FDI down amid economic and political uncertainties
Paying the price: TPSA's stock value has dipped on rumors that France Telecom and the treasury have failed to agree on further share purchases.
A slowing global economy and uncertain domestic politics are expected to leave foreign direct investment (FDI) in Poland this year well below 2000's record level, according to economists.
Foreign investors sank more than $9 billion into Poland last year, according to National Bank of Poland (NBP) (http://www.nbp.pl) current account figures. The Polish Agency for Foreign Investment (PAIZ) (http://www.paiz.gov.pl) calculated an even higher level of $10.6 billion. But this year private estimates project a drop-off to roughly $6.5 billion, though analysts note the final number is subject to many factors not all economic.
"It's extremely difficult to project foreign direct investment," said Marcin Mroz, a senior economist with SG Bank. "It depends on privatizations and the overall investment climate in the global economy."
Internationally, the global economy has been hit by slowing growth in the United States, the European Union (EU) and parts of Asia. Domestically, privatizations early this year were slowed by former Treasury Minister Andrzej Chronowski's inability to get along with international investors. Since April, his successor, Aldona Kamela-Sowinska, has rejuvenated the privatization process, but the Sejm has called for a no-confidence vote on her efforts, casting doubt over more sell-offs.
The Sejm is scheduled to meet again July 4-6 and could consider Kamela-Sowinska's fate then; Reuters reported that an extraordinary session might be called for late June to discuss outstanding matters. Kamela-Sowinska's departure could delay some major sales to foreign investors, including Telekomunikacja Polska (TPSA), oil refiner and marketer Polski Koncern Naftowy Orlen (PKN Orlen), insurer Powszechny Zaklad Ubezpieczen (PZU), mining firm KGHM Polska Miedz and companies in the power and chemicals sectors.
TPSA's case is indicative of FDI inflow problems this year. France Telecom (FT) led foreign investors in Poland in 2000 when, together with Poland-based Kulczyk Holding, it bought a 35% stake in TPSA from the Treasury Ministry; FT paid $3.14 billion, making up about one-third of FDI for the year.
This year, however, FT has backed off from increasing its stake in TPSA because the domestic phone company's stock price plummeted below the price on FT's purchase option. Neither FT nor the treasury would comment on the status of talks, but TPSA's stock price has dropped during the past two weeks over rumors that the government and the French telecom giant are unable to reach an agreement.
The treasury's difficulty in selling at high prices cuts across sectors.
"Overall the climate is not as good as it was last year," Mroz said. "It is much more difficult to sell Polish companies at good prices. I'm definitely rather pessimistic."
The bottom line is less revenue in Poland's treasury. While the government planned to receive zl. 18 billion ($439 million) from privatizations in 2001, as of last week it had only received 6.6% of that amount, according to the Finance Ministry.
The political will to continue the privatization process will, in part, determine future FDI inflows. Parliamentary elections are set for Sept. 23, with the ex-communist Democratic Left Alliance (SLD) picked to win in polls.
SLD deputies are backing the no-confidence vote on the treasury minister but analysts said that does not indicate a lack of political will to continue privatizations.
"I think that the new government will continue the current privatization policy," said Konrad Soszynski, an economist with Kredyt Bank.
The picture is not entirely bleak. Poland has been the regional leader in attracting FDI, with $49.4 billion at the end of 2000, according to PAIZ.
"The foreign direct investments are of particular importance to the Polish economy, since they mean not only the transfer of capital, but also its long-term commitment, which contributes to the improvement of our economy's competitive position," PAIZ said in its most recent report on investment in Poland. The government agency credited the high inflow of FDI with fueling Poland's economic transformation since 1989.
FDI has also helped Poland's strong export sector.
"Recent gains in the competitiveness and composition of Poland's exports largely reflect the emergent benefits of earlier foreign direct investment into export-oriented sectors," said Standard & Poor's (S&P) analysts Helena Hessel and Beatriz Merino in a report published last month.
While in absolute terms Poland has been a regional leader attracting FDI, by other measures the country has not done as well as its neighbors, the ratings agency noted, in part reflecting the government's ambivalence toward the privatization process.
"The share of foreign equity capital in the Polish economy is estimated to have more than doubled over the past three years, to an estimated 26% of GDP by end-2000 from 9.5% at end-1996," the report said. "In Hungary and Estonia, where privatization focused mainly on sales to strategic foreign investors, the share of FDI is more than twice as high."
S&P said Poland might be able to narrow the gap in coming years.
According to a PAIZ survey on 2000 FDI, five main factors appear decisive when companies decide to make investments in Poland, with economic growth prospects the most important, followed by low labor costs and high workforce qualifications, the size and location of the Polish market, and expected EU membership.
