Competitive edge
Poland must surely be one of the most exciting places on earth to do business. The balance between risk and opportunities is extremely favorable.
There are problems, but despite the burden of bureaucracy, the big picture and the prospects are overwhelmingly positive. Driving all business activities in Poland are low wages and, increasingly, western European levels of productivity in the private sector. Market size also continues to be a strong argument in Poland's favor.
Low wages
In złoty terms, wages are likely to remain low in the next five to 10 years. Poland's youthful demographics mean that an ever-increasing number of school-leavers and graduates will be entering the job market over the coming decade. Germany and Austria are likely to keep Polish workers out of their labor markets for the next five years. More and more young Poles will be leaving the countryside, and moving to towns and cities in search of work. High social insurance costs and a restrictive labor code continue to act as disincentives for employers looking to grow their workforce. Unemployment, then, will remain stubbornly high, keeping down wage pressure.
Foreign direct investment from Britain has been characterized by just a few score major investments from world-class players, but it could become a viable market for British SMEs. New low-cost air routes from eight British cities to 10 Polish cities are making business trips to Poland more accessible.
The British Polish Chamber of Commerce is meeting with ever-growing numbers of UK companies with sales between L10 (zł.55) million and L100 (zł.554) million looking seriously for the first time at sourcing from or exporting to Poland. Our message to them is simple: sourcing from Poland makes your products competitive enough to sell across the CEE region.
The need for change
British businesses need to be aware of the opportunities in Poland. In the UK, economic growth is slowing. In Q4 2005, it was down to 1.7 percent year-on-year. House prices have stopped rising, consumer spending has slowed and retailers and their supply chain are now looking to cut costs. And where better to do so than in a new low-wage emerging economy that has just become part of the same free-trade area?
Poland does not seem as investment-friendly as other countries in the region that have done a lot more to promote themselves. We hope that the recent appointment of Adam Żółnowski as the head of PAIiIZ will change that. We are confident that he has the vision and the ability to focus the agency on the task of proactively and aggressively selling Poland abroad.
Currency clash
One risk facing foreign investors and domestic exporters is that of Poland's competitiveness ebbing away as its currency strengthens.
Two years ago, just before EU enlargement, the złoty stood at zł.7.35 to the pound. Today, it's around zł.5.52. That's good news for British exporters, who previously found their products were overpriced by Polish standards, but not so good for foreign investors exporting products made in Poland, paying their workforce in złoty, or buying locally-sourced supplies or property in złoty. The question is, how much will the złoty be worth in five or 10 years' time?
Compare industrial production and wages in Poland and the UK. In December 2005, industrial production in Poland grew by 9.2 percent year-on-year but wages grew by just 1.5 percent. In the UK, however, industrial production fell by 1.7 percent year-on-year, while wages grew by 3.6 percent. Poland is rapidly making up the productivity gap with the UK; this will inevitably have the effect of converging the currencies.
Ironically, constant political uncertainly, bickering between parties, and threats of increased social spending may dampen the złoty's rise. Political threats to limit the independence of the National Bank of Poland's Monetary Policy Committee will also tend to weaken the złoty. In 1993, Hungarian politicians tampered with their country's interest-rate policy leading to a run on the forint and eventually ending with interest rates and inflation being higher than before.
We will be looking to provide an answer to the crucial question of the złoty's future value at our third annual conference and exhibition in Warsaw on April 24-25, when chief economists representing foreign investors, banks and the government will deliver their forecasts and explain the thinking behind their conclusions.
