Glapinski:
By : Juliet D. Golden
Poland's economic zones have attracted some of the most spectacular investments the country has seen. For example, U.S. automaker General Motors chose the zone in Gliwice for its production plant and as of December 1998 had sunk in $360 million. Japan's Toyota also recently unveiled plans to set up shop in Walbrzych, a $300 million investment that includes a gearbox factory. However, since last spring the European Union (EU) has pressured the Polish government to curtail future investments in the zones, saying that their tax-preferential status is not in accordance with European law. The 17 economic zones have suffered since the debate began. Bowing to European pressure, the government put a month-long moratorium on investment, refusing to issue permits during that period. For the special economic zone in Legnica in southwest Poland, that meant that negotiations underway were halted and the phone stopped ringing for several months. Since the zone was conceived in 1997, it has collected approximately zl. 1.3 billion ($325 million) in promised investments that will cover approximately 40% of the zone's available space. Ten companies have committed to investing in Legnica, the largest of which is carmaker Volkswagen Motor Polska. Companies in the zone will eventually employ about 3,400. To attract those investors, Legnica offers a 100% break in corporate income tax if the investment exceeds ECU 850,000 or if the company employs a minimum of 100 people. The tax break is good for 10 years from the date of the first product sold. After 10 years and up to 2017, the company then receives a 50% tax write-off. It is those kinds of tax breaks that the EU is protesting. While the government has declared that all existing investments will maintain their tax status, it is now debating how much longer the zones will be able to take on new companies. This means that the clock is ticking for people like Andrzej Glapinski, president of the Legnica Special Economic Zone, to fill up their zones before the government stops granting preferential tax status. Last week, Glapinski, the former voivod of the now defunct Legnica province, spoke to the WBJ's Juliet D. Golden about the politics that are shaping the future of the special economic zone program in Poland and about the important role the zones have played in stimulating economic development in depressed areas.
Q: In what ways did the recent pressure from the EU impact the special economic zone program in Poland?
A: Generally it had a very negative impact because bureaucrats from the EU demanded that special economic zones in Poland be liquidated. That created a lot of frustration. Nobody expected that, not even in the most liberal sectors of government because these zones were only established in 1994. Until now, there had never been a negative signal as far as they were concerned. Putting the issue in this way created a certain bewilderment among the Polish delegation of (EU) negotiators. In my opinion that created excess submissiveness in the face of such a strong, single-minded stance, which should not have taken place. Those were too far-reaching demands and the response of the Polish delegation was excessively accommodating.
Q: Did that translate into a lack of interest in Legnica's zone?
A: Yes. After the problem was raised in the Economic Committee of the Council of Ministers (KERM), in May of this year, (government officials) sent a letter to all special economic zones in Poland containing the request that (the government) withhold granting the permits necessary to conduct economic activities in the zones. That meant that (potential) investors stopped negotiations and some quite literally quit all together. This was all very strongly underlined by the media. It wasn't at all accidental that the media grabbed onto this so strongly.
Q: You are suggesting that there was some kind of campaign involved here?
A: Yes, there was a campaign.
Q: Who organized it?
A: Because I don't know exactly who launched the campaign and because you intend to publish this, I won't say.
Q: Then what was the goal of the campaign?
A: The goal was to discourage people from investing in the special economic zones in Poland. That's obvious.
Q: But now the moratorium on issuing permits for investments in the zones is over. When did it end?
A: The ban on giving out permits was withdrawn in June. But in June, the holiday season began and investors who had been discouraged didn't appear for the next two to three months. Luckily, we have that situation behind us now and investors have started to come back again. But the lack of movement lasted until mid-September.
Q: So the phone started ringing again?
A: The telephones have started ringing again; there are many more investors. With increasing intensity and beginning in the second half of September, a lot more investors have appeared. Guess how many potential investors were here today alone?
Q: Three?
A: Twelve. These were investors from our Western neighbor, Germany. We organized it in such a way that they all came together. Together we discussed all the issues they were interested in.
Q: How long does it take for an investor to be able to begin production in the zone after the initial agreement is signed?
