Polska goes global
Poland has lofty ambitions of becoming a force to be reckoned with both in terms of foreign trade and attractiveness to investors from overseas.
The country is of course almost unrecognisable from the place it was in the heady days of the early 1990s, when the free market – back then still very much a new concept – was booming. For decades Poland, wedged tightly behind the Iron Curtain, had been forced to watch as others in the region expanded their economies. For the last few years, however, it’s been Poland’s turn to shine – and the country’s businesses now have their sights set firmly on international horizons.
The forecast is good. Polish exports will continue rising steadily over the coming years – by 6.9 percent so far this year, with 2017 and 2018 seeing growth of 9.6 percent and 9.0 percent respectively, according to analysts at Bank Zachodni WBK, the Polish arm of Santander. These figures are especially promising, the bank emphasises, as last year’s figure was 7.8 percent and 2014 saw 7.0 percent.
“All sectors will see a rise in export figures,” Feliks Bentkowski, BZ WBK’s Sectoral Credit Director, wrote in a statement, adding that well-known Polish exports will certainly experience an increase, while “some less obvious” industries will also profit. In first place, according to a growth-potential ranking compiled by the bank, is the furniture and furniture-accessory (such as hinges, locks etc) industry, with 75 points out of a maximum 100. The sector is no newcomer to being a star of Polish exports. “Foreign sales of this industry have been growing rapidly for many years. In 2015, growth in the sector amounted to 9.6 percent year-on-year to a value of 42.2 billion złoty,” the bank said. There is a large global appetite for Polish furniture, with many producers exporting beyond the European Union to the US, Canada and China.
Furniture – sitting on its laurels?
But is there room for further growth? Ignacy Morawski, an economist at WiseEuropa, says that despite booming sales, what Poland lacks is a design identity for its furniture. “Poland used to have a very established aesthetic for its consumer products in the 1950s and 1960s. What today’s producers could do is take a page out of that book and reinvigorate some of those designs,” he said, explaining that doing so would increase the profits of products sold abroad. “At the moment Polish furniture is selling very well, but the margins are fairly small. Poland could increase its profits by selling trendier, cutting edge designs which appeal to a wealthier clientele,” the economist added. “In Scandinavia, this is established. Poland could learn a thing or two from them.”
The agricultural industry has long been a heavyweight of Polish exports, especially as it has gained heavily from EU subsidies and grants since Poland joined the European Union in 2004. And the funding is not drying up any time soon. The inflow of money from the EU to Poland will increase in the 2014-2020 period, says the Polish Development Ministry. The European Parliament has approved the budget, which will see Poland receive a total of €105.8 billion – the biggest beneficiary of EU funds, according to the ministry. Of this, €28.5 billion will go to Polish agriculture.
Not all that glitters is gold
Expansion is a positive thing, but it’s not always easy. Some new destinations might be hard nuts to crack. Experts say that as Poland looks for more markets further afield, risks rise exponentially. Far away markets involve difficulties which are more significant than when selling to EU countries. One of the most obvious problems is cost. The further away a target market is from Poland, the more expensive it will be to ship there, impacting on the bottom line. Different regulations from one country to the next, even between countries in the same region, can be a major headache for exporters, while cultural differences can exacerbate these problems even more. Businesses dipping their toes into the export game can be caught off guard. “Exporters do not always pay enough attention to these issues,” Robert Antczak, from BZ WBK, said. “And it is things like cultural differences which often determine the success, or failure, of attempts to establish or develop international business relationships.”
It often pays to find local experts to help navigate the murky waters of conducting business in a foreign market. Rudradeb Mitra is a Poland-based consultant who assists companies in setting up shop in his native India. Polish businesses, he says, are keen to expand into such a large market and are often surprised to learn that Indians are quite affluent and the locals can afford top-shelf goods. In Mitra’s opinion, the lack of knowledge could be because of a deficiency of educational materials and conferences in Poland which prepare the groundwork for aspiring exporters.
