City in Focus - When the smoke settles
By : Anna Staniszewska
Katowice, the capital of the southwestern Slaski voivodship, is the largest industrial agglomeration in Poland. The city and the whole region have long been associated with heavy industry. Mills, mines and power plants located in the area generate more than 16% of domestic industrial production.
A tram winds its way down ulica Warszawska in Katowice.
The region's assets include substantial academic and research facilities, a huge labor force and industrial facilities. Respected institutions such as the Silesian University, the Silesian Technical University, the Academy of Economics and the Upper Silesian College of Commerce make Silesia the fourth-largest academic and scientific hub in Poland.
An abundance of natural resources, including one of the world's largest coal deposits as well as zinc, lead, salt, limestone and dolomite, led to the creation of a large number of mines and power plants scattered around the voivodship. It has about 60 hard-coal mines, 19 mills, numerous large power plants, as well as mining, metallurgical and non-ferrous metal-processing facilities.
Silesia has a dense road network that includes the modern A-4 and A-1 highways. Together with its rail networks, which transport 50% of domestic cargo, and the Katowice International Airport in Pyrzowice, the city and surrounding area could be a perfect spot for investors.
In order to attract money to the region and stimulate restructuring, two special economic zones (SSE) were established in 1996: The Katowice Special Economic Zone (KSSE), covering 827 hectares, and the Czestochowa Special Economic Zone, with a total area of 144 hectares. Real estate and income tax exemptions have lured about 51 companies to the KSSE.
According to the Polish Agency for Foreign Investment (PAIZ), Silesia's level of accumulated investment is the third largest in the country, estimated at $3 billion over the last six years. More than 330 foreign firms have invested at least $1 million each in various sectors, including Metro AG, South African Breweries and British Oxygen Corp.
But the main focus for regional investment in recent years has been the automotive industry. U.S. car giant General Motors invested $3.5 billion in a Gliwice car factory, creating 3,000 jobs. The Fiat group poured zl. 4.8 billion ($1.2 billion) into Silesia, while Japan's Isuzu put zl. 222.4 million ($55.6 million) into a diesel-engine plant in the KSSE. The U.S. vehicle component manufacturer Delphi Automotive Systems developed a zl. 110 million ($27.5 million) production facility in the KSSE.
Workers assemble a Warsaw tram at the Alstom Konstal factory in Chorzow.
Other foreign investors active in Silesia include U.S.-based PepsiCo, Dutch Philips, and French Alstom Konstal in Chorzow, which manufactures trains for the Warsaw Metro.
Other investors include IAEG/WIBEBA, Tinken, DuPont, Eastbridge, Lobbe, Kraft Jacobs, Telia, as well as petrol concerns Statoil, Shell and Aral.
As the voivodship's capital, Katowice has also attracted many financial institutions due to the city's ready availability of industrial facilities and people. Twelve banks have their headquarters in the city, including Bank Slaski, a part of Netherlands-based financial group ING. There are 241 branches of domestic and foreign banks such as Raiffeisen, Deutsche Bank and Citibank. International consulting companies such as Ernst & Young and Arthur Andersen are also represented in the region, advising in restructuring and privatization processes.
Dismantling heavy industry
A scavenger picks through the rubble of the Huta Kosciuszki, in Chorzow.
Despite the region's great economic potential, hard-coal mining, iron processing and steel production have reached a crisis after years of decline, affecting the economic condition of the whole voivodship. The restructuring of once-state-owned enterprises has been underway for the past decade, but the process isn't going smoothly.
The Economy Ministry assumes that within 10 years, hard-coal mining will be reduced to 92 million tonnes from the current production level of 110 million tonnes, and production of semi-finished products and steel will be limited to 11.5 and 11.9 million tonnes respectively. As a result, employment in mining and metallurgy is expected to be trimmed to 105,000 and 45,000 correspondingly. The Hard-Coal Restructuring Act, passed by Parliament in 1997, reduces the liabilities of this sector and provides a financial safety net for miners. Nevertheless, the closing of non-profitable plants and the many layoffs in existing ones are continuing to provoke industrial disputes and spark action. Recently Poland's biggest steel producer, Huta Katowice in Dabrowa Gornicza, announced that it is unable to repay a zl. 400 million ($100 million) debt to a consortium made up of Bank Pekao, Bank Handlowy, Powszechny Bank Kredytowy, Bank Slaski and Kredyt Bank, hence facing insolvency. The beginning of March saw major strikes against plans to halve the workforce, leaving 7,000 miners jobless.
A gravel lot serves as a football field for a youth in Katowice.
The restructuring process is expensive: Modernization and new investment in metallurgy alone has cost $2.5 billion over the past six years, and future restructuring costs are estimated at $3 billion. It is hoped that the creation of special economic zones and substantial financial assistance from the World Bank will help the region to prosper.
