Polish cities 384, 384, 392–93 steel sector 127–30, 128 stock exchange 93, 214 subsidies 123 cities 386, 386 shipbuilding industry 152 supermarkets 252, 253 Supreme Court 65, 67–68 Swietokrzyskie Voivodship 377–83, 382 Szczecin 363, 384–93, 384, 386, 388, 389, 390 takeovers, public company 48 tax chambers 102 tax offices 102 Tax Ordinance 101–02 tax rates 102–03 taxable income 102–03 taxation 5, 34, 101–13 corporate income tax 102–06

437


excise tax 107–08 health care 262–63, 263 leasing 81 local 111, 385–86 personal income tax 109–11, 110 printing services 237–38 stamp duty 111–12 VAT 106–07, 286 withholding taxes 108–09 telecommunications 245–50, 245 hardware market 246–48, 247 Internet and e-commerce 248–49, 249 regional see infrastructure of voivodships services market 248, 248 see also mobile telephony Tele-Fonika 160, 170, 171 telephone set market 247–48, 247 temporary customs clearance 117 tender offers 50 termination of employment 57–59 tertiary sector, economic progress 11 thin capitalization 105 tourism 40, 41, 296–98 Malopolskie 328 Podlaskie 344 Warminsko-Mazurskie 354 tourist agencies 298 trade see foreign trade trade unions 61 tramway rolling stock manufacture 183–84, 183, 184 transfer pricing 105–06 transfers of undertakings 60–61 transit, goods in 115–16 transport equipment sector 174–84, 174, 175, 176

aircraft manufacture 181–82, 182 motor vehicle parts 180–81, 181 motor vehicles 177–80, 177, 178, 179 railway and tramway rolling stock 183–84, 183, 184 see also shipbuilding industry UKIA (Office of the Committee for European Integration) 19 UNCITRAL Model Law 69 Union of Polish Retail Networks (UPSD) 253 Universal Mobile Telecommunications System (UMTS) 274 ususfruct property title 75–77 uzytkowanie form of property title 75 uzytkowanie wieczyste form of property title 75–77 VAT 106–07 Internet access 286 printing services 237–38 vessel and boat production see shipbuilding industry voivodships 302, 384, 385 see also under individual names, eg Dolnoslaskie Voivodship Warminsko-Mazurskie Voivodship 353–56, 355 Warsaw 321, 323, 394 web-set offset printing sector 240–41 Western Pomerania see Zachodniopomorskie Voivodship Wielkopolskie Voivodship 358–60, 360

Index

Winkowski Sp. z o.o. 241 wire and cable industry see cable industry withholding taxes 108–09 wlasnosc form of property title 74–75 wooden packaging 228, 228 working time 61–62

woven clothing trade 200 Wroclaw 303–04, 384–93, 384, 386, 388, 389, 390 Zachodniopomorskie Voivodship 361–63, 363 zloty 13–14, 89 Z ywiec group 220, 222

439

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