Foreign investment projects down

Foreign investment projects in Poland declined by almost 62% in the first half of this year compared with the last half of 2000, a drop-off that far outpaces a general decline in Europe spurred by a falloff in U.S. outward investment and the drying up of projects in some sectors, according to an Ernst & Young report released last week.

Europe wide, the first six months of 2001 saw a 32% decline in announced inward investment projects compared with the second half of last year, Ernst & Young said in its European Investment Monitor.

"All countries were victims of the United States' economic slowdown," the company said. "U.S. outward investment into Europe fell by almost 200 projects from 575 in the last six months of 2000. Slowing investment in software, electronics and telecommunications was the biggest factor."

In Poland, the United States was responsible for 13 projects in the first half of 2000, seven in the second half of the year, but only four in the first half of 2001, the company said.

Poland saw the sharpest investment decline in the manufacturing sector, especially automotive assembly and components, machinery and non-metallic minerals, the company said.

Karen Hensley, manager for inbound advisory services at Ernst & Young in Warsaw, said a number of factors could account for the decline in investment activity, especially a change in investment incentives allowable as of Jan. 1. These are widely regarded as less favorable than the ones they replaced. Also blamed is the late implementation of regulations for the new law on public support, which were not issued until April of this year.

"I should also add that the level of FDI (foreign direct investment) in the last half of 2000 was unusually inflated due to the rush of investors attempting to ‘grandfather' themselves before Jan. 1, 2001," she said. Some Special Economic Zone (SSE) incentives were withdrawn and there was even talk of disallowing all incentives not meeting EU standards, regardless of when they were granted to investors, she added.

"Add to that the public relations disaster that the PZU (Powszechny Zakład Ubezpieczeń) incident created and the general uncertainty before the elections, and it's no wonder that investors were hesitant about Poland the first half of this year," Hensley said, referring to the nearly botched privatization of the country's largest insurer.

While most European countries saw inward investment levels decline, the Czech Republic and two other countries increased their market share. The Czech Republic saw 46 projects and Hungary declined to 36, while Poland had only 20, the company said.

"The Czech Republic has a relatively low cost economy and has recently introduced grants for inward investors," according to the report.

Despite the weaker position of Poland compared with its neighbors, the country still holds potential for foreign companies, Hensley said.

"While Poland may not be perceived as being the easiest country in which to start a project, investors seem to feel that the return on investment here is worth the effort in the long run."

Jeff Sparshott