The unemployment rate in Silesia reached 11.3% in June 2000, still below the country's average of 13.8%. In Katowice, unemployment was a healthier 3.7%. This year's indicators and the announcement of layoffs in mines, power plants and automotive manufacturing sites could make the situation worse.
Office
In terms of office space, Katowice has a large number of buildings dating back to the 1960s and 1970s. Modern office includes the Katowice Business Center, which has more than 20,000 square meters, of which 55% is leased. Additionally the 17,100 square-meter Chorzowska 50 office building, which houses Bank Slaski's headquarters, is slated for completion next month. A smaller 6,100 square-meter office development is located on ulica Sokolska. Average rents in modern stock are around $18-$19 per square meter. France's Pascal Polska plans to invest zl. 560 million ($136.6 million) in a multi-use project in Katowice's Dolina Trzech Stawow district near ulica Gornoslaska. The 11,000 square-meter B-class Millenium office building will be the first development to be delivered to the market this summer. According to Pascal, 65% has already been let. The company is also developing a complex of 17 two- and three-story office buildings, ranging from 950 to 1,600 square meters. Three of these buildings should be completed this summer. The entire project, including retail outlets, is expected to be finished in 2003.
Tomasz Drag, president of Slaska Gielda Nieruchomosci, which is leasing Business Center Katowice, is convinced that the Katowice office market is growing. "There is a big demand for office space because many foreign investors want to be here," Drag said.
Retail
Katowice, which borders large towns such as Chorzow, Siemianowice Slaskie, Sosnowiec, Tychy and Ruda Slaska, has huge potential due to its large catchment area and dense population. The average monthly salary in Katowice, at zl. 2,440, is higher than the national average and has attracted many retail chains to the city and surrounding areas. "We have plenty of supermarkets, shopping is no longer a problem," said Anna Walkarz, head of the promotion department at Katowice City Hall. She added that most retail chains see huge people potential in Katowice.
Apart from two department stores built under communism in downtown Katowice, which according to Walkarz should be immediately rebuilt or demolished, many retail outlets are scattered around the city. Katowice itself hosts France's Carrefour, Auchan and Castorama. German retail giant Metro, and its subsidiary firms Makro Cash and Carry and Praktiker, is also present. With more than $165 million in investment, Metro group also has outlets in nearby Czeladz, Bytom, Bielsko-Biala, Sosnowiec, Czestochowa, Rybnik and Zabrze.
U.K. developer Chelverton, known for Warsaw's Wisniowy Business Park project, is engaged in Katowice's first third-generation shopping center, located on ulica Chorzowska. Chelverton's subsidiary Katsina and Gornoslaski Holding Weglowy, which provided the land, formed the Nowe Centrum company. Nowe Centrum will be responsible for the development of a 30.5-hectare plot that used to be the site of the Kleofas coal mine. Work on the 95,000 square-meter project should begin this summer and finish in 2003. The cost of the development, which will include some 150 retail outlets, a 12,000 square-meter Ahold supermarket and a Ster Century multiplex, is estimated at $100 million.
In another new property development, Polish investors are putting their money into Katowice's future Megaplex complex, a retail and entertainment center located on ulica Gliwicka in Katowice. The $15 million development is about to start and should finish by next spring. The first phase will cover 11,000 square meters, of which 6,300 will serve to house a multi-screen cinema. Wojciech Szczerba, co-owner of Megaplex, said that in the next stage the total area would increase to 20,000 square meters.
The city does not yet have a multiplex cinema, although industry sources said that Multikino, a multiplex operator owned by UCI and ITI, has plans to develop in the area.
Residential
Katowice has experienced a substantial increase in residential development over the last couple of years. The number of newly completed residential units increased from 265 in 1998 to 465 in 1999. According to Karolina Giertler of local developer Dombud, the supply of residential projects in Katowice and neighboring cities outpaces demand. "People have no money to buy," she said. "Even if the average price per square meter is around zl. 2,000, it's still too expensive." She added that one of the major factors is the restructuring of heavy industry, which is having a negative effect on the region's standard of living. "The situation isn't looking bright and I don't think it's going to change soon," she said.
Warehouse/Industrial
Despite its good location and infrastructure, Katowice and the surrounding area remain underdeveloped in terms of modern warehouse stock, which consists mainly of old factory buildings and decaying storage facilities. Developers are looking at the region very closely, according to Tomasz Olszewski, a warehouse specialist at U.K.-real-estate agency Healey & Baker, who said Silesia will be the next target for leading international warehouse developers. One of the reasons is its good connection to the rest of Poland as well as bordering countries. "It is one of the best regions for warehouse investment," Olszewski said. He said that there is demand from logistics companies looking to expand their operations, as well as food producers and retail chains. U.S.-based AIG Lincoln, which has projects in Warsaw, Piaseczno and Lodz, took the first step and plans to develop a 38,000 square-meter build-to-suit Diamond Business Park warehouse scheme in Gliwice.