A: If the investor is ready to make the investment, we are able to have the offer ready in two months. Much depends on how ready the investor is. Additionally, the Interior Ministry, which is the only authority that can grant permission to sell land to foreign entities, used to give a promise that they would grant future permission. (That step has been eliminated). Theoretically that simplifies things a little, but because of the sheer amount of these cases files are literally breaking at the seams is drawing out the process. But I think that (three months) is needed from the moment an investor submits an offer.
Q: Returning to the situation with the EU, do you sense hypocrisy in their stance regarding the special economic zones?
A: I don't know if hypocrisy is the right term, but to a greater or lesser degree, it's truthful. Here one has to look back in history. Two hundred years of Polish history under foreign rule did not serve economic development. In the 20 years between the (world) wars, we tried to rebuild the economy. The tragic events of 1939 brought an end (to those attempts). Here we can start with the fact that support from the West was only verbal. Unfortunately, that's the way it was. In 1945 there was a wonderful proposal, the Marshall Plan. Our big brother did not permit us to take up the offer, and our brothers in the West didn't do anything to pressure our big brother in the East. Since we weren't allowed to use that help then, during the past 50 years we didn't have a chance to develop, which is the starting point at which I consider the (present) situation.
During that period, European nations using the Marshall Plan had the necessary financial means for economic development. We, however, didn't have a chance to benefit from (the plan), or to set up the duty-free zones or special economic zones that appeared in Europe and still exist to this day. Suddenly a few bureaucrats from the EU confirm that the zones' existence is not in accordance with EU laws and that these zones in Poland have to be liquidated immediately, even though they still exist in the EU and are due to exist until 2003. What else can this be called other than hypocrisy. That's not only hypocrisy. I would say more that it's in essence wishing the very worst for Poland's economy and its citizens.
Q: Does the prospect of the zones being closed down in 2000 or 2001 mean that there is a rush to sign as many contracts as possible with potential investors?
A: Of course. I immediately moved to change the strategy of the company. Our aim is to have the whole zone developed by the time that period comes up. I don't know if that is possible or not, but my task and responsibility is to take care of the economic development of the region and lowering unemployment in cooperation with copper magnate KGHM Polska Miedz (which is the major employer). We do not want the restructuring of the coal sector to have the same effect that (former U.K. Prime Minister Margaret) Thatcher's had in England. The restructuring of the copper mining industry has been underway for several years here in our region, and the challenge is to foresee and plan for the effects (of mine closings) ahead of time. It is a long-term process, and if someone in Brussels doesn't understand that, I am going to send them to school.
Q: What role do the zones play in Poland? What are they supposed to achieve?
A: There are two elements that concern all zones: the first is economic development of the region; the second is decreasing unemployment. In addition, what is specific to this region is the domination of copper mining and metallurgy, during which for several years KGHM accounted for 80% of all production. If we recognize that coal cannot be the only industry here and that natural deposits of each mineral will one day be exhausted. You have to prepare for that and create alternative places of employment for those workers.
Q: If special economic zones are useful tools in spurring economic development, shouldn't there be more special economic zones than now?
A: There were 17 zones established in Poland. De facto, 15 have started their activities. In my view, and a Supreme Controlling Chamber (NIK) report showed that, there are too many. They weren't all created in places where they necessarily should have been.
Q: Does the fact that there are too many zones make it difficult for you to bring investors to Legnica?
A: To a certain degree, yes. There is competition between zones, but it doesn't concern investors who want to invest in one area such as Suwalki or Legnica. There is competition between different zones, for example, between Walbrzych and Legnica, because they are both in western Poland. The conditions in which the zones work are very different. For example, land ownership is different. Legnica's zone is the only zone that owns 100% of its land. On the one hand that is an asset, on the other hand, it's a liability. Because in places where the cities are owners, the city takes on part of the responsibility for technical infrastructure. Those are enormous, multi-million zloty expenditures.
Q: What are the three biggest challenges facing you right now in working out a strategy for the year 2000 and beyond?
A: There is one. Despite tendencies to shorten the period of granting permission to invest in zones, we will try (to find investors ) for the whole area of the zone. That is the basic issue.
Q: The word on the street is that there are new investors ready to come to the Legnica zone. Who are they and what can you tell me about them?
A: This year there will be two more transactions; one will be an American investor from the machine sector and a German investor from the printing sector. Also, there may be a Belgian investor this year as well.