A new agency set up by the Polish government to replace the Information and Foreign Investment Agency (PAIiIZ) aims not only to assist foreign companies establish a foot-hold in Poland, but also Polish firms to expand their horizons. The agency conducts programmes targeting the four corners of the globe – including the Arctic region. PAIiIZ acting president Bartłomiej Pawlak told Poland Today that the agency can help establish first contact, but success largelydepends on the tenacity of individual businesspeople, wherever they find themselves in the world– and tenacity is one thing that Polish companies have in large supply. “It is beyond doubt that if Polish enterprises apply their knowledge worldwide they will prove very successful. Furthermore, companies that place more focus on innovation and research & development, will enjoy a greater comparative advantage in business abroad,” Pawlak said.
‘Those who have followed Polish affairs over the last decade can attest to the fact that the country has a knack for knowing what it wants and where it wants to go.’
In and/or out
As Poland looks upon the world as its oyster, the world is also eyeing Poland and assessing its profit potential. In recent years the country has made significant inroads in appealing to foreign capital. According to EY’s Europe Attractiveness Survey 2016, Poland and Russia – somewhat counter-intuitively- were the top performers by FDI project growth in Europe overall, with an increase in market share of 61 percent and 60 percent respectively over the previous year. Although this result placed Poland firmly in the top five ranking in terms of growth, it placed 7th in terms of actual number of projects. Concerning manufacturing, Poland saw the creation of 117 projects in 2015, an increase of 34 percent over the year before, putting it in first position above Turkey, which had 105 projects. Foreign direct investment led to 19,651 jobs created in Poland in 2015, and while this figure put it in an impressive 2nd position in Europe after the United Kingdom, in terms of year-on-year growth between 2014 – 2015 it was, at 27 percent, dwarfed by several countries, most notably Hungary on 141 percent and Serbia on 108 percent. To put it into perspective, however, France only managed eight percent growth and Russia came in with -25 percent negative growth.
And FDI could also potentially experience a boost in the short to middle term if the country sees a rise in investments following Britain’s decision to exit the EU. However, the United Kingdom comes second behind Germany as a destination for Polish exports, with the country importing a wide range of products, including home appliances, furniture and food. Some experts believe that Brexit will result in a sharp drop in EU exports to the UK, although at present this is only an educated guess. As negotiations continue, EU and British authorities could introduce changes allowing Poland to still enjoy a profitable cooperation with the country. “The United Kingdom can remain in the European economic area, without a vote, like the Norwegians or the Swiss, but still enjoy the common market,” Piotr Soroczyński, chief economist of the Export Credit Insurance Corporation, recently told Polish Radio.
To whatever degree Britain separates itself from the rest of Europe, Poland could potentially steal some of the lime-light from its more developed partner as companies weigh up the possibility of setting up a base outside the UK in another EU member country. Poland has many things going for it: a young and educated workforce, geographical proximity to many of Europe’s major hubs as well as steadily developing transport infrastructure. WiseEuropa’s Ignacy Morawski, however, doubted that companies will be leaving the United Kingdom in the near future, but agreed that Poland could offer an alternative for those seeking a stable base for growth within the European Union.
To return to the near-term forecasts, according to analysts at HSBC and Oxford Economics, in the years 2016-2020 Polish exports will increase by a total of 55 percent, at an average of 9.1 percent annually. Such dynamic growth, the authors say, will be possible thanks to the rapid intensification of trade with developing countries, especially in Asia, markets which have yet to be tapped. Those who have followed Polish affairs over the last decade can attest to the fact that the country has a knack for knowing what
it wants and where it wants to go – and achieving its aims. It thus makes a mockery of the country’s unfounded – but difficult to shakeoff – reputation during the second world war and into the cold war for romantic hot-headedness. In the 27 years since becoming a free market economy, Poland has developed a sophistication and understanding of the inner workings of the global economy that is nothing if not impressive. It has learnt the finer nuances of international trade through observation and is now ready and willing to become a fully active participant. And once it has set its eyes on the seven continents, the sky is very literally the limit.
Main destinations for Polish exports in 2015:
Czech Republic: 6.5%
United Kingdom: 6.4%
Statistics Office (GUS)