Economic intelligence
He runs most of the Government Roundtables organized by The Economist, including the latest Ninth Business Roundtable in Poland. Here he talks with WBJ about the future of business in the country
Andrzej Wróbel: Is Poland foreign-investor friendly?
Nenad Pacek: Actually, there is massive competition in Central and Eastern Europe for attracting foreign direct investments. Some governments around the region are trying to change the business environment following the model of Ireland. They are sending different delegations over to Ireland to see how they were able to become one of the richest countries in the world so quickly over the last 15 to 17 years.
Poland is doing very well economically. It's growing faster than some of the countries in the region. It had record growth in the first quarter. At the same time, the question some people raise is the medium to longer-term competitiveness. That is important because it consists of many items that the government has to pay attention to. One is how we create the perfect business environment, reduce regulatory obstacles for business, do fiscal reform, invest in education. When we now compare Poland with other countries in the region, Poland is slightly behind in terms of bureaucracy and the ease of doing business day-to-day.
What should the government do to improve conditions for business?
What is often considered as a very good business environment is the one that has very few obstacles for business. Good taxation is proving to be an incentive for business, as well as good access for businesses to the government, [allowing them to] work together on designing initiatives and projects that would be very beneficial for the economic development and would improve productivity in the economy. Productivity is one of the factors that can improve the standard of living in the country and this is simply done through technological transfer. If this is done it will show that the economy can grow very well.
How do you perceive the situation of Polish SMEs?
SMEs are improving significantly because they have, for the very first time, good access to financing. They are now able to go out and raise finance to fund their growth plans and ideas. Every government has to work closely with SMEs to be able to engage them in the overall economic development, reduce obstacles so they don't have to waste time on paperwork, make that all very easy for them. That would be a massive engine for growth once achieved.
How will structural funds affect the Polish economy?
Their impact will be significant. There will be a number of good initiatives developed over the next couple of years. Many of these new projects will be arriving in the second half of the 2007-2013 period because Poland, like any other country in the region, is having relative difficulties in absorbing the funds. The absorption rates have been relatively low so far but at the same time lessons have been learned. Ultimately, the impact will be relatively high on the infrastructure, IT development, investment and education. The question is how some of the initiatives will be co-financed from the national budget.
Will Poland find the money?
I think the money will be found. Maybe not 100 percent, but if the economy keeps going as well as it is now, there will be less need to try and reshuffle some of the issues on the budget deficit. There will be a little bit of extra money left. I believe the government will be able to find more money in the second part of the period.
Does Polish politics influence the economic situation?
At the moment in Poland one can argue there is relatively little impact from politics on economy because there is a nice cyclical upswing and interest rates are relatively low in real terms, so the money is relatively cheap and accessible. That, in a way, is taking care of the economy. In time, the political impact could be serious. The whole issue of how the foreign investment community sees the country from outside, what the image of the country is like, how it compares with other places in the region, [is vital]. Companies are increasingly becoming choosy when it comes to where they go, where they set up another manufacturing site, an R&D location, a service center or anything like that. And the decision these days is we have to go to the easiest possible location. They don't want to have any kind of risks, whether economic or political, it doesn't matter. So if there is a hint of any political instability, it might have an influence on the decision by an investor about where to locate their next big investment. Any government that wants to attract foreign investments also has to be careful about that and certainly portray the country as being politically stable.
Poland is considering introducing the euro in 2012. Isn't that too late?
I don't think it is a massive tragedy if euro adoption is delayed by a few years. In fact, it could even be beneficial, because we can see that Poland can have low interest rates outside of the European Union. Considering the current inflationary pressure it would still be a bit premature anyway to enter the euro zone, because suddenly we'd end up with interest rates even lower than in Poland now, so that would fuel even further local consumption and would create more inflationary pressure. In other words, it's good to stay outside for a few years because then Poland can basically control its monetary policy. In the EU there's nothing you can do. The delay is not a tragedy and I don't think it's going to have a fundamental impact if Poland is going to have the euro here in 2011 or 2012.